Panacea Life Sciences Holdings, Inc 10-Q for FY2021 Q2
Panacea Life Sciences Holdings, Inc. (PLSH)
About this 10-Q
Panacea Life Sciences Holdings, Inc filed this 10-Q on August 23, 2021, covering the quarter ended June 30, 2021 (FY2021 Q2).
Headline figures
Quarter ended June 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $5.07M
- down 18.4% from $6.22M a year earlier
- Net income
- $124.53K
- down 79.9% from net income of $618.11K a year earlier
- Diluted EPS
- $0.00
- compared with $0.00 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended:
For the transition period from _____________ to _____________
Commission
File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices, Zip Code)
(Registrant’s telephone number, including area code)
(Former Name, Former Address and Former Fiscal Year if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| N/A | N/A | N/A |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer ☐ | Accelerated Filer ☐ |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: shares of common stock, par value $0.0001 per share, outstanding as August 20, 2021.
Explanatory Note
This Report on Form 10-Q is filed without the Financial Statements having been reviewed by the registered independent accounting firm as required by Article 10 of Regulation S-X. An amendment will be filed after completion of the review.
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 27 |
| Item 4. | Controls and Procedures | 27 |
| Item 1. | Legal Proceedings | 28 |
| Item 1A. | Risk Factors | 28 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 46 |
| Item 3. | Defaults Upon Senior Securities | 46 |
| Item 4. | Mine Safety Disclosures | 46 |
| Item 5. | Other Information | 46 |
| Item 6. | Exhibits | 47 |
| Signatures | 48 |
| 2 |
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
EXACTUS, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
| June 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Other receivables | - | |||||||
| Inventory | ||||||||
| Marketable securities | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Operating lease right-of-use asset, net | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND EQUITY STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Operating lease liability, current portion | ||||||||
| Note payable-current and related party | ||||||||
| Paycheck protection loan | ||||||||
| TOTAL CURRENT LIABILITIES: | ||||||||
| Other long-term liabilities-related party | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies | - | - | ||||||
| STOCKHOLDERS’ EQUITY DEFICIT | ||||||||
| Series A Preferred Stock Exactus: $ Par Value, designated; and shares issued and outstanding on June 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series B-1 Preferred: $ Par Value, shares designated; and shares issued and outstanding on June 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series B-2 Preferred: $ Par Value, shares designated; and shares issued and outstanding on June 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series C Preferred: $ Par Value, designated; and shares issued and outstanding on June 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series C-1 Preferred: $ Par Value, shares designated and and shares issued and outstanding on June 30, 2021 and December 31, 2020 respectively. | ||||||||
| Series D Preferred: $ Par Value, shares designated and and shares issued and outstanding on June 30, 2021 and December 31, 2020 respectively. | ||||||||
| Preferred stock, value | ||||||||
| Common Stock: $ Par Value, shares authorized; and shares issued and outstanding on June 30, 2021 and December 31, 2020 respectively. | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
EXACTUS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| REVENUE | $ | $ | $ | $ | ||||||||||||
| COST OF SALES | ||||||||||||||||
| GROSS PROFIT | ||||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||
| Production related operating expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| TOTAL OPERATING EXPENSES | ||||||||||||||||
| INCOME (LOSS) FROM OPERATIONS | ( | ) | ( | ) | ( | ) | ||||||||||
| OTHER INCOME (EXPENSES) | ||||||||||||||||
| Interest expense | ( | ) | ||||||||||||||
| Gain (loss) on marketable securities, net | ( | ) | ||||||||||||||
| Gain on extinguishment of debt | ||||||||||||||||
| TOTAL OTHER INCOME (EXPENSE) | ( | ) | ( | ) | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | ( | ) | ||||||||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| NET INCOME (LOSS) | $ | $ | $ | $ | ( | ) | ||||||||||
| BASIC NET INCOME (LOSS) PER SHARE | $ | $ | $ | $ | ( | ) | ||||||||||
| DILUTED NET INCOME (LOSS) PER SHARE | $ | $ | $ | $ | ( | ) | ||||||||||
| WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING | ||||||||||||||||
| Basic | ||||||||||||||||
| Diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 4 |
EXACTUS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficiency) | ||||||||||||||||||||||
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for acquisition | - | |||||||||||||||||||||||||||
| Net Income | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Shares issued for acquisition | - | |||||||||||||||||||||||||||
| Net Income | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of March 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net Income | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net (Loss) | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| 5 |
EXACTUS, INC AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
| 2021 | 2020 | |||||||
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | ||||||||
| Depreciation and amortization | ||||||||
| Fixed asset disposal loss | ||||||||
| Amortization of right of use asset | ||||||||
| Amortization of intangible assets | ||||||||
| Non cash interest expense | ||||||||
| Non cash settlement of convertible note and accrued interest | ( | ) | - | |||||
| Unrealized gain/loss | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventory | ( | ) | ||||||
| Prepaid expense and other assets | ( | ) | ( | ) | ||||
| Accounts payable and accrued expenses | ||||||||
| Unearned revenues | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Cash provided by (used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Net cash received in from acquisitions | ( | ) | - | |||||
| Net fixed asset acquisition and disposal | ( | ) | ||||||
| Cash Used for Investing Activities | ( | ) | ||||||
| Cash flows from financing activities | ||||||||
| Non cash stock issuances | - | |||||||
| Non cash financing activities | ( | ) | - | |||||
| Payments of principal on notes payable | ( | ) | - | |||||
| Proceeds from issuance of note payable-includes related party | ||||||||
| Cash provided by financing activities | ( | ) | ||||||
| Net changes in cash and cash equivalents | ( | ) | ||||||
| Cash, beginning of year | ||||||||
| Cash, end of period | $ | $ | ||||||
| Noncash investing and financing activity | ||||||||
| Preferred Stock Series A | $ | $ | ||||||
| Preferred Stock Series B-1 | $ | $ | ||||||
| Preferred Stock Series B-2 | $ | $ | ||||||
| Common Shares issued for transaction | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
EXACTUS, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2021
NOTE 1 - NATURE OF ORGANIZATION
Organization and Business Description
Exactus, Inc. (the “Company”, “Exactus”, “we”, “us”, “our”) was incorporated on January 18, 2008. In January 2019, the Company added to the scope of its business activities, efforts to produce, market and sell products made from industrial hemp containing cannabidiol (“CBD”). On June 30, 2021 the Company entered into a Securities Exchange Agreement (the “Exchange Agreement”) with Panacea Life Sciences, Inc., (“Panacea”) a seed to sale CBD company, and the stockholders of Panacea. Pursuant to the Exchange Agreement, the former Panacea stockholders assumed majority control of the Company and all operations are now operated by Panacea, which as a result of the share exchange became a wholly-owned subsidiary of the Company. (See Note 10 – Exchange Agreement).
On
March 11, 2019, we acquired a
Following the share exchange, the Company operates in one segment with a focus on developing and producing high-quality, medically relevant, legal, hemp-derived cannabinoid products for consumers and pets.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and principles of consolidation
The Company’s unaudited condensed consolidated financial statements include the financial statements of Panacea, a wholly owned subsidiary acquired on June 30, 2021. The merger is accounted for as a reverse acquisition and capitalization in accordance with the Financial Accounting Standards Board (ASC 805, Business Combinations). Management evaluated the guidance contained in ASC 805 with respect to the identification of the acquirer in the merger and concluded, based on a consideration of the pertinent facts and circumstances, that Panacea acquired Exactus for financial accounting purposes.
Pursuant to the Exchange Agreement, this merger was accounted for as a reverse recapitalization under US GAAP. Under this method of accounting, Exactus is treated as the “acquired” company for financial reporting purposes (the “Merger”). This determination is primarily based on Panacea stockholders comprising a relative majority of the voting power of the Company and having the ability to nominate the members of the board of directors of the Company after the Merger, Panacea’s operations prior to the Merger comprising the only ongoing operations of the Company following the Merger, and Panacea’s senior management prior to the Merger comprising a majority of the senior management of the Company following the Merger. Accordingly, for accounting purposes, the financial statements of the Company represent a continuation of the financial statements of Panacea with the Merger being treated as the equivalent of Panacea issuing stock for the net assets of Exactus, accompanied by a recapitalization whereby no goodwill or other intangible assets are recorded. Transactions and balances prior to the Merger are those of Panacea. The shares and net loss per share available to holders of Panacea’s common stock prior to the Merger have been retroactively restated as shares reflecting the exchange ratio established in the Exchange Agreement.
| 7 |
The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America and the rules and regulations of the United States Securities and Exchange Commission (the “SEC”) for interim financial information, which includes consolidated unaudited interim financial statements and present the consolidated unaudited interim financial statements of the Company and its wholly-owned subsidiary as of June 30, 2021. Accordingly, they do not include all of the information and notes required by accounting principles generally accepted in the United States of America. All intercompany transactions and balances have been eliminated. In the opinion of management, all adjustments necessary to present fairly our financial position, results of operations, stockholders’ equity (deficit) and cash flows as of June 30, 2021, and 2020, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments. Operating results for the three and six months ended June 30, 2021 and 2020 are not necessarily indicative of the results that may be expected for any subsequent quarters or for the year ending December 31, 2021. Certain information and note disclosures normally included in our annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. The balance sheet contains an unaudited balance sheet of Panacea as of December 31, 2020 since the audited financial statements of Panacea are not available as of the date of filing this Report. Following completion of the audit, the Company will file a Report on Form 10-Q/A to include the audited balance sheet.
Going concern
These
unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. Panacea
has combined with Exactus, so the below items reflect the combined company. The going concern concept contemplates the realization of
assets and satisfaction of liabilities in the normal course of business. Since our inception in 2018, we have generated losses
from operations. As of June 30, 2021, our accumulated deficit was $
| 8 |
COVID-19
The COVID-19 pandemic has resulted in a global slowdown of economic activity which is likely to continue to reduce the future demand for a broad variety of goods and services, while also disrupting sales channels, marketing activities and supply chains for an unknown period of time until the virus is fully contained. The Company’s business operations have been negatively impacted by the COVID-19 pandemic and related events and the Company expects this impact on its revenue and results of operations, the size and duration of which is currently difficult to predict. The impact to date has included a decline in CBD product and sales demand. In 2020, the Company (Panacea) invested in personal protective equipment (PPE) materials to sell hand sanitizers, testing kits and masks. The Company plans to sell existing PPE inventory, but does not intend to continue to sell these products past 2023, particularly if the pandemic has subsided by such time. In addition, federal stimulus funding in the U.S. and other macroeconomic factors have resulted in rising inflation rates which may adversely impact the demand for our products by reducing consumer spending and/or requiring us to raise our prices. Although the Company is unable to predict the full impact and duration of COVID-19 on its business, the Company is actively managing its financial expenditures in response to the current uncertainty.
The impact of the COVID-19 pandemic and related events, including actions taken by various government authorities in response, have increased market volatility and make the estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes more difficult. As of the date of issuance of the financial statements, the Company is not aware of any specific event or circumstance that would require it to update its estimates, judgments or revise the carrying value of its assets or liabilities. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known.
Marketable securities
The Company’s
marketable securities consists of
| 9 |
Use of Estimates
The Unaudited Condensed Consolidated Financial Statements have been prepared in conformity with US GAAP and required management of the Company to make estimates and assumptions in preparation of these statements. Actual results may differ significantly from those estimates. Significant estimates made by management include but are not limited to the useful life of property and equipment, incremental borrowing rate used in the calculation of right of use asset and lease liability, inventory, accounts receivable, revenue allocations, assumptions used in assessing impairment of long-term assets, and fair value of non-cash equity transactions.
Fair Value Measurements
The Company adopted the provisions of Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value, and expands disclosure of fair value measurements. The guidance prioritizes the inputs used in measuring fair value and establishes a three-tier value hierarchy that distinguishes among the following:
| ● | Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. | |
| ● | Level 2—Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable, either directly or indirectly. | |
| ● | Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. |
| 10 |
Revenue Recognition
The Company accounts for revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers.
The Company accounts for a contract when it has been approved and committed to, each party’s rights regarding the goods or services to be transferred have been identified, the payment terms have been identified, the contract has commercial substance, and collectability is probable. Revenue is generally recognized net of allowances for returns and any taxes collected from customers and subsequently remitted to governmental authorities. However, the Company’s sales are primarily through retail stores, purchase orders or ecommerce; thus currently contract liabilities are negligible. We do not have any new customer contracts in 2021. The Company does not have any multiple-element arrangements.
In 2020 and 2021 the Company had significant revenues from new product lines created for COVID related requirements (49% of total revenue in 2020). We were able to use our same equipment used for CBD production for ethanol-based hand sanitizer products and our fulfillment center to distribute other products. We anticipate that this revenue stream with continue throughout 2021 and 2022, but it is not a long-term focus for the Company.
Company’s accounts receivable policy changed in 2020 to only provide larger, well established companies with Net 30 payment terms. For all other sales it is credit card or wires received before the product is shipped to the customer.
Segment Information
The Company follows the provisions of ASC 280-10 Segment Reporting. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. The Company and its chief operating decision makers determined that the Company’s operations consist of one segment.
The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, “Earnings per Share”. Basic earnings per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted earnings per share reflects the potential dilution that could occur if preferred stock converted to common stock and warrants are exercised. Preferred stock and warrants are excluded from the diluted earnings per share calculation if their effect is anti-dilutive.
The Business Combination on June 21, 2021 was accounted for as a recapitalization of equity structure. Pursuant to GAAP, the Company retrospectively recasted the weighted-average shares included within its condensed consolidated statements of operations for the three and six months ended June 30, 2021 and June 30, 2020. The basic and diluted weighted-average Panacea ordinary shares are retroactively converted to shares of the Company’s common stock to conform to the recasted condensed consolidated statements of stockholders’ equity (deficit).
SCHEDULE OF ANTI-DILUTIVE DILUTED LOSS PER SHARE
| 2021 | 2020 | |||||||
| Warrants to purchase common stock | ||||||||
| Series C-1 Convertible Preferred stock | - | |||||||
| Series C-2 Convertible Preferred stock | - | |||||||
| Convertible notes | ||||||||
| Total | ||||||||
The basic earnings per share include and shares of common stock issuable on June 30, 2021 and 2020, respectively.
The diluted earnings per share include and shares of common stock issuable on June 30, 2021 and 2020, respectively.
Recently Issued Accounting Standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), Accounting for Convertible Instruments and Contract’s in an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU simplifies the diluted net income per share calculation in certain areas. The ASU is effective for annual and interim periods beginning after December 31, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company is currently evaluating the impact that this new guidance will have on its consolidated financial statements.
In May 2021, the Financial Accounting Standards Board (“FASB”) issued ASU 2021-04 “Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation— Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options” which clarifies and reduces diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. An entity should measure the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as follows: i) for a modification or an exchange that is a part of or directly related to a modification or an exchange of an existing debt instrument or line-of-credit or revolving-debt arrangements (hereinafter, referred to as a “debt” or “debt instrument”), as the difference between the fair value of the modified or exchanged written call option and the fair value of that written call option immediately before it is modified or exchanged; ii) for all other modifications or exchanges, as the excess, if any, of the fair value of the modified or exchanged written call option over the fair value of that written call option immediately before it is modified or exchanged. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
Property and Equipment, net
Property and equipment, net including any major improvements, are recorded at historical cost. The cost of repairs and maintenance is charged against operations as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets, generally as follows:
SCHEDULE OF ESTIMATED USEFUL LIVES OF PROPERTY AND EQUIPMENT, NET
| Estimated Life | ||||
| Computers and technological assets | ||||
| Furniture and fixtures | ||||
| Machinery and equipment | ||||
| Leasehold improvement | ||||
Intangible Assets and Goodwill
The
Company has intangible assets. Goodwill is comprised of the purchase price of business combinations in excess of the fair market value
assigned at acquisition to the tangible and intangible assets acquired. Goodwill is not amortized. The Company tests goodwill for impairment
on an annual basis. The Company performed its most recent goodwill impairment using a discounted cash flow analysis and found that the
fair value exceeded the carrying value. It has $
NOTE 3 – PROPERTY AND EQUIPMENT, NET
Property and equipment, net consists of the following:
SCHEDULE OF PROPERTY AND EQUIPMENT
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Computers and technological assets | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Machinery and equipment | ||||||||
| Land | ||||||||
| Assets Under Construction | - | |||||||
| Leasehold Improvements | ||||||||
| Property and equipment, gross | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Property and equipment, net | $ | $ | ||||||
NOTE 4 – INVENTORY
Inventory consists of the following components:
SCHEDULE OF INVENTORY
| 6/30/21 | 12/31/20 | |||||||
| Raw Material | ||||||||
| Semi Finished | ||||||||
| Finished | ||||||||
| Packaging | ||||||||
| Trading | ||||||||
| Total | .64 | |||||||
Inventories are stated at lower of cost or net realizable value using the standard costing method for its work in process and finished goods. For its raw materials, trading goods, and packaging supplies, the Company utilizes the moving average method for costing purposes and FIFO.
NOTE 5 – RELATED PARTY OPERATING LEASE RIGHT-OF-USE ASSETS AND OPERATING LEASE LIABILITIES
Right of Use Assets
The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, “Leases” (“ASC 842”) on January 1, 2019, the start of our 2019 fiscal year, and utilized the transition method allowed. The Company has a lease arrangements for certain equipment and facilities. The Company’s lease arrangements may contain both lease and non-lease components. The Company has elected to combine and account for lease and non-lease components as a single lease component. The Company has incorporated residual value obligations in leases for which there is such occurrences. Regarding short-term leases, ASC 842-10-25-2 permits an entity to make a policy election not to apply the recognition requirements of ASC 842 to Short-term leases. The Company has elected not to apply the ASC 842 recognition criteria to any leases that qualify as Short-Term Leases.
| 11 |
The Company, as of January 1, 2019, leases a portion of the laboratory property (formerly the Environmental Protection Agency building) in Golden, CO. The lease of the property is based on the fair market rent and triple net lease (NNN) values competitive in the marketplace for a cGMP facility. Below is a summary of our right of use assets and liabilities as of June 30, 2021.
SCHEDULE OF RIGHT OF USE ASSET AND LIABILITY
| Right-of-use assets | $ | |||
| Total lease liability obligations | $ | |||
| Weighted-average remaining lease term (Ends December 31, 2021) | ||||
| Weighted-average discount rate | % |
During
the three and six months ended June 30, 2021, we recognized approximately $
During
the three and six months ended June 30, 2020, we recognized approximately $
Approximate future minimum lease payments for our right of use assets over the remaining lease periods as of June 30, 2021, are as follows:
SCHEDULE OF MATURITY OF OPERATING LEASE LIABILITIES
| $ | 2021 | |||
| Maturity of operating lease liabilities for the following fiscal years: | ||||
| 2021 | $ | |||
| 2022 | ||||
| 2023 | ||||
| 2024 | ||||
| 2025 | ||||
| Thereafter | ||||
| Total undiscounted operating lease payments | $ | |||
| Less: Imputed interest | ( | ) | ||
| Present value of operating lease liabilities | $ | |||
NOTE 6 – NOTES PAYABLE
The Company’s debt obligations are summarized as follows. The December 31, 2020, numbers reflect the pre-merger Panacea debt, while the June 30, 2021, now include the Panacea debts, as well as Exactus’.
U.S. Small Business Administration Loan
On
May 28, 2020, the Company received a secured,
| 12 |
Paycheck Protection Program Funding
On
May 22, 2020, the Exactus Company received federal funding in the amount of $
In
April 2021, the Exactus Company borrowed a “second draw” loan of $
Regarding Panacea Life Sciences, Inc.’s
(PLS) Small Business Administration (SBA) loans, PLS received the PPP first draw loan in the amount of $
PLS’s accounting treatment of the PPP loans and forgiveness follows best practice from the AICPA and accounted for the loan as a financial liability in accordance with FASB ASC 470 and accrue interest in accordance with the interest method under FASB ASC 835-30. The full amount of the PPP loan and accrued interest was forgiven on June 28, 2021 and written off. It was recorded as a forgiveness of loan in the Company’s profit and loss statement as other income.
Notes payable – related party
On June 30, 2021 Panacea
received a loan from Quintel-MC Incorporated, an affiliate of the Company’s CEO, in exchange for a
On June 30, 2021, Panacea issued the Company’s
CEO, Ms. Buttorff, a
During October 2019, the Company issued
a short-term promissory note to an officer of Exactus, for an aggregate principal amount of $
During February 2021, the Company entered a short-term
promissory note for principal amount of $
Notes payable is summarized as follows. We expect the final PPP loan to be forgiven in the 3rd Quarter. The SBA is a 30-year loan, but we plan to pay off this loan in 2021. The rest of the loans do not have a maturity date assigned to them and are payable upon demand.
SCHEDULE OF NOTES PAYABLE
June 30, 2021 | December 31, 2020 | |||||||
| Notes payable - related party (1) | $ | $ | ||||||
| Notes payable – related party (2) | ||||||||
| Notes payable - related party (4) | ||||||||
| Total related party notes | ||||||||
| PPP loans (3) | ||||||||
| Notes payable (4) | ||||||||
| SBA loan (4) | ||||||||
| Total notes payable | ||||||||
| Other liability—Related Party | June 30, 2021 | December 31, 2020 | ||||||
| Notes Payable -Related Party (Software and Building Modifications) | ||||||||
| (1) | |
| (2) | |
| (3) | the PPP loans include both Exactus and Panacea loans. |
| (4) | Liability from Exactus |
In the three months ended June 30, 2021, the Company
issued shares of common stock to certain vendors and other claimants to settle certain outstanding obligations and litigation
totaling $
| 13 |
NOTE 7 - STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock
The
Company’s authorized common stock consists of shares with a par value of $ per share. On June 30, 2021
Common stock Options
Stock Option Plan
In September 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, and restricted stock unit awards. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. The incentive awards shall either be fully vested and exercisable from the date of grant or shall vest and become exercisable in such installments as the Board or Compensation Committee may specify. Stock options expire no later than from the date of grant. The aggregate number of shares of common stock which may be issued pursuant to the Plan is . Unless sooner terminated, the Plan shall terminate in 10 years.
On June 30, 2021 the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the issuance of incentive awards in the form of non-qualified and incentive stock options, restricted stock awards, restricted stock unit awards, warrants and preferred stock. The awards may be granted by the Company’s Board of Directors to its employees, directors and officers and to consultants, agents, advisors and independent contractors who provide services to the Company or to a subsidiary of the Company. The exercise price for stock options must not be less than the fair market value of the underlying shares on the date of grant. The incentive awards shall either be fully vested and exercisable from the date of grant or shall vest and become exercisable in such installments as the Board of Directors or Compensation Committee may specify. Stock options expire no later than ten years from the date of grant. The aggregate number of shares of common stock which may be issued pursuant to the Plan is (without giving effect to the 1-for-28 reverse stock split described below). Unless sooner terminated, the Plan shall terminate in years.
In connection with the Panacea share exchange, on June 30, 2021 the Board of Directors granted a total of stock options under the 2021 Plan to Panacea employees and service providers. On June 30, 2021 the Board of Directors also granted a total of stock options and shares of restricted stock, to certain of the Company’s former and current directors and service providers. Each of the stock option awards described above have an exercise price of $ per share, have a term of , with one-half vesting upon a reverse stock split of the Company’s common stock with the remainder vesting on June 30, 2022, subject to continued employment with the Company. Further, on June 30, 2021 the Board of Directors also granted a total of shares of common stock under the 2021 Plan to certain service providers, vendors and litigation parties in the settlement of certain outstanding obligations. These amounts are subject to the contemplated reverse stock split which is subject to regulatory compliance.
| 14 |
On January 22, 2021, the Company granted options exercisable at $ per share to certain officers and directors, including options to Larry Wert who remains a director. Subsequently, at a meeting on March 31, 2021 several directors reviewed the January grants to three of the insiders and sought to negate their option awards in order to achieve two stated goals: to allow the directors to vote a sufficient number of shares required to approve a matter purportedly requiring additional votes to achieve a majority under Nevada law, and to correct an alleged mistake in the January action which was claimed to have unintentionally awarded options instead shares of common stock. The directors present thereupon purported to grant three directors a total of shares to Alvaro Alberttis, Larry Wert, Julian Pittam and to make a new award to director John Price and directed the Company’s transfer agent to issue such shares. The effectiveness of the March 31, 2021 board action is currently under review and may ultimately be determined to have been ineffective as a matter of law. However, the number of shares outstanding reported at June 30, 2021 as set forth in this Quarterly Report on Form 10-Q and subsequent reports includes such shares until the investigation is completed. This was accounted for previously in the March 31, 2021 10Q filing.
The Company has stock options at a weighted average price of $ with vested and exercisable at $. There were no changes in these numbers since the March 31, 2021 filing.
| Number of shares subject options | Wighted average exercise price per share | Weighted average remaining contractual life | Aggregate intrinsic value | |||||||||||||
| Balance at December 31, 2020 | $ | |||||||||||||||
| Options granted | $ | |||||||||||||||
| Options exercised | ( | ) | $ | |||||||||||||
| Options cancelled/ expired | ( | ) | $ | |||||||||||||
| Balance at June 30, 2021 | $ | |||||||||||||||
| Vested and exercisab le at June 30, 2021 | $ | |||||||||||||||
Common Stock Warrants
As of June 30, 2021 and December 31, 2020, there were
Exactus, Inc.
Warrants Schedule
6/30/21
| Post split | Post split | Post split | ||||||||||||||||||||||||||
| Grant | Exercise | Balance | Forfeited | Balance | ||||||||||||||||||||||||
| Name | Date | Expire | Price | 12/31/2019 | Granted | Converted | Cancelled | 12/31/20 | ||||||||||||||||||||
| Millennium Park Capital | ||||||||||||||||||||||||||||
| Millennium Park Capital | ||||||||||||||||||||||||||||
| 3i, LP /Obsidian | ||||||||||||||||||||||||||||
| Alliance Global | ||||||||||||||||||||||||||||
| Total | - | ) | ||||||||||||||||||||||||||
Preferred Stock
The Company’s authorized preferred stock consists of shares with a par value of $.
In connection with our acquisition of Panacea on June 30, 2021, we issued convertible preferred stock to our new principal shareholder and Chief Executive Officer (and her affiliates) as follows:
shares of Series C Convertible Preferred Stock (the “Series C”) shares of Series C-1 Convertible Preferred Stock (the “Series C-1”) and shares of Series D Convertible Preferred Stock (the “Series D”), which together convert into approximately of the Company’s common stock outstanding as of that date. The Series C has a liquidation preference of $ per share, is convertible at the rate of shares of common stock per share and through December 31, 2023 has the option to participate in the recovery by the Company of certain assets. In order to avail herself of the rights, the holder can cause the Company to use the cash generated by the assets and repurchase Series C at a price equal to the liquidation preference per share, subject to the Company maintaining an agreed upon level of net assets. The Series C-1 has a liquidation preference of $ per share and is convertible at the rate of shares of common stock for each share of Series C-1. The Series D has a liquidation preference of $ per share and is convertible into common stock at the rate of shares of common stock per share. The Series C, C-1 and D also vote on an as converted basis.
In
addition, the Company entered into an exchange agreement with an investor and filed with the Secretary of State of the State of
Nevada a Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred stock under which the Note in
the original principal amount of $
The Company authorized the issuance of a total
of shares of Series A Preferred for issuance. Each share of Series A Preferred is convertible at the option of the holder,
into that number of shares of our common stock (subject to certain limitations on beneficial ownership) determined by dividing the Stated
Value by $
| 15 |
On February 16, 2021 the Company offered to our prior Series A Preferred stock holder enhanced conversion inducements to voluntarily convert the preferred shares into our common stock and filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for Series A Preferred stock, all of which has been converted to common stock, in order to issue the new 0% Series A Preferred stock described herein.
On April 7, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for the previous Series C Preferred Stock, all of which has been cancelled or converted into common stock.
On February 16, 2021, the Company offered to holders of our prior Series D Preferred Stock holder(s) enhanced inducements to voluntarily convert preferred shares into our common stock.
On April 7, 2021 the Company filed a Certificate of Cancellation and Withdrawal with the Secretary of State of the State of Nevada cancelling our prior Certificate of Designation of Preferences, Rights and Limitations for the previous Series D Preferred Stock, all of which has been cancelled or converted into common stock.
During the quarter ended June 30, 2021 the Company withdrew its prior Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock and issued shares of newly designated Series C, Series C-1 and Series D to former Panacea stockholders pursuant to the Exchange Agreement.
SCHEDULE OF PREFERRED STOCK
EXACTUS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) PREFERRED
(unaudited)
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | TOTAL PREFERRED STOCK | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | - | - | - | - | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | - | $ | | $ | $ | $ | | $ | | $ | | ||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | TOTAL PREFERRED STOCK | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | - | - | - | - | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | - | $ | | $ | | $ | $ | | $ | | $ | | |||||||||||||||||||||||||||||||||||||||||||
| Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | TOTAL PREFERRED STOCK | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of March 31, 2020 | $ | - | $ | - | $ | - | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | - | - | - | - | - | - | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | $ | | $ | | $ | |||||||||||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock Convertible - Series A Shares | Preferred Stock Series B-1 Shares | Preferred Stock Series B-2 Shares | Preferred Stock Series C Shares | Preferred Stock Series C-1 Shares | Preferred Stock Series D Shares | TOTAL PREFERRED STOCK | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||||||||||||||||||||||||||
| Balance as of December 31, 2019 | $ | - | $ | - | $ | - | $ | $ | | $ | | $ | | |||||||||||||||||||||||||||||||||||||||||||
| Beginning balance, value | $ | - | $ | - | $ | - | $ | $ | | $ | | $ | | |||||||||||||||||||||||||||||||||||||||||||
| Shares issued for acquisition | - | - | - | - | - | - | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||
| Ending balance, value | $ | - | $ | - | $ | - | $ | $ | | $ | | $ | | |||||||||||||||||||||||||||||||||||||||||||
Note: Exactus Series C, D and E were extinguished in June, 2021
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Legal Matters
In the ordinary course of business, the Company enters into agreements with third parties that include indemnification provisions which, in its judgment, are normal and customary for companies in the Company’s industry sector. These agreements are typically with business partners, and suppliers. Pursuant to these agreements, the Company generally agrees to indemnify, hold harmless, and reimburse indemnified parties for losses suffered or incurred by the indemnified parties with respect to the Company’s products, use of such products, or other actions taken or omitted by us. The maximum potential number of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of liabilities relating to these provisions is minimal. Accordingly, the Company has no liabilities recorded for these provisions as of June 30, 2021.
The Company has no concentration of vendors nor customers that would impact revenue or production costs. The Company has no contingencies, material commitments, or purchase obligations or sales obligations.
As a result of our acquisition of Panacea, the Company is now involved in the following pending litigation:
On
February 16, 2021, Henley Group, Inc. filed with the Superior Court of the State of California, San Bernardino County, a complaint (Case
#: SIV SB 2105771) against Panacea for breach of contract and fraud related to Panacea’s non-delivery of product. While Panacea
refunded the purchase price, the plaintiff seeks damages including lost profits and costs which plaintiff alleged to have incurred in
the amount of approximately $
Executive Employment Agreement
On
June 30, 2021 the Company entered into an Employment Agreement with Leslie Buttorff pursuant to which Ms. Buttorff serves as the Company’s
Chief Executive Officer for an initial term of July 1, 2021 to June 30, 2024 (the “Employment Agreement). Under her Employment
Agreement, Ms. Buttorff receives an annual base salary of $
Under her Employment Agreement, she is entitled to severance payments under termination provisions which are intended to comply with Section 409A of the Internal Revenue Code of 1986, or the Code, and the Regulations thereunder.
In the event of termination by the Company without
“cause” or resignation by Ms. Buttorff for “good reason,” Ms. Buttorff is entitled to receive two years’
base salary, or $
| 16 |
Generally, “good reason” is defined as (i) any material breach of the Employment Agreement by the Company, (ii) the Company’s assignment of Ms. Buttorff to a position that has materially less authority, status, or functional responsibility than the position with the Company as of the commencement date, or the assignment to her of duties that are not those of an executive at the management level, (iii) the reduction of Ms. Buttorff’s base salary, (iv) the requirement that Ms. Buttorff move her primary place of employment more than 30 miles from her initial place of employment, or (v) upon any change of control event as defined in Treasury Regulation Section 1.409A-3(i)(5) provided that within 12 months of the change of control event the Company terminates Ms. Buttorff or fails to obtain an agreement from any successor to perform the Employment Agreement.
Under the terms of her Employment Agreement, Ms. Buttorff is subject to non-competition and non-solicitation covenants during the term of her employment and following termination of employment with the Company. The Employment Agreement also contains customary confidentiality and non-disparagement covenants.
NOTE 9 - RELATED PARTY TRANSACTIONS
Notes Payable and Accrued Interest – Related Parties
On June 30, 2021 Panacea received a loan of from Quintel-MC Incorporated, an affiliate of the Company’s CEO in exchange for the Quintel Note. (see Note 6 – Notes Payable — Quintel Note).
On
June 30, 2021, Panacea issued the Company’s CEO, Ms. Buttorff, a
On
June 30, 2021, the Company issued Ms. Buttorff a $
During
October 2019, the Company issued a short-term promissory notes to an officer of Exactus, for an aggregate principal
amount of $
J&N related party—See Note 10 Exchange Agreement and Note 5 Operating lease.
Services Agreement, dated January 1, 2019, by and between the Company and Quintel, with respect to IT, HR, accounting/periodic reporting, production planning, and employee reporting services. See also Schedule 3.10;
Master Agreement, dated January 1, 2019, by and between the Company and Quintel/Canna Software, LLC for the provision of the ERPCannabis solution. See also Schedule 3.10;
Other
The Company continues to hold shares of XXII stock which is available for trading. XXII recently moved from the NYSE to NASDAQ. As of June 30, 2021 XXII is a common shareholder of the company. See Note 10 for additional details related to XXII resolution.
| 17 |
NOTE 10 – EXCHANGE AGREEMENT between Exactus, Inc. and Panacea Life Sciences, Inc.
On June 30, 2021, the Company acquired Panacea
pursuant to the Exchange Agreement with the shareholders of Panacea including its founder Leslie Buttorff and 22nd
Century Group, Inc., (“XXII”), a principal investor. Panacea, which was founded by Leslie Buttorff in 2017 as
a woman-owned business, attracted $
Shares Issuances
Pursuant
to the Exchange Agreement, on June 30, 2021 the Company issued a total of shares of common stock, shares of Series C convertible into shares of common stock, shares of Series C-1 convertible into shares of common stock and shares of Series D convertible into shares of common stock to the former Panacea
stockholders, in exchange for one-hundred (
On June 29, 2021 the Company filed with the Secretary of State of the State of Nevada three new series of preferred stock (“Preferred Stock”) designated as Series C Convertible Preferred Stock, Series C-1 Preferred Stock and Series D Preferred Stock and authorized the filing of a Certificate of Designation of Preferences, Rights and Limitations of Series C Convertible Preferred Stock, Series C-1 Convertible Preferred Stock and Series D Convertible Preferred Stock in the State of Nevada. The Board designated for issuance , and shares, respectively, for issuance. Each share of Preferred Stock is convertible into shares of the Company’s Common Stock as provided in the Certificate of Designation, therefore. These are reflected in the Equity sections of the balance sheet for June 30, 2021.
On June 28, 2021, the Board approved and adopted, subject to shareholder approval on or prior to June 28, 2022, the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). On July 1, 2021, the 2021 Plan was approved by the shareholders holding a majority of the capital stock of the Company. The 2021 Plan authorizes the issuance of up to shares of the Common Stock upon, subject to adjustment as described in the 2021 Plan.
| 18 |
Also,
on June 30, 2021, Panacea and XXII agreed to dissolve their business relationship. In terms of the agreement the following transactions
occurred in consideration for the XXII investment in Panacea of $
| 1. | XXII
Series B Preferred ($ | |
| 2. | $ | |
| 3. | ||
| 4. |
J&N Real Estate Company LLC (J&N), owned by Leslie Buttorff,
assumed a $ |
On
June 30, 2021, the Board authorized the Company to file a certificate of amendment (the “Amendment”) to its Amended and Restated
Articles of Incorporation with the Secretary of State of the State of Nevada in order to effectuate a reverse stock split of the Company’s
issued and outstanding common stock, par value $ per share on a
NOTE 11 – SUBSEQUENT EVENTS
Subsequent to June 30, 2021 the
Company entered a line of credit with Ms. Buttorff under which the Company may borrow up to $
Subsequent to June 30, 2021 an additional million common shares were issued.
| 19 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
Business Overview
The Company is a Nevada corporation organized in 2008. The Company has pursued opportunities in Cannabidiol, which we refer to as “CBD”, since December 2018 when we expanded our focus to pursue opportunities in hemp-derived CBD. We expect to change our name to Panacea Life Sciences Holdings, Inc. subject to regulatory compliance. To that end, on June 30, 2021 we entered into the Exchange Agreement with Panacea and the Panacea stockholders and as a result became a seed-to-sale CBD company. The former Panacea stockholders have assumed majority control of the Company, and all our operations are now operated through Panacea which because of the share exchange became a wholly owned subsidiary of the Company. Leslie Buttorff, who became the Company’s Chief Executive Officer and a director upon the closing of the share exchange, also became our principal stockholder through common stock and Convertible Preferred Stock issued to her and entities she controls.
Panacea, which was founded by Leslie Buttorff in 2017 as a woman-owned business, attracted a $14 million investment from 22nd Century Group, Inc., or XXII, a plant biotechnology company which also has a focus on CBD products and technology, during 2019. XXII has retained a 15% stake in the Company following the share exchange. Through Panacea, we are dedicated to developing and producing the highest-quality, most medically relevant, legal, hemp-derived cannabinoid products for consumers and pets. Beginning at a farm Panacea owns a parcel of located at Needle Rock, Colorado and leases laboratory space located at a 51,000 square foot, state-of-the-art, cGMP, extraction, manufacturing, testing and fulfillment center located in Golden, Colorado, Panacea operates in every segment of the CBD product value chain. From cultivation to finished goods, Panacea ensures its products with stringent testing protocols employed at every stage of the supply chain. Panacea endeavors to offer pure natural remedies within product lines for every aspect of life: PANA Health®, PANA Beauty®, PANA Sport™, PANA Pet®, PANA Pure® and PANA Life™.
In the second quarter of fiscal year 2021 we obtained registration on three of our six brands and our mark. Panacea engaged Karsh Hagan, an independent, multi-disciplined marketing, design and technology company in Denver, Colorado to assist with brand development and roll out strategies.
| 20 |
Currently Panacea sells over 60 different product SKUs of CBD and CBG products. In addition, we offer “white label” licensing to retail businesses and contract manufacturing services to smaller CBD companies.
| 21 |
Our Industrial Hemp Supply
Panacea’s 2021 crop will come from NeedleRock Farms in Crawford CO. XXII is the grower and is using organic practices for the crop. XXII will provide Panacea $500,000 of hemp. Panacea will also be engaged by XXII to assist with XXII’s ingredient extraction and purification processes. Working with Panacea and other companies in the industry, XXII has secured strategic partnerships to maximize and support each of the key segments of its cannabinoid value chain: plant profiling (CannaMetrix), plant biotechnology (KeyGene), plant breeding, commercial-scale plant cultivation, and ingredient extraction/purification (Sawatch Agriculture, Folium Botanical, Aurora Cannabis, Needle Rock Farms, and Panacea.
Company Information Technology Infrastructure
The ERPCannabis system is based on an SAP architecture and was used to develop the base installation. All financial, human resource, payroll, procurement, production planning and materials management business processes are represented in this system. In addition, the system is linked to our e-Commerce website www.panacealife.com. This system allows us to update product costing and determine inventory levels which will be critical as the company expands. In addition, sophisticated financial and payroll processing are inherent in the solution; thus, offering investors detailed accounting results related to company investments.
Other Activities
During then three months ended June 30, 2021, the former Exactus management focused its efforts on reducing its liabilities including settling with creditors and negotiating the Panacea acquisition. During the same period, prior to the closing of the Exchange Agreement Panacea’s management devoted substantial attention to terminating Panacea’s relationship with XXII, a former stockholder of Panacea, and negotiating the acquisition with Exactus. XXII purchased a farm formerly owned by our new Chief Executive Officer indirectly through an affiliated entity, of which Panacea now leases in part. In the farm transaction, our new Chief Executive Officer assumed Panacea indebtedness through an entity she owns which issued XXII a promissory note secured by a mortgage on real property her entity owns. All these activities distracted Panacea’s management from its core business. In the third and fourth quarters of 2021 we plan to focus on our sales and marketing efforts and to complete the extraction and production build out which management estimates is approximately 90% completed.
Our new principal executive offices are located at 16194 West 45th Drive, Golden CO 80403 and our new phone number is 800-985-0515.
Results of Operations
Set forth below is the discussion of the results of operations of the Company for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The information which follows relates to the operations of Panacea which under applicable accounting rules are treated as the operation of the Company.
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Three Months Ended June 30, 2021 and 2020
Net Revenues
The Company is principally engaged in the business of producing and selling products made from industrial hemp. During the three months ended June 30, 2021, the Company generated $5.074 million in revenue compared to $6.219 million in the three months ended June 30, 2020. The decrease in sales is attributed to less PPE items being sold in 2021. A large proportion of our revenue for the period was attributable to sales of PPE products that we procured and produced during the COVID-19 pandemic. The Company does not intend to continue with these products once they are all sold. Exactus had no revenues during the period covered prior to the reverse merger as Exactus focused on restructuring and acquisition efforts.
Cost of Sales
The primary components of cost of sales include the cost of manufacturing the CBD products and PPE. For the three months ended June 30, 2021, the Company’s cost of sales amounted to $5.031 million and $2.979 million in 2020. The increase in costs from 2020 to 2021 are attributed to the PPE materials. Due to COVID-19 the Company did and continues to experience delays from raw materials purchased from Asia and China. There also continues to be lack of port space in the Long Beach, CA area.
Operating Expenses
Production related operating expenses were $0.998 million during the three months ended June 30, 2021 compared to $0.999 million during the three months ended June 30, 2020. Currently, production related salaries are included in operating expenses.
General and administrative expenses (G&A) were $0.612 million for the three months ended June 30, 2021 compared to $1.396 million during the three months ended June 30, 2020.
Within the total G&A category of expenses, sales and marketing expenses decreased from $1.216 million to $0.095 million for the three months ended June 30, 2021 when compared to the three months ended June 30, 2020, primarily due to sales commissions paid for PPE sales, the Panacea brand development, advertising fees for the Facebook program and the new Panacea website. We expect the decrease in sales activity to continue due to limited capital resources until we consummate a financing.
Also, within the total G&A category of expenses, professional, legal, and consulting fees were $0.156 million for the three months ended June 30, 2021 when compared to $184,063 the three months ended June 30, 2020. In 2020, legal expenses were attributed to the farm acquisition and the XXII investment. In 2021, legal fees were related to the XXII farm sale and investment restructuring, the Panacea reverse merger and fees related to obtaining a trademark for our brand.
Six Months Ended June 30, 2021 and 2020
Net Revenues
During the six months ended June 30, 2021, the Company generated $5.682 million in revenue. A large proportion of our revenue for the period was attributable to sales of PPE products that we procured and produced during the COVID-19 pandemic. The Company does not intend to continue with these products once they are all sold. Exactus had no revenues during the period covered prior to the reverse merger as Exactus focused on restructuring and acquisition efforts. In the six months ended June 30, 2020, the revenue totaled $7.118 million.
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Cost of Sales
The primary components of cost of sales include the cost of the CBD product and PPE. For the six months ended June 30, 2021, the Company’s cost of sales amounted to $5.270 million and $3.385 million in 2020. The increase in costs from 2020 to 2021 are attributed to the PPE materials. Due to COVID-19 the Company did and continues to experience delays from raw materials purchased from Asia and China. There also continues to be lack of port space in the Long Beach, CA area.
Operating Expenses
Production related expenses were $2.165 million during the six months ended June 30, 2021 compared to $1.813 million during the six months ended June 30, 2020. Currently, salaries are included in production related expenses.
General and administrative expenses were $0.863 million for the six months ended June 30, 2021 compared to $2.255 million during the six months ended June 30, 2020.
Within the total G&A category of expenses, sales and marketing expenses decreased from $1.612 million to $0.227 million for the six months ended June 30, 2021 when compared to the six months ended June 30, 2020, primarily due to sales commissions paid for PPE sales, the Panacea brand development, advertising fees for the Facebook program and the new Panacea website. We expect the decrease in sales activity to continue due to limited capital resources until we consummate a financing.
Also, within the total G&A category of expenses, professional, legal, and consulting fees were $0.231 million for the six months ended June 30, 2021 when compared to $0.389 million the six months ended June 30, 2020. In 2020, legal expenses were attributed to the farm acquisition and the XXII investment. In 2021, legal fees were related to the XXII farm sale and investment restructuring, the Panacea reverse merger and fees related to obtaining a trademark for our brand.
Summary of Cash Flows
Cash flows from operating activities
The largest source of operating cash is from our customers. A large majority of our customers purchase CBD on-line, so credit card payments are collected and paid within 1-2 business days. Other white label and contract manufacturing customers pay before the products are released. Some larger customers have either net 10, 2% or 30 day net terms. Net cash used in operating activities was 1.464 million and (6.019) million for six months ended June 30, for 2021 and 2020, respectively.
Cash flows from investing activities
Machinery and building retrofitting expenses was the investing activity for the six months ended June 30, 2021, and totaled $3.385 million and (2,387 million) for June 30, 2020.
Cash flows from financing activities
Net cash provided by financing activities for the six months ended June 30, 2021 was $(4.793) million. For the same period in 2020 the financing was 1.486 million. In 2021 the primary financing was cash provided by Company’s CEO.
Liquidity and Capital Resources
On June 30, 2021, we had approximately $6.152 million in cash and liquid stock of XXII. The Chief Executive Officer of the Company holds the XXII shares pursuant to the pledge agreement and has the power at any time to permit the Company to sell the shares to provide working capital. Panacea has borrowed substantial sums from Leslie Buttorff, our Chief Executive Officer, to meet its working capital obligations. On June 30, 2021 Panacea issued an affiliate of Ms. Buttorff a 12% demand promissory note for $4,062,713.72 and issued Ms. Buttorff a 10% demand promissory note for $1,624,000 secured by a pledge of certain XXII common stock owned by Panacea. Additionally, the Company has a line of credit with Ms. Buttorff through which it may borrow up to $1 million at a 10% annual interest rate.
We may not have sufficient cash resources to sustain our operations for the next 12 months, particularly if the large sales contracts we have do not result in the revenue anticipated. We may be dependent on obtaining financing from one or more debt or equity offerings or further loans from Ms. Buttorff assuming she agrees to advance further funds.
These unaudited condensed consolidated financial statements are presented on the basis that the Company will continue as a going concern. The going concern concept contemplates the realization of assets and satisfaction of liabilities in the normal course of business. No adjustment has been made to the carrying amount and classification of the Company’s assets and the carrying amount of its liabilities based on the going concern uncertainty. These factors raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve profitable operations or become cash flow positive or raise additional debt and/or equity capital. In addition, due to insufficient revenue, we will need to obtain further funding through public or private equity offerings, debt financing, collaboration arrangements or other sources in order to maintain active business operations. We currently do not have sufficient cash flow to pay our ongoing financial obligations on a consistent basis. The issuance of any additional shares of common stock, preferred stock or convertible securities could be substantially dilutive to our stockholders. In addition, adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital, we will be forced to borrow additional sums from our Chief Executive Officer or delay, reduce or eliminate our research and development programs, we may not be able to continue as a going concern, and we may be forced to discontinue operations. These unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
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Off Balance Sheet Arrangements
As of June 30, 2021, we had no material off-balance sheet arrangements.
As disclosed in Note 2, the COVID-19 pandemic has had a notable impact on general economic conditions, including but not limited to the temporary closures of many businesses, “shelter in place” and other governmental regulations, reduced business and consumer spending due to both job losses and reduced investing activity, among many other effects attributable to the COVID-19 pandemic, and there continue to be many unknowns. During 2020, COVID-19 had a significant impact on Panacea’s CBD operations. Recognizing the sudden need for personal protective equipment, Panacea shifted its business to importing and selling PPE hand sanitizers and masks.
The Delta variant which is having a significant impact in August 2019 may extend the period of recovery into 2022.
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Potential Impacts of Certain Current and Proposed Regulations on Our Business and Operations
Recently, a bill titled the Cannabis Administration and Opportunity Act, put forward by Senate Majority leader Chuck Schumer, D-NY, would amend the definition of a dietary supplement to remove the prohibition on marketing CBD as a dietary supplement. Management sees the bill, if enacted, as an opportunity for the FDA to accelerate their decision to classify CBD products as a dietary supplement. This would be a significant step for hemp/CBD companies as it would open the door to new selling opportunities, such as getting into retail stores, who have largely been hesitant to welcome CBD in their doors without a clear position from the FDA.
Many people are increasingly turning to CBD products for several reasons: CBD is non-psychoactive, so it does not produce a “high” like THC, there are few known contraindications, the properties of different cannabinoids can positively affect a wide range of ailments, and cannabinoids work directly and indirectly with the body’s endocannabinoid system to create balance known as homeostasis. As demand increases, we believe the FDA must provide more clarity about CBD’s legalization, and this bill is a promising first step.
For now, many companies that produce hemp-derived CBD products including Panacea undertake to abide by the same regulations as any other dietary supplements like ingredient filings, good manufacturing practices (GMP), and labeling and marketing provisions. Panacea will continue to sell CBD and other hemp-derived products while still awaiting a clear path from the FDA about how CBD products can be marketed and used.
Cautionary Statement Regarding Forward-Looking Statements
This quarterly report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about our new operations in the hemp industry through Panacea, our expected revenue growth, our future plans and developments with respect to PPE products and the COVID-19 pandemic, our human resources following our recent acquisition of Panacea, proposed federal legislation and its potential impact on the CBD industry, our business relationship with XXII, our plans to raise capital, and our liquidity. Words such as “expects,” “anticipates,” “plans,” “believes,” “seeks,” “estimates,” “could,” “would,” “may,” “intends,” “targets” and similar expressions or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking statements in this Report. The identification of certain statements as “forward-looking” is not intended to mean that other statements not specifically identified are not forward-looking. All statements other than statements about historical facts are statements that could be deemed forward-looking statements, including, but not limited to, statements that relate to our future revenue, product development, customer demand, market acceptance, growth rate, competitiveness, gross margins, and expenditures.
Although forward-looking statements in this Report reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties discussed under the heading “Risk Factors” within Part I, Item 1A of this Report, and other documents we file from time-to-time with the SEC. Such risks, uncertainties and changes in condition, significance, value, and effect could cause our actual results to differ materially from those expressed herein and in ways not readily foreseeable. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report and are based on information currently and reasonably known to us. We undertake no obligation to revise or update any forward-looking statements to reflect any event or circumstance that may arise after the date of this Report, other than as required by law. Readers are urged to carefully review and consider the various disclosures made in this Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
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Critical Accounting Estimates and New Accounting Pronouncements
Critical Accounting Estimates
See Notes.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
A smaller reporting company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) are recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer who is presently also serving as our principal financial officer, has conducted an evaluation of the design and effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this report. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on her evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our Chief Executive Officer and Chief Financial Officer has concluded that our disclosure controls and procedures were not effective to ensure that the information relating to our company required to be disclosed in our SEC reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to our management to allow timely decisions regarding required disclosure as a result of material weaknesses in our internal control over financial reporting.
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Changes in Internal Controls over Financial Reporting
As a result of the recent acquisition of Panacea, management believes that the Company’s internal controls over financial reporting have improved because Panacea uses SAP ERP system for its financial, inventory, product and human resources areas. SAP requires strict internal controls. Other than the foregoing, there have been no changes in the internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended June 30, 2021 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time–to-time, we may become involved in legal proceedings arising in the ordinary course of business. We are unable to predict the outcome of any such matters or the ultimate legal and financial liability, and at this time cannot reasonably estimate the possible loss or range of loss and accordingly have not accrued a related liability.
As a result of our acquisition of Panacea, the Company is now involved in the following pending litigation:
On February 16, 2021, Henley Group, Inc. filed with the Superior Court of the State of California, San Bernardino County, a complaint (Case #: SIV SB 2105771) against Panacea for breach of contract and fraud related to Panacea’s non-delivery of product. While Panacea refunded the purchase price, the plaintiff seeks damages including lost profits and costs which plaintiff alleged to have incurred in the amount of approximately $45,000 as well as lost profits from expected future contracts with a prospective third-party buyer which plaintiff alleged to be $720,000. The plaintiff also seeks attorney’s fees and costs, consequential damages and punitive damages. Panacea attorney has submitted counterclaims and believes this complaint is frivolous.
ITEM 1A. RISK FACTORS.
RISK FACTORS
Investing in our common stock involves a high degree of risk. Investors should carefully consider the following Risk Factors before deciding whether to invest in the Company. Additional risks and uncertainties not presently known to us, or that we currently deem immaterial, may also impair our business operations or our financial condition. If any of the events discussed in the Risk Factors below occur, our business, financial condition, results of operations or prospects could be materially and adversely affected. In such case, the value and marketability of our common stock could decline.
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Summary Risk Factors
Our business is subject to numerous risks and uncertainties that you should consider before investing in our common stock. Set forth below is a summary of the principal risks we face:
| ● | We intend to raise capital through the sale of our common stock or securities convertible or exercisable into our common stock soon which will have a dilutive effect on our existing stockholders; | |
| ● | Because we require additional capital to execute our business plan and expand our operations, our inability to generate and obtain such capital on acceptable terms, or at all, could harm our business, operating results, financial condition and prospects; | |
| ● | We are highly dependent on our Chief Executive Officer, and the loss of her services or a conflict of interest arising from her loans to us and her other business endeavors would adversely affect us; | |
| ● | Our business and the CBD industry generally are subject to substantial regulation and governmental scrutiny characterized by high compliance costs and uncertainty, including the possibility that laws change in a manner adverse to us; | |
| ● | the impact of the COVID-19 pandemic on the U.S. and global economy, and the uncertainty relating to its continuation and the pace of economic recovery, could hinder our business plan or force us to change our production efforts; | |
| ● | Panacea’s operations and our new Chief Executive Officer were not previously subject to SEC reporting obligations, which could render us difficult to evaluate and expose us to risk; | |
| ● | If we are unable to keep up with rapid technological change, consumer preferences and economic developments in our industry or in general, our products may become obsolete. | |
| ● | We could become subject to data privacy and security claims or enforcement actions, particularly due to our digital marketing efforts; | |
| ● | We may become subject to product liability or related claims based on our production and sale of products containing chemical compounds designed to be ingested or applied topically; and | |
| ● | Our Chief Executive Officer, directly and through entities she controls, owns a majority of our outstanding common stock and voting power on an as-converted basis, rendering other stockholders’ ability to influence matters before them limited in most cases. |
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Risks Related to Our Business and the CBD Industry
Because we need to raise additional capital any financing based on our common stock or common stock equivalents will dilute our existing stockholders and the terms of any such financing could impose restrictions on our operations.
Panacea has depended upon loans from our Chief Executive Officer and principal stockholder. Since our June 30th acquisition of Panacea, we have financed our operations by borrowing funds from her. We have retained an investment bank to assist us in raising capital and are presently seeking bridge financing. While we have 450 Series A shares available to sell under the Series A Convertible Preferred Stock, we do not know if investors will be interested in purchasing it or if any financing which is available will be less attractive to us. To the extent that we raise additional capital through the sale of common stock or common stock equivalents, our stockholders will be diluted. Further, the terms of such financings may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financings may involve an equity component, such as convertible notes and warrants, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our use of the proceeds, prohibitions on incurring additional debt or making subsequent dilutive issuances of securities, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business. Additionally, if we were to default on such indebtedness, we could lose any assets and intellectual property with which the indebtedness is secured.
Because, we are highly dependent on the services of Leslie Buttorff, our sole executive officer, the loss of her and our inability to expand our management team, could harm our business.
Our success is largely dependent on the continued services of Leslie Buttorff, our Chief Executive Officer and principal stockholder. The loss of the services of Ms. Buttorff would leave us without executive leadership, which could diminish our business and growth opportunities. Additionally, Ms. Buttorff has business interests outside our company, including as an owner and officer of a consulting company and of a real estate holding company each of which hold shares in the Company as a result of the recent share exchange under the Exchange Agreement. Accordingly, from time-to-time she may not devote her full time and attention to our affairs, which could have a material adverse effect on our operating results, and there can be no assurance that a conflict of interest will not arise from her other business ventures. Further, she holds demand promissory notes totaling $5,686,713 issued on June 30, 2021 plus accrued interest at 10%. Thus, she has the power to call the notes and obtain all of our assets. Additionally, the Company has a line of credit with Ms. Buttorff through which it may borrow up to $1 million at a 10% annual interest rate. The fact that she continues to advance money and is our principal stockholder reflects her intent to support the Company.
We will also need to build an executive management team around Ms. Buttorff, including locating and hiring a Chief Financial Officer and other executive officers, which could be a time consuming and expensive process and divert management’s attention from other pressing matters concerning the Company’s operations or growth. The market for highly qualified personnel in this industry is very competitive and we may be unable to attract such personnel in a timely manner, on favorable terms or at all. If we are unable to attract and retain the required personnel, our business could be harmed.
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The loss of Ms. Buttorff would have a material adverse effect on us. We do not have key man insurance on the life of Ms. Buttorff. Ms. Buttorff’s Employment Agreement permits her to resign for good reason which includes a material breach of the agreement by the Company including failure to pay her. In the event she terminates her Employment Agreement for good reason, this would result in the Company owing her approximately $760,000 in severance pay plus any earned bonuses and other benefits and would leave the Company without an executive officer which may have a material adverse effect upon us, your investment, and hamper the ability of the Company to continue operations. If we fail to procure the services of additional executive management or implement and execute an effective contingency or succession plan for Ms. Buttorff, the loss of Ms. Buttorff would significantly disrupt our business from which we may not be able to recover.
If we are unable to develop and maintain our brand and reputation for our product offerings, our business and prospects could be materially harmed.
Our business and prospects depend, in part, on developing and then maintaining and strengthening our brand and reputation in the markets we serve. If problems with our products cause our customers to have a negative experience or failure or delay in the delivery of our products to our customers, our brand and reputation could be diminished. If we fail to develop, promote and maintain our brand and reputation successfully, our business and prospects could be materially harmed.
Because we face intense competition, we may not be able to increase our market share which would materially and adversely affect us.
Our industry is highly competitive. It is possible that future competitors could enter our market, thereby causing us to lose market share and revenues or fail to grow our operations and market presence as intended or at all. In addition, some of our current or future competitors have significantly greater financial, technical, marketing and other resources than we do or may have more experience or advantages in the markets in which we will compete that will allow them to offer lower prices or higher quality products. If we do not successfully compete with these competitors, we could fail to develop a sufficient market share to achieve our goals and our future business prospects could be materially adversely affected.
Because the sale of our products involves the potential for product liability, we may incur significant losses and expenses in excess of our insurance coverage.
We face an inherent risk of exposure to product liability claims if the use of our products results in, or is believed to have resulted in, illness or injury. Our products are designed for ingestible or topical use and contain combinations of ingredients, and there is little experience with or knowledge of the long-term effects of these combinations. In addition, interactions of these ingredients and products with other products, prescription medications and over-the-counter treatments have not been fully explored or understood and may have unintended consequences. Future research or results may lead to the discovery of unknown adverse side effects from CBD which would harm our business.
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Although the Company believes all of its products will be safe when taken as directed by the Company, there is little long-term research on the effects of human consumption of certain of the new product ingredients or combinations in concentrated form that we use or may in the future use in developing our CBD products. Any instance of illness or negative side effects of ingesting CBD products or applying them topically on the skin could have a material adverse effect on our business and operations by, among other things, exposing us to the risk of costly litigation and/or governmental sanctions and dramatically reducing the demand for some or all of our products.
Any product liability claim or related developments from our products or CBD in general may increase our costs and adversely affect our revenue, product demand and operating results. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, which, if adversely determined, could subject us to substantial monetary damages.
The success of our business will depend upon our ability to create and expand our brand awareness.
The health and wellness and CBD markets we compete in are highly competitive, with many well-known brands leading the industry. Our competitors include CBD companies who have a longer history operating in these markets than we do. Our ability to compete effectively and generate revenue will be based upon our ability to create and expand awareness of our products distinct from those of our competitors. It is imperative that we are able to convey to consumers the benefits of our products both in general and as compared to competitive offerings. However, advertising, packaging and labeling of our products is limited by various regulations. Our success will be dependent upon our ability to convey to consumers that our products are superior to those of our competitors while complying with complex and varying regulations in the markets in which we attempt to market and sell them.
If we fail to develop and introduce new products it will adversely affect our future prospects.
Our industry is subject to rapid change. New products are constantly introduced to the market. Our ability to remain competitive depends in part on our ability to enhance existing products, to develop and manufacture new products in a timely and cost-effective manner, to adequately anticipate, prepare and execute strategies for market transitions, and to effectively market our products. Management believes that our future financial results will depend to a great extent on the successful expansion of our current product offerings and on the development and introduction of new products. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or in improving upon or enhancing the market for existing products.
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The success of new product introductions or expansions to new territories depends on various factors, including, without limitation, the following:
| ● | Successful sales and marketing efforts; | |
| ● | Timely delivery of the products; | |
| ● | Availability of raw materials and/or sufficient production facilities; | |
| ● | Pricing of raw materials and labor; | |
| ● | Regulatory allowance and restrictions of the products; and | |
| ● | Market acceptance and consumer sentiment. |
If we fail to appropriately respond to changing consumer preferences and demand for new products, it could significantly harm our customer relationships and product sales and harm our operating results and financial condition.
Our business is subject to changing consumer trends and preferences, especially with respect to targeted nutrition and natural wellness products. Our success will depend in part on our ability to anticipate and respond to these changes, and we may not respond in a timely or commercially appropriate manner to such changes. Furthermore, the health and wellness industry is characterized by rapid and frequent changes in demand for products and new product introductions and enhancements. Our failure to accurately predict these trends could negatively impact consumer opinion of our products, which in turn could harm our customer relationships and product demands and cause the loss of sales. The success of our product offerings depends upon a number of factors, including our ability to:
| ● | Accurately anticipate consumer needs; | |
| ● | Successfully commercialize new products or product enhancements in a timely manner; | |
| ● | Price our products competitively; | |
| ● | Arrange for the production and delivery our products in sufficient volumes and in a timely manner; | |
| ● | Differentiate our products from those of our competitors; and | |
| ● | Innovate and develop new products or product enhancements that meet these trends. |
If we do not meet these challenges, some of our products could be rendered obsolete, which could negatively impact our operating results and financial condition.
Adverse publicity associated with our products or ingredients, or those of our competitors or similar businesses, could adversely affect our sales and revenue.
Adverse publicity concerning any actual or purported failure by us or our competitors to comply with applicable laws and regulations or concerning any other aspect of our business or the CBD industry could have an adverse effect on the public perception of us and our products. This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors, retailers or consumers for our products, which would have a material adverse effect on our ability to generate sales and revenue.
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Our distributors’ and customers’ perception of the safety, utility and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others. Adverse publicity, whether or not accurate, that causes a perceived connection between consumption of our products or any similar products and illness or other adverse effects, will likely diminish the public’s perception of and in turn the demand for our products. Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and revenue, which would have a material adverse effect on our business.
If we are unable to manufacture our products in sufficient quantities or at defined quality specifications, or are unable to maintain regulatory approvals for our production facility, we may be unable to develop or meet demand for our products and lose time to market and potential revenues.
Commercialization of our products require access to, or development of, facilities to manufacture a sufficient supply of our products. In the future we may face difficulties in the development, production or distribution of our products. We may need to outsource the testing or manufacturing process or other aspects of our commercialization efforts, and we may be unable to locate viable third parties and sources and negotiating acceptable terms.
We may face competition for access to any third party supply sources, development or production partners and facilities such as hemp growers and may be subject to production delays if any of those third parties give their other business partners a higher priority than they give to us. Even if we are able to identify additional or replacement third-parties, the delays and costs associated with establishing and maintaining a relationship with such third parties may have a material adverse effect on us. Further, a reduction in the control of our production efforts would be inherent in any such outsourcing, which exposes us to a greater risk of liability, including regulatory enforcement actions for alleged noncompliance with law and product liability claims. This could also result in lower product quality which could negatively impact demand for our offerings or our competitive advantage. Any of these challenges could prevent us from achieving our business objectives and harm your investment in us.
If the market opportunities for our current and potential future products are less lucrative than anticipated, our ability to generate revenues may be adversely affected and our business may suffer.
Our understanding, expectation and estimates of the market for our current and future products may prove to be incorrect, and new test results or studies, reports, legislative or regulatory developments or other factors beyond our control may result in the market for our products being lower than anticipated on a regional, national or global scale. The number of individuals in the U.S. who are willing to purchase our products may be lower than expected, or expectations for repetitive purchases and consumption may prove to be incorrect. These occurrences could materially adversely affect our prospects and operational results.
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If we are unable to establish relationships with third parties to carry out sales, marketing, and distribution functions or to create effective marketing, sales, and distribution capabilities, we will be unable to market our products successfully.
Our business strategy includes using third parties to market and sell the products at the retail level. There can be no assurance that we will successfully be able to establish marketing, sales, or distribution relationships with a sufficient number of third parties to meet our goals, that such relationships, if established, will be successful, or that we will be successful in gaining market acceptance for current or future products. To the extent that we enter into any marketing, sales, or distribution arrangements with third parties, our product revenues per unit sold are expected to be lower than if we marketed, sold, and distributed our products directly, and any revenues we receive will depend upon the efforts of such third parties.
If we are unable to establish such third-party marketing and sales relationships, we would have to establish and grow in-house marketing and sales capabilities. To market any products directly, we would have to build a marketing, sales, and distribution force that has technical expertise and could support a distribution capability. Competition in the health and wellness and CBD industries for technically proficient marketing, sales, and distribution personnel is intense, and attracting and retaining such personnel may significantly increase our costs. There can be no assurance that we will be able to establish internal marketing, sales, or distribution capabilities or that these capabilities will be sufficient to meet our needs.
We face and may continue to face business disruption and related risks arising from the COVID-19 pandemic, which has had and could continue to have a material adverse effect on our business.
Our production and development and sale of our products has been and could continue to be materially adversely affected by the COVID-19 pandemic. In response to the pandemic, we began producing and selling personal protective equipment such as hand sanitizer and face masks. We expect these sales levels to decline at some point in the future to the extent the pandemic begins to be and remains contained. We rely upon CBD sales in retail stores including convenience stores and have not created a material online sales presence. Sales of our CBD products declined as a result of the pandemic, due in part to decreased demand caused by economic hardship and uncertainty and production challenges caused by supply shortages and the lockdowns. While vaccinations beginning in 2021 allowed for the partial reopening of the economy, the recent “Delta” variant of the virus, as well as reduced efficacy of vaccines over time and the possibility that a large number of people decline to get vaccinated or receive booster shots, creates inherent uncertainty as to the future of our business, our industry and the economy in general in light of the pandemic.
We are still assessing our business plans and the impact COVID-19 may have on our ability to commercialize our products, but there can be no assurance that this analysis will enable us to avoid or mitigate part or all of any impact from the spread of COVID-19 or its consequences, including macroeconomic downturns. The extent to which the COVID-19 pandemic and global efforts to contain its spread will impact our operations will depend on future developments, which for a variety of reasons including those described above are highly uncertain and cannot be predicted at this time.
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We have a limited operating history upon which investors can evaluate our future prospects.
Panacea was founded and began operations in the CBD industry in 2017 and we therefore have a limited operating history upon which an evaluation of its business plan or performance and prospects can be made. The business and prospects of the Company must be considered in the light of the potential problems, delays, uncertainties and complications encountered in connection with a business which is still in its early stages in a relatively new industry characterized by unexpected change. The risks include, but are not limited to, the possibility that we fail to develop functional and scalable products, or that although functional and scalable, our products will not be economical to market in order to become or remain profitable; that our competitors hold proprietary rights precluding us from marketing such products; that our competitors offer a superior or equivalent product or otherwise achieve or maintain greater market acceptance than us; that we are unable to upgrade or improve our processes and products to accommodate new features and expand our offerings; or that we fail to receive or maintain necessary regulatory clearances and compliance for our products and operations. In order to grow our revenue, we must develop and improve upon our brand name recognition and competitive advantages for our products and expand into new markets. Even if we accomplish such growth, resulting expenses may be greater than estimated, which could reduce or even eliminate any revenue gains for which such endeavors were made. There are no assurances that we can successfully address these challenges. If we are unsuccessful, our business, financial condition and operating results could be materially and adversely affected.
If the market for CBD products declines, it would materially and adversely affect our business.
Following the passage of the 2018 Farm Bill described below, our industry experienced an influx of hemp farmers and producers which resulted in a saturated marketplace. As a result, the supply for CBD and related products has in the past exceeded demand. This trend could force us to reduce our prices to remain competitive or could result in lower sales levels than we have experienced in the past, either of which would result in a decline in revenue or growth rate and could materially adversely affect our financial condition and prospects.
Even if we meet our growth objectives and our enter into new markets as intended, we may face difficulties evaluating our current and future business prospects, and we may be unable to effectively manage any growth associated with these achievements, which would increase the risk of your investment losing value and could harm our business, financial condition, and results of operations.
Our entry into new markets and/or growth in our product offering or consumer base may place a significant strain on our resources and increase demands on our executive management, personnel and operational systems, and our human, administrative and financial resources may be inadequate to meet these demands. We may also be unable to effectively manage any expanded operations or achieve planned growth on a timely or profitable basis, particularly if the number of customers using our products significantly increases within a short period of time. If we are unable to manage expanded operations effectively, we may experience operating inefficiencies, the quality of our products could decline, and our business and results of operations could be materially adversely affected.
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If we cannot manage our growth effectively, our results of operations would be materially and adversely affected.
We expect to experience significant growth following the June 2021 share exchange and further growth as we raise additional capital. Businesses which grow rapidly often have difficulty managing their growth while maintaining their compliance and quality standards. If we grow as rapidly as anticipated, we will need to expand our management by recruiting and employing additional executive and key personnel capable of providing the necessary support. There can be no assurance that management, along with staff, will be able to effectively manage the Company’s growth nor can there be any assurance that growth in our product offerings, customer base or contracts will translate to an increase in revenue or profitability. Any failure to meet the challenges associated with rapid growth could materially and adversely affect our business and operating results.
Risks Related to Government Regulation
Existing or future governmental regulations relating to CBD products may harm or prevent our ability to produce and/or sell our product offerings.
While a majority of state governments in the United States have legalized the growing, production, and use of CBD in some form and subject to certain restrictions, cannabis remains illegal under federal law. In addition, in July 2017, the United States Drug Enforcement Agency issued a statement that certain CBD extractions fall within the definition of marijuana and are therefore a Schedule I controlled substance under the Controlled Substances Act of 1970, as amended. Thus, the cannabis industry, including companies which sell products containing CBD, faces significant uncertainty surrounding regulation by the federal government, which could claim supremacy over state regulatory regimes including those with a “friendlier” view toward CBD products. While the federal government has for several years chosen to not intervene in the cannabis business conducted legally within the states that have legislated such activities, there is, nonetheless, potential that the federal government may at any time choose to begin enforcing its laws against the manufacture, possession, or use of cannabis-based products such as CBD. Similarly, there is the possibility that the federal government may enact legislation or rules that authorize the manufacturing, possession or use of those products under specific guidelines. Local, state and federal cannabis laws and regulations are broad in scope and subject to evolving interpretations. In the event the federal government was to tighten its regulation of the industry, we would likely suffer a material adverse effect on our business, including potentially substantial losses.
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Because laws and regulations affecting our industry are evolving, changes to any regulation may materially affect our CBD products.
In conjunction with the enactment of the Agriculture Improvement Act of 2018 (the “Farm Bill”), the Food and Drug Administration (the “FDA”) released a statement about the status of CBD as a nutritional supplement, and the agency’s actions in the short term with regards to CBD will guide the industry. As a company whose products contain CBD, we intend to meet all FDA guidelines as the regulations evolve. Any difficulties in compliance with future government regulation could increase our operating costs and adversely impact our results of operations in future periods.
In addition, as a result of the Farm Bill’s passage, we expect that there will be a constant evolution of laws and regulations affecting the CBD industry which could affect our operations. Local, state and federal hemp laws and regulations may be broad in scope and subject to changing interpretations. These changes may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business plan. Furthermore, violations of these laws, or alleged violations, could disrupt our business and result in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be directly applicable to our business.
Unexpected changes in federal and state law could cause any of our current products, as well as products that we intend to develop and launch, containing hemp-derived CBD oil to be illegal, or could otherwise prohibit, limit or restrict any of our products containing CBD.
Our business is based on the production and distribution of products containing hemp-derived CBD. The Farm Bill, which amended various sections of the U.S. Code, and legalized the cultivation and sale of industrial hemp at the federal level, subject to compliance with certain federal requirements and state law. There can be no assurance that the Farm Bill will not be repealed or amended such that our products containing hemp-derived CBD would once again be deemed illegal under federal law.
The Farm Bill delegates the authority to the states to regulate and limit the production of hemp and hemp-derived products within their territories. Although many states have adopted laws and regulations that allow for the production and sale of hemp and hemp-derived products under certain circumstances, no assurance can be given that such state laws may not be repealed or amended such that our intended products containing hemp-derived CBD would once again be deemed illegal under the laws of one or more states now permitting such products, which in turn would render such intended products illegal in those states under federal law even if the federal law is unchanged. In the event of either repeal of federal or of state laws and regulations, or of amendments thereto that are adverse to our intended products, we may be restricted or limited with respect to those products that we may sell or distribute, which could adversely impact our intended business plan with respect to such intended products.
Additionally, the FDA has indicated that certain products containing CBD are not permissible under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), notwithstanding the passage of the Farm Bill. On December 20, 2018, after the Farm Bill became law, then FDA Commissioner Scott Gottlieb issued a statement in which he reiterated the FDA’s position that CBD products that are marketed with a claim of therapeutic benefit must be approved by the FDA for their intended use before they may be distributed in interstate commerce and that the FDCA prohibits interstate distribution of food products containing CBD and marketing products containing CBD as a dietary supplement, regardless of whether the substances are hemp-derived. Although we believe our existing and planned CBD products comply with applicable federal and state laws and regulations, legal proceedings alleging violations of such laws could have a material adverse effect on our results of operations and financial condition. Sources of hemp-derived CBD depend upon legality of cultivation, processing, marketing and sales of products derived from those plants under state law.
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Hemp-derived CBD can only be legally produced in states that have laws and regulations that allow for such production and that comply with the Farm Bill, apart from state laws legalizing and regulating medical and recreational cannabis or marijuana, which remains illegal under federal law. This is one of the reasons why we are based in Colorado. Unexpected changes in federal and state law could cause our current CBD production methods or resulting products, as well as products that we intend to develop and launch, to be illegal or could otherwise prohibit, limit or restrict some or all of our products in the event of repeal or amendment of laws and regulations which are now comparatively favorable to the cannabis/hemp industry in certain states, we would be required to locate new suppliers in states with laws and regulations that qualify under the Farm Bill. If we were to be unsuccessful in arranging new sources of supply of our raw ingredients, or if our raw ingredients were to become legally unavailable, our intended business plan with respect to such products could be adversely impacted.
Because we and our distributors may only sell and ship our products containing hemp-derived CBD in states that have adopted laws and regulations qualifying under the Farm Bill, a reduction in the number of states having such qualifying laws and regulations could limit, restrict or otherwise preclude the sale of intended products containing hemp-derived CBD.
The interstate shipment of hemp-derived CBD from one state to another is legal only where both states have laws and regulations that allow for the production and sale of such products and that qualify under the Farm Bill. Therefore, the marketing and sale of our products is limited by such factors and is restricted to such states. Although we believe we may lawfully sell any of our finished products including those containing CBD in a majority of states, a repeal or adverse amendment of laws and regulations that are now favorable to the distribution, marketing and sale of finished products we intend to sell could significantly limit, restrict or prevent us from generating revenue related to our products that contain hemp-derived CBD. Additionally, any such adverse changes or existing legislation in new markets we target may stunt our growth and diminish our prospects. Any such repeal or adverse amendment of laws and regulations could have an adverse impact on our business plan with respect to such products.
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Costs associated with compliance with numerous laws and regulations and quality standards could adversely impact our financial results.
The manufacture, labeling and distribution of CBD products is regulated by various federal, state and local government agencies. These governmental authorities regulate our products and processes to ensure that the products are not adulterated or misbranded. We are subject to regulation by the federal government and other state and local agencies as a result of our CBD products. In addition to the risks associated with the possibility of government enforcement or private litigation due to alleged noncompliance, our compliance costs associated with our day-to-day operations are high and are expected to increase as we expand into new markets and/or develop and market new products. For example, as a “seed to sale” CBD business, meaning a business which handles every step of a CBD product’s manufacture and sale in-house rather than relying on third parties for some or all the production and distribution steps, we are responsible for the quality of our product, and the means by which it is produced and marketed, at every stage. Compliance with regulations imposed on our business model means we must deploy and maintain an advanced computer monitoring system which allows us to track our production and distribution process. We must train our employees and utilize and maintain security measures to ensure our facility functions properly. Compliance with these and other government requirements for product monitoring, quality, labelling and distribution are costly which may limit our profitability.
Our products or third parties with whom we do business may not comply with health, safety and labelling standards.
We do not have control over all of the third parties involved in the sale of our products and their compliance with government health, safety and labelling standards. Even if our products meet these standards, they could otherwise become contaminated or fail, or the standards could be changed in a manner adverse to our operations or those of our business partners. A failure to meet these standards could occur in our operations or those of our distributors or suppliers. This could result in expensive production interruptions, recalls, regulatory investigations and enforcement actions and liability claims. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.
If we fail to comply with U.S. laws related to privacy, data security, and data protection, it could adversely affect our operating results and financial condition.
We rely on a variety of marketing techniques, including email, radio, display advertising, and social media marketing, targeted online advertisements, and postal mailings, and we are or may become subject to various laws and regulations that govern such marketing and advertising practices. A variety of federal and state laws and regulations, including those enforced by various federal government agencies such as the Federal Trade Commission, Federal Communications Commission, and state and local agencies, govern the collection, use, retention, sharing, and security of personal data, particularly in the context of online advertising, which we utilize to attract new customers.
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The legislative and regulatory bodies or self-regulatory organizations in various jurisdictions inside the United States may expand current laws or regulations, enact new laws or regulations, or issue revised rules or guidance regarding privacy, data protection, consumer protection, information security, and online advertising. California has enacted the California Consumer Privacy Act of 2018 (the “CCPA”), which became operative on January 1, 2020, and its implementing regulations took effect in August 2020. The CCPA requires companies that process personal information on California residents to make new disclosures to consumers about such companies’ data collection, use, and sharing practices and inform consumers of their personal information rights such as deletion rights, allows consumers to opt out of certain data sharing with third parties, and provides a new cause of action for data breaches. In November 2020, California enacted the California Privacy Rights Act of 2020 (the “CPRA”), which amends and expands the scope of the CCPA, while introducing new privacy protections that extend beyond those included in the CCPA and its implementing regulations. The CCPA, as amended and expanded by the CPRA, is one of the most prescriptive general privacy law in the United States and may lead to similar laws being enacted in other U.S. states or at the federal level. For example, the State of Nevada also passed a law effective on October 1, 2019 that amends the state’s online privacy law to allow consumers to submit requests to prevent websites and online service providers (“Operators”) from selling personally identifiable information that Operators collect through a website or online service. Further, on March 2, 2021, the Governor of Virginia signed into law the Virginia Consumer Data Protection Act (the “VCDPA”). The VCDPA creates consumer rights, similar to the CCPA, but also imposes security and assessment requirements for businesses. In addition, on July 7, 2021, Colorado, the state in which we are headquartered, enacted the Colorado Privacy Act (“CoCPA”), becoming the third comprehensive consumer privacy law to be passed in the United States (after the CCPA and VCDPA). Although the CoCPA closely resembles the VCDPA, both of which do not contain a private right of action and will instead be enforced by the respective states’ Attorney General and district attorneys, the two differ in many ways and once they become enforceable in 2023, we must comply with each if our operations fall within the scope of these newly enacted comprehensive mandates. Prior efforts undertaken to comply with other recent privacy-related laws have proven that these initiatives require time to carefully plan, assess gaps in current compliance mechanisms, and implement new policies, processes and remediation efforts. Additionally, the Federal Trade Commission and state attorneys general are interpreting federal and state consumer protection laws to impose standards for the online collection, use, dissemination, and security of data. Each of these privacy, security, and data protection laws and regulations, and any other such changes or new laws or regulations, could impose significant limitations, require changes to our business model or practices, or restrict our use or storage of personal information, which may increase our compliance expenses and make our business more costly or less efficient to conduct. In addition, any such changes could compromise our ability to develop an adequate marketing strategy and pursue our growth strategy effectively, which, in turn, could adversely affect our business, financial condition, and results of operations.
While we intend to strive to comply with applicable laws and regulations relating to privacy, data security, and data protection, given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be in conflict across jurisdictions, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us or third party service providers to comply with privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personal data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our operating results and financial condition.
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Our planned expansion into international markets will involve inherent risks that we may not be able to control.
Our business plan includes the eventual marketing and sale of our products in international markets. Specifically, we do not currently have a set time frame for entering these markets. Accordingly, our operating results could be materially and adversely affected by a variety of uncontrollable and changing factors relating to international business operations, including:
| ● | Economic conditions adversely affecting geographic areas in which we intend to do business; | |
| ● | Foreign currency exchange rates; | |
| ● | Political or social unrest or economic instability in a specific country or region; | |
| ● | Higher costs of doing business in foreign countries; | |
| ● | Infringement claims on foreign patents, copyrights or trademark rights; | |
| ● | Difficulties in staffing and managing operations across disparate geographic areas; | |
| ● | Difficulties associated with enforcing agreements and intellectual property rights through foreign legal systems; | |
| ● | Trade protection measures and other regulatory requirements, which may affect our ability to import or export our products from or to various countries; | |
| ● | Adverse tax consequences; | |
| ● | Unexpected changes in legal and regulatory requirements and challenges in complying with varying requirements across jurisdictions; and | |
| ● | Military conflict, terrorist activities, natural disasters and medical epidemics. |
If we are unable to overcome these or other challenges in executing our planned expansion into international markets, our prospects would be materially adversely affected.
Risks Related to Intellectual Property
We may become involved in litigation or other proceedings relating to patent and other intellectual property rights.
A third party may sue us or our strategic collaborators for infringing its intellectual property rights. Likewise, we may need to resort to litigation to enforce licensed rights or to determine the scope and validity of third-party intellectual property rights. The cost to us of any litigation or other proceeding relating to intellectual property rights, even if resolved in our favor, could be substantial, and the litigation would divert our efforts. Some of our competitors may be able to sustain the costs of complex patent litigation more effectively than we can because they have substantially greater resources. If we do not prevail in this type of litigation, we or our strategic collaborators may be required to pay monetary damages; stop commercial activities relating to the affected products or services; obtain a license in order to continue manufacturing or marketing the affected products or services; or attempt to compete in the market with a substantially similar product. Uncertainties resulting from the initiation and continuation of any litigation could limit our ability to continue some of our operations. In addition, a court may require that we pay expenses or damages, and litigation could distract management or disrupt our commercial activities.
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If we become involved in intellectual property litigation, such litigation is likely to be expensive and time-consuming and could be unsuccessful.
Our commercial success will depend in part on our avoiding infringement on the patents and proprietary rights of third parties for products we license or sell. There is substantial litigation, both within and outside the United States, involving patent and other intellectual property rights in the health and wellness industry, including patent infringement lawsuits, interferences, oppositions, and reexaminations and other post-grant proceedings before the U.S. Patent and Trademark Office, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent applications which are owned by third parties may exist with products we may license and sell.
Parties making intellectual property claims against us may obtain injunctive or other equitable relief, which could block our ability to further develop and commercialize one or more products. Defense of these claims, regardless of their merit, involves substantial litigation expense and would be a substantial diversion of our management’s attention from our business. If a claim of infringement against us succeeds, we may have to pay substantial damages, possibly including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure.
To counter infringement or unauthorized use claims against us, we may be required to file infringement claims in response, or we may be required to defend the validity or enforceability of any such intellectual property rights. In an infringement proceeding, a court may decide that either our or one or more of our licensors’ intellectual property rights are not valid or is unenforceable or may refuse to stop the other party from using the underlying concepts or technology at issue because our intellectual property rights do not cover those elements. In any event, intellectual property litigation is expensive and time consuming and we may be unsuccessful in defending or enforcing such claims, which would materially harm our business.
Any inability to protect our intellectual property rights could reduce the value of our products and brands, which could adversely affect our financial condition, results of operations and business.
Our business is partly dependent upon our trademarks, trade secrets, copyrights and other intellectual property rights. Effective intellectual property rights protection, however, may not be available under the laws of every country in which we and our sub-licensees may operate. There is a risk of certain valuable trade secrets being exposed to potential infringers. Regardless of whether our compounds and technology are or becomes protected by patents or otherwise, there is a risk that other companies may employ such compounds or technology without authorization and without recompensing us.
The efforts we take to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. In addition, protecting our intellectual property rights is costly and time consuming. There is a risk that we may have insufficient resources to counter adequately such infringements through negotiation or the use of legal remedies. It may not be practicable or cost effective for us to fully protect our intellectual property rights in some countries or jurisdictions. If we are unable to successfully identify and stop unauthorized use of our intellectual property, we could lose potential revenue and experience increased operational and enforcement costs, which could adversely affect our financial condition, results of operations and business.
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The intellectual property behind our products may include unpublished know-how which is dependent on certain key individuals, as well as existing and pending intellectual property protection.
The commercialization of our products is partially dependent upon know-how and trade secrets held by certain individuals working with and for us. Because the expertise runs deep in these few individuals, if something were to happen to any or all of these individuals, the ability to properly manufacture our products without compromising quality and performance could be diminished greatly. Further, [while our employees and contractors are subject to non-disclosure obligations,] any misappropriation of confidential information including trade secrets and know-how could allow our competitors and others to overcome any advantage we have and reduce our market share and viability.
Risks Related to Our Securities and Our Status as an SEC Reporting Company
Because our Chief Executive Officer, directly and through entities she controls, beneficially owns approximately 60% of our issued and outstanding common stock and voting power on an as-converted basis, she can exert significant control over our business and affairs which may be averse to those of our stockholders, particularly if a conflict of interest arises.
Our Chief Executive Officer and currently one of our two directors, owns approximately 62% of our issued and outstanding shares of common stock and voting power on an as-converted basis. As of June 30, 2021 she also holds $5,686,713 in demand notes issued by Panacea and the Company which bear interest at a rate ranging from 10 to 12% per annum. The interests of Ms. Buttorff may differ from the interests of our other stockholders, including by virtue of her other businesses operated through her non-Exactus affiliated entities and their holdings. As a result, Ms. Buttorff will have significant influence and control over all corporate actions including those actions requiring stockholder approval, irrespective of how our minority stockholders may vote, including the following actions:
| ● | the election of our directors; | |
| ● | charter or bylaw amendments; | |
| ● | a merger, asset sale or other fundamental corporate transaction; and | |
| ● | any other matter submitted to our stockholders for a vote, subject only to applicable law including the Nevada Revised Statutes. |
This concentration of ownership and the conflicts of interest may have the effect of impeding a merger, consolidation, takeover or other business combination or tender offer for our common stock which other stockholders may deem desirable or could reduce our stock price or prevent our stockholders from realizing a premium over our stock price in such a transaction. Further, to the extent our other stockholders disagree with an action Ms. Buttorff elects to take as a stockholder, their ability to prevent such action or avoid its effect on their shareholdings will range from significantly limited to non-existent due to our current capital structure, subject only to applicable law and our charter documents. Therefore, if Ms. Buttorff has an interest adverse to other stockholders, or if other stockholders otherwise disagree with Ms. Buttorff with respect to a matter before the stockholders, they will have little to no control over that matter and the direction the ultimately Company takes.
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The requirements of being a public company may strain our resources and distract our management, which could make it difficult to manage our business.
The federal securities laws require us to comply with SEC reporting requirements relating to our business and securities. Complying with these reporting and other regulatory obligations is time-consuming and will result in increased costs to us which could have a negative effect on our financial condition or business. These increased costs are not reflected in the financial statements contained in this Report because during the periods covered Panacea was a private company not subject to SEC reporting obligations.
As a public company, we are subject to the reporting requirements of the Exchange Act and the requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. We are required to file annual, quarterly and current reports with the SEC disclosing certain aspects and developments of our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting. To maintain and improve the effectiveness of our disclosure controls and procedures, we will need to commit significant resources, hire additional executive officers and personnel and provide for additional management oversight. We intend to implement additional procedures and processes for the purpose of addressing the standards and requirements applicable to SEC reporting companies. Sustaining our growth will also require us to commit additional managerial, operational and financial resources to identifying competent professionals to join our Company and to maintain appropriate operational and financial systems to adequately support our intended expansion. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on our results of operations, financial condition or business.
Due to factors beyond our control, our stock price may be volatile.
Any of the following factors could affect the market price of our common stock:
| ● | Our failure to generate increasing material revenues from our CBD products; | |
| ● | Our failure to enhance our product offerings or expand into new markets; | |
| ● | A decline in our revenue or growth rate; | |
| ● | Our public disclosure of the terms of any financing which we consummate in the future; | |
| ● | A decline in the economy which impacts the demand for our products and our ability to generate revenue and achieve growth metrics; | |
| ● | Announcements by us or our competitors of significant contracts, new products, acquisitions, commercial relationships, joint ventures or capital commitments; | |
| ● | Changes in laws, regulations or government actions affecting the CBD industry in general or our products in particular; | |
| ● | Our ability to list our common stock on a national securities exchange; |
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| ● | Our ability to attract analyst coverage; | |
| ● | The sale of large numbers of shares of common stock by our shareholders; | |
| ● | Short selling activities; or | |
| ● | Changes in market valuations of similar companies. |
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. A securities class action suit against us could result in substantial costs and divert our management’s time and attention, which would otherwise be used to benefit our business.
We are subject to the “penny stock” rules which will adversely affect the liquidity of our common stock.
The SEC has adopted regulations which generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock on the OTCQB is presently less than $5.00 per share and therefore we are considered a “penny stock” company according to SEC rules. While we intend to effect a reverse stock split pending compliance with SEC Rules, including the filing of a Schedule 14C, to increase our stock price, until such time as our stock price rises above $5.00 per share (which may not occur following the reverse stock split or at all), the “penny stock” designation requires any broker-dealer selling our securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules limit the ability of broker-dealers to solicit purchases of our common stock and therefore reduce the liquidity of the public market for our shares.
Broker-dealers are increasingly reluctant to permit investors to buy or sell speculative unlisted stock and often impose costs which make it uneconomical for small shareholders to do so. Moreover, as a result of apparent regulatory pressure from the SEC and the Financial Industry Regulatory Authority (“FINRA”), a growing number of broker-dealers decline to permit investors to purchase and sell or otherwise make it difficult to sell shares of penny stocks. The “penny stock” designation may have a depressive effect upon our common stock price which the prospective reverse stock split may not sufficiently overcome.
Our ability to continue as a going concern is in doubt unless we obtain adequate new debt or equity financing and achieve sufficient sales levels.
As noted above, we have incurred significant net losses to date. We anticipate that we will continue to lose money for the foreseeable future. Additionally, we have negative cash flows from operations and we our revenue may exceed our expenses in the next 12 months. Our continued existence is dependent upon generating sufficient working capital and obtaining adequate new debt or equity financing. These factors raise doubt about the Company’s ability to continue as a going concern for a period of 12 months from the issuance date of this report. Management cannot provide assurance that the Company will ultimately achieve or maintain profitable operations or become cash flow positive or raise additional debt and/or equity capital. Because of our continuing losses, without improvements in our cash flow from operations or new financing, we may have to continue to restrict our expenditures. Working capital limitations may impinge on our day-to-day operations, which may contribute to continued operating losses.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES OR USE OF PROCEEDS.
During the three months ended June 30, 2021, the Company issued a total of 23,640,689 shares of common stock to investors in exchange for employee salary settlements and to extinguish most of its indebtedness, for total consideration of $1,181,493. On June 9, 2021 the Company issued 8,000,000 shares of common stock to two investors in connection with the Ceed2Med settlement and on June 30, 2021 the Company issued 950,000 shares of common stock to certain vendors and other claimants to settle certain outstanding obligations and litigation totaling $115,000. In addition, following the reverse split, we agreed to issue 950,000 shares in satisfaction of $13,000 of liabilities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
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ITEM 6. EXHIBITS.
| Incorporated by Reference | ||||||||||
| Exhibit # | Exhibit Description | Form | Date | Number | Filed or Furnished Herewith | |||||
| 3.1 | Amended Articles of Incorporation | 8-K | 7/7/21 | 3.1 | ||||||
| 3.3 | Amended Bylaws | 8-K | 7/7/21 | 3.2 | ||||||
| 3.4 | Certificate of Designation for Series A Preferred Stock | 8-K | 2/18/21 | 4.1 | ||||||
| 3.5 | Certificate of Designation for Series B-1 Preferred Stock | 8-K | 3/4/16 | 3.1 | ||||||
| 3.6 | Certificate of Designation for Series B-2 Preferred Stock | 8-K/A | 2/17/16 | 3.2 | ||||||
| 3.7 | Certificate of Designation for Series C Preferred Stock | Filed | ||||||||
| 3.8 | Certificate of Designation for Series C-1 Preferred Stock | Filed | ||||||||
| 3.9 | Certificate of Designation for Series D Preferred Stock | Filed | ||||||||
| 10.1 | 2021 Equity Incentive Plan* | Filed | ||||||||
| 10.2 | Employment Agreement dated June 30, 2021 – Leslie Buttorff* | Filed | ||||||||
| 10.3 | Form of Securities Exchange Agreement | 8-K | 7/7/21 | 10.1 | ||||||
| 10.4 | Form of Indemnification Agreement* | 8-K | 7/7/21 | 10.2 | ||||||
| 10.5 | Form of Promissory Note issued to Quintel-MC Incorporated (Panacea) | Filed | ||||||||
| 10.6 | Form of Promissory Note issued to Leslie Buttorff (Panacea) | Filed | ||||||||
| 10.7 | Form of Promissory Note issued to Leslie Buttorff (Exactus) | Filed | ||||||||
| 10.8 | Note Exchange Agreement+** | Filed | ||||||||
| 10.9 | Assignment of lease | Filed | ||||||||
| 31.1 | Certification of Principal Executive Officer (302) | Filed | ||||||||
| 31.2 | Certification of Principal Financial Officer (302) | Filed | ||||||||
| 32.1 | Certification of Principal Executive and Principal Financial Officer (906) | Furnished*** | ||||||||
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed | ||||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed | ||||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed | ||||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed | ||||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed | ||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |||||||||
* Management contract or compensatory plan or arrangement.
** Exhibits and/or Schedules have been omitted. The Company hereby agrees to furnish to the Securities and Exchange Commission upon request any omitted information.
*** This exhibit is being furnished rather than filed and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.
+Portions of this exhibit have been omitted as permitted by the rules of the SEC. The information excluded is both (i) not material and (ii) would be competitively harmful if publicly disclosed. The Company undertakes to submit a marked copy of this exhibit for review by the SEC Staff, to the extent it has not been previously provided, and provide supplemental materials to the SEC Staff promptly upon request.
Copies of this report (including the financial statements) and any of the exhibits referred to above will be furnished at no cost to our shareholders who make a written request to Exactus, Inc., at the address on the cover page of this report, Attention: Corporate Secretary.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Exactus, Inc. | |
| August 23, 2021 | /s/Leslie Buttorff |
| Leslie Buttorff | |
| Chief Executive Officer | |
| /s/ Nathan Berman | |
| Nathan Berman | |
|
|
Principal Accounting Officer |
| 48 |
Exhibit 3.7
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
The undersigned, Chief Executive Officer of Exactus, Inc., a Nevada corporation (the “Corporation”), DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors of the Corporation by unanimous written consent on June 29, 2021;
WHEREAS, the Board of Directors is authorized within the limitations and restrictions stated in the Certificate of Incorporation of the Corporation, as amended, to provide by resolution or resolutions for the issuance of Fifty Million (50,000,000) shares of Preferred Stock, par value $0.0001 per share, of the Corporation, in such series and with such designations, preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions as the Corporation’s Board of Directors shall fix by resolution or resolutions providing for the issuance thereof duly adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to authorize and fix the terms of a series of Preferred Stock and the number of shares constituting such series; and
WHEREAS, all currency amounts set forth herein shall be stated in United States Dollars (USD).
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Authorized Shares. The Corporation shall be authorized to issue one million (1,000,000) shares of Series C Convertible Preferred Stock, par value $0.0001 per share (the “Series C Preferred Stock”).
2. Stated Value. Each share of Series C Preferred Stock shall have a stated value of $6.046 per share (the “Stated Value”). The Series C Preferred Stock shall have a participation right as to certain contingent recoveries of the Panacea Life Sciences, Inc. (“Panacea”), the Corporation’s wholly-owned subsidiary, up to 100% of the Stated Value of Series C Preferred Stock, as more particularly set forth in Section 6.
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3. Liquidation.
3.1 Upon the liquidation, dissolution or winding up of the business of the Corporation, whether voluntary or involuntary (a “Liquidation”), each holder of Series C Preferred Stock shall be entitled to receive, for each share thereof, out of assets of the Corporation legally available therefor, a preferential amount in cash equal to (and not more than) the Stated Value. All preferential amounts to be paid to the holders of Series C Preferred Stock in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Corporation to the holders of any other class or series of capital stock of the Corporation other than the Series C-1 Convertible Preferred Stock and the Series D Convertible Preferred Stock of the Corporation which shall rank parri passu with the Series C-1 Preferred Stock. If upon any such distribution the assets of the Corporation shall be insufficient to pay the holders of the outstanding shares of Series C Preferred Stock, the Series C-1 Convertible Preferred Stock and the Series D Convertible Preferred Stock the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. A “Change of Control Transaction” means a sale of all or substantially all of the Corporation’s assets or an acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, a reorganization, consolidated or merger) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Corporation. A “Fundamental Transaction” means that (i) the Corporation or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Corporation or any of its subsidiaries is the surviving corporation) any other person or entity, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (3) allow any other person or entity to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of the Corporation (not including any shares of voting stock of the Corporation held by the persons or entities making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of the Corporation (not including any shares of voting stock of the Corporation held by the other person or entity making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify the common stock of the Corporation, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “1934 Act”) and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of the Corporation.
3.2 Any distribution in connection with the liquidation, dissolution or winding up of the Corporation, or any bankruptcy or insolvency proceeding, shall be made in cash to the extent possible. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation.
4. Voting. Except as otherwise expressly required by law, each holder of Series C Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Corporation and shall be entitled to the number of votes for each share of Series C Preferred Stock owned at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, equal to the number of shares of Common Stock (as defined below) that such shares of Series C Preferred Stock are convertible into at such time. Except as otherwise required by law, the holders of shares of Series C Preferred Stock shall vote together with the holders of Common Stock on all matters and shall not vote as a separate class.
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5. Conversion.
5.1 Conversion Right. Each holder of Series C Preferred Stock may, from time to time, convert any or all of such holder’s shares of Series C Preferred Stock into fully paid and non-assessable shares of Common Stock in an amount equal to 64.098 shares of the Corporation’s common stock, par value $0.0001 per share (the “Common Stock”) for each one (1) share of Series C Preferred Stock surrendered (the “Conversion Rate”). The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round such fraction of a share of Common Stock up to the nearest whole share.
5.2 Conversion Procedure. In order to exercise the conversion privilege under this Section 5, the holder of any shares of Series C Preferred Stock to be converted shall give written notice to the Corporation at its principal office that such holder elects to convert such shares of Series C Preferred Stock or a specified portion thereof into shares of Common Stock as set forth in such notice (the “Conversion Notice”, and such date of delivery of the Conversion Notice to the Corporation, the “Conversion Notice Delivery Date”). Within two (2) business days following the Conversion Notice Delivery Date, the Corporation shall issue and deliver a certificate or certificates representing the number of shares of Common Stock determined pursuant to this Section 5 (the “Share Delivery Date”). In case of conversion under this Section 5 of only a part of the shares of Series C Preferred Stock represented by a certificate surrendered to the Corporation, the Corporation upon the request of a holder shall issue and deliver to the holder or its designee a new certificate for the number of shares of Series C Preferred Stock which have not been converted, upon receipt of the original certificate or certificates representing shares of Series C Preferred Stock so converted. Until such time as the certificate or certificates representing shares of Series C Preferred Stock which have been converted are surrendered to the Corporation and a certificate or certificates representing the Common Stock into which such shares of Series C Preferred Stock have been converted have been issued and delivered, the certificate or certificates representing the shares of Series C Preferred Stock which have been converted shall represent the shares of Common Stock into which such shares of Series C Preferred Stock have been converted. The Corporation shall pay all documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock issuable upon conversion of the Series C Preferred Stock.
(i) Buy-In. If, by the Share Delivery Date, the Corporation fails for any reason to deliver the shares of Common Stock issuable upon conversion of the Series C Preferred Stock, as set forth in the Conversion Notice, and after such Share Delivery Date, the converting holder purchases, in an arm’s length open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by the converting holder (the “Sold Shares”), which delivery such converting holder anticipated to make using the shares to be issued upon such conversion (a “Buy-In”), the converting holder shall have the right to require the Corporation to pay to the converting holder the Buy-In Adjustment Amount. The Corporation shall pay the Buy-In Adjustment Amount to the converting holder in immediately available funds immediately upon demand by the converting holder. For purposes of this Certificate of Designation, the term “Buy-In Adjustment Amount” means the amount equal to the excess, if any, of (i) the converting holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares associated with a Buy-In, over (ii) the net proceeds (after brokerage commissions, if any) received by the converting holder from the sale of the Sold Shares. By way of illustration and not in limitation of the foregoing, if the converting holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In, with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Corporation will be required to pay to the converting holder will be $1,000.
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5.3 Other Provisions.
(i) Reservation of Common Stock. The Corporation shall at all times reserve from its authorized Common Stock a sufficient number of shares to provide for conversion of all Series C Preferred Stock from time to time outstanding.
(ii) Record Holders. The Corporation and its transfer agent, if any, for the Series C Preferred Stock may deem and treat the record holder of any shares of Series C Preferred Stock as reflected on the books and records of the Corporation as the sole true and lawful owner thereof for all purposes, and neither the Corporation nor any such transfer agent shall be affected by any notice to the contrary.
(iii) Restriction and Limitations. Except as expressly provided herein or as required by law so long as any shares of Series C Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent of the holders of at least a majority of the then outstanding shares of the Series C Preferred Stock, take any action to modify the terms of the shares of Series C Preferred stock or take any other action, including the creation of a new class or series of stock in the Corporation or the modification of the terms of any existing series or class of stock in the Corporation, which would, in the reasonable opinion of the holder, adversely affect any of the preferences, limitations or relative rights of the Series C Preferred Stock.
6. Participation Right.
6.1 Optional Participation. At any time on or prior to December 31, 2023 (the “Participation Period”), each holder of Series C Preferred Stock shall have the right upon at least five (5) days prior written notice to request and the Corporation shall thereupon be obligated to pay such holder(s), exclusively from the proceeds of the Corporation Acquired Claims (as defined below) an amount in cash equal to their Stated Value plus all accrued and unpaid dividends and distributions thereon (in each such case, a “Participation Payment”), provided at the time of the Participation Payment (as defined below) the Corporation would have current assets on a consolidated basis of at least $2,500,000, the lesser of: (A) such number of shares of Series C Preferred Stock as have a combined Stated Value equal to one-hundred (100%) percent of the amount of contingent recoveries or payments irrevocably paid to and received by the Corporation (net of all cost, fees and expenses) from the Corporation Acquired Claims (as defined below), or (B) the remaining shares of Series C Preferred Stock issued and outstanding.
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6.2 Definition of Corporation Acquired Claims. “Corporation Acquired Claims” shall mean (a) recoveries (through litigation, settlement or otherwise) of cash or assets from those claims and obligations of third parties to pay the Corporation or Panacea and attributable to any of the following claims: (i) proceeds received from or relating to the pending litigation involving Blue Circle Development, LLC and certain governments and referenced in Schedule 3.07 to that certain Securities Exchange Agreement dated June 30, 2021 by and among the Corporation, Panacea and the shareholders of Panacea named therein, and (b) net proceeds received by Panacea in the future from the sale of shares of common stock of 22nd Century Group, Inc. owned by Panacea as of the date of execution of this Certificate of Designation of Preferences, Rights and Limitations of Series C Preferred Stock.
6.3 Interest on Unpaid Participation Amounts. If the Corporation fails to make a Participation Payment as required under this Section 6 within seven (7) days following delivery of a holder’s election to accept a Participation Payment, then the Corporation shall pay and each electing holder of Series C Preferred Stock shall be entitled to receive, with respect to each share of Series C Preferred Stock then held by such holder, interest at a rate of six (6%) percent per annum (“Interest”) on the Stated Value of all then outstanding shares of Series C Preferred Stock calculated for such purpose from the date of issuance of the Series C Preferred Stock as to which such Participation Payment applies. For greater certainty, the foregoing Interest shall be in addition to such other available remedies as the holder may have against the Corporation for failure to make a Participation Payment when due.
6.4 Payment Procedures. Participation Payments and Interest shall be payable to holders of record of Series C Preferred Stock as they appear on the stock books of the Corporation on the applicable date of request during the Participation Period or the Interest payment dates. To the extent the amounts received by the Corporation or Panacea with respect to one or more Corporation Acquired Claims are less than what would be required to satisfy the payment rights of each holder of Series C Preferred Stock that elects to receive a Participation Payment pursuant to Section 6.1, then such amounts shall be distributed pro rata among the electing holders of Series C Preferred Stock based on the number of shares of Series C Preferred Stock held by the electing holders.
6.5 Notice of Corporation Acquired Claims. Whenever the Corporation receives proceeds from any Corporation Acquired Claim during the Participation Period, the Corporation shall promptly notify each holder of Series C Preferred Stock in writing of such event, including the amounts received by the Corporation.
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7. Certain Adjustments.
7.1 Stock Dividends and Stock Splits. If the Corporation, at any time while the Series C Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to the Series C Preferred Stock), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, the Conversion Rate in effect immediately prior to any such event shall be proportionately adjusted, and each share of Series C Preferred Stock shall receive such consideration as if such number of shares of Series C Preferred Stock had been, immediately prior to such foregoing dividend, distribution, subdivision, combination or reclassification, the holder of the number of shares of Common Stock into which it could convert at such time. Any adjustment made pursuant to this Section shall become effective immediately upon the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately upon the effective date in the case of a subdivision, combination or re-classification.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 29th day of June 2021.
| By: | /S/ Larry Wert | |
| Name: | Larry Wert | |
| Title: | Chief Executive Officer |
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Exhibit 3.8
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES C-1 CONVERTIBLE PREFERRED STOCK
The undersigned, Chief Executive Officer of Exactus, Inc., a Nevada corporation (the “Corporation”), DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors of the Corporation by unanimous written consent on June 29, 2021;
WHEREAS, the Board of Directors is authorized within the limitations and restrictions stated in the Certificate of Incorporation of the Corporation, as amended, to provide by resolution or resolutions for the issuance of Fifty Million (50,000,000) shares of Preferred Stock, par value $0.0001 per share, of the Corporation, in such series and with such designations, preferences and relative, optional or other special rights and qualifications, limitations or restrictions as the Corporation’s Board of Directors shall fix by resolution or resolutions providing for the issuance thereof duly adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to authorize and fix the terms of a series of Preferred Stock and the number of shares constituting such series; and
WHEREAS, all currency amounts set forth herein shall be stated in United States Dollars (USD).
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Authorized Shares. The Corporation shall be authorized to issue ten thousand (10,000) shares of Series C-1 Convertible Preferred Stock, par value $0.0001 per share (the “Series C-1 Preferred Stock”).
2. Stated Value. Each share of Series C-1 Preferred Stock shall have a stated value of $281.25 per share (the “Stated Value”).
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3. Liquidation.
3.1 Upon the liquidation, dissolution or winding up of the business of the Corporation, whether voluntary or involuntary (a “Liquidation”), each holder of Series C-1 Preferred Stock shall be entitled to receive, for each share thereof, out of assets of the Corporation legally available therefor, a preferential amount in cash equal to (and not more than) the Stated Value. All preferential amounts to be paid to the holders of Series C-1 Preferred Stock in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Corporation to the holders of any other class or series of capital stock of the Corporation other than Series A Preferred Stock and Series B Preferred Stock of the Corporation, which shall be senior securities to the Series C-1 Preferred Stock, and Series C Convertible Preferred Stock and Series D Convertible Preferred Stock which shall rank parri passu with the Series C-1 Preferred Stock. If upon any such distribution the assets of the Corporation shall be insufficient to pay the holders of the outstanding shares of Series C-1 Preferred Stock, the Series C Convertible Preferred Stock and the Series D Convertible Preferred Stock the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. A “Change of Control Transaction” means a sale of all or substantially all of the Corporation’s assets or an acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, a reorganization, consolidated or merger) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Corporation. A “Fundamental Transaction” means that (i) the Corporation or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Corporation or any of its subsidiaries is the surviving corporation) any other person or entity, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (3) allow any other person or entity to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of the Corporation (not including any shares of voting stock of the Corporation held by the persons or entities making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of the Corporation (not including any shares of voting stock of the Corporation held by the other person or entity making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify the common stock of the Corporation, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “1934 Act”) and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of the Corporation.
3.2 Any distribution in connection with the liquidation, dissolution or winding up of the Corporation, or any bankruptcy or insolvency proceeding, shall be made in cash to the extent possible. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation.
4. Voting. Except as otherwise expressly required by law, each holder of Series C-1 Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Corporation and shall be entitled to the number of votes for each share of Series C-1 Preferred Stock owned at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, equal to the number of shares of Common Stock (as defined below) that such shares of Series C-1 Preferred Stock are convertible into at such time. Except as otherwise required by law, the holders of shares of Series C-1 Preferred Stock shall vote together with the holders of Common Stock on all matters and shall not vote as a separate class.
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5. Conversion.
5.1 Conversion Right. Each holder of Series C-1 Preferred Stock may, from time to time, convert any or all of such holder’s shares of Series C-1 Preferred Stock into fully paid and non-assessable shares of Common Stock in an amount equal to 2,981.7418 shares of the Corporation’s common stock, par value $0.0001 per share (the “Common Stock”) for each one (1) share of Series C-1 Preferred Stock surrendered (the “Conversion Rate”). The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round such fraction of a share of Common Stock up to the nearest whole share.
5.2 Conversion Procedure. In order to exercise the conversion privilege under this Section 5, the holder of any shares of Series C-1 Preferred Stock to be converted shall give written notice to the Corporation at its principal office that such holder elects to convert such shares of Series C-1 Preferred Stock or a specified portion thereof into shares of Common Stock as set forth in such notice (the “Conversion Notice”, and such date of delivery of the Conversion Notice to the Corporation, the “Conversion Notice Delivery Date”). Within two (2) business days following the Conversion Notice Delivery Date, the Corporation shall issue and deliver a certificate or certificates representing the number of shares of Common Stock determined pursuant to this Section 5 (the “Share Delivery Date”). In case of conversion under this Section 5 of only a part of the shares of Series C-1 Preferred Stock represented by a certificate surrendered to the Corporation, the Corporation upon the request of a holder shall issue and deliver to the holder or its designee a new certificate for the number of shares of Series C-1 Preferred Stock which have not been converted, upon receipt of the original certificate or certificates representing shares of Series C-1 Preferred Stock so converted. Until such time as the certificate or certificates representing shares of Series C-1 Preferred Stock which have been converted are surrendered to the Corporation and a certificate or certificates representing the Common Stock into which such shares of Series C-1 Preferred Stock have been converted have been issued and delivered, the certificate or certificates representing the shares of Series C-1 Preferred Stock which have been converted shall represent the shares of Common Stock into which such shares of Series C-1 Preferred Stock have been converted. The Corporation shall pay all documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock issuable upon conversion of the Series C-1 Preferred Stock.
(i) Buy-In. If, by the Share Delivery Date, the Corporation fails for any reason to deliver the shares of Common Stock issuable upon conversion of the Series C-1 Preferred Stock, as set forth in the Conversion Notice, and after such Share Delivery Date, the converting holder purchases, in an arm’s length open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by the converting holder (the “Sold Shares”), which delivery such converting holder anticipated to make using the shares to be issued upon such conversion (a “Buy-In”), the converting holder shall have the right to require the Corporation to pay to the converting holder the Buy-In Adjustment Amount. The Corporation shall pay the Buy-In Adjustment Amount to the converting holder in immediately available funds immediately upon demand by the converting holder. For purposes of this Certificate of Designation, the term “Buy-In Adjustment Amount” means the amount equal to the excess, if any, of (i) the converting holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares associated with a Buy-In, over (ii) the net proceeds (after brokerage commissions, if any) received by the converting holder from the sale of the Sold Shares. By way of illustration and not in limitation of the foregoing, if the converting holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In, with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Corporation will be required to pay to the converting holder will be $1,000.
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5.3 Other Provisions.
(i) Reservation of Common Stock. The Corporation shall at all times reserve from its authorized Common Stock a sufficient number of shares to provide for conversion of all Series C-1 Preferred Stock from time to time outstanding.
(ii) Record Holders. The Corporation and its transfer agent, if any, for the Series C-1 Preferred Stock may deem and treat the record holder of any shares of Series C-1 Preferred Stock as reflected on the books and records of the Corporation as the sole true and lawful owner thereof for all purposes, and neither the Corporation nor any such transfer agent shall be affected by any notice to the contrary.
(iii) Restriction and Limitations. Except as expressly provided herein or as required by law so long as any shares of Series C-1 Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent of the holders of at least a majority of the then outstanding shares of the Series C-1 Preferred Stock, take any action to modify the terms of the shares of Series C-1 Preferred Stock or take any other action, including the creation of a new class or series of stock in the Corporation or the modification of the terms of any existing series or class of stock in the Corporation, which would, in the reasonable opinion of the holder, adversely affect any of the preferences, limitations or relative rights of the Series C-1 Preferred Stock.
6. Certain Adjustments.
6.1 Stock Dividends and Stock Splits. If the Corporation, at any time while the Series C-1 Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to the Series C-1 Preferred Stock), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, the Conversion Rate in effect immediately prior to any such event shall be proportionately adjusted, and each share of Series C-1 Preferred Stock shall receive such consideration as if such number of shares of Series C-1 Preferred Stock had been, immediately prior to such foregoing dividend, distribution, subdivision, combination or reclassification, the holder of the number of shares of Common Stock into which it could convert at such time. Any adjustment made pursuant to this Section shall become effective immediately upon the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately upon the effective date in the case of a subdivision, combination or re-classification.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 29th day of June 2021.
| By: | /S/ Larry Wert | |
| Name: | Larry Wert | |
| Title: | Chief Executive Officer |
| 4 |
Exhibit 3.9
CERTIFICATE OF DESIGNATION OF PREFERENCES,
RIGHTS AND LIMITATIONS
OF
SERIES D CONVERTIBLE PREFERRED STOCK
The undersigned, Chief Executive Officer of Exactus, Inc., a Nevada corporation (the “Corporation”), DOES HEREBY CERTIFY that the following resolutions were duly adopted by the Board of Directors of the Corporation by unanimous written consent on June 29, 2021;
WHEREAS, the Board of Directors is authorized within the limitations and restrictions stated in the Certificate of Incorporation of the Corporation, as amended, to provide by resolution or resolutions for the issuance of Fifty Million (50,000,000) shares of Preferred Stock, par value $0.0001 per share, of the Corporation, in such series and with such designations, preferences and relative, optional or other special rights and qualifications, limitations or restrictions as the Corporation’s Board of Directors shall fix by resolution or resolutions providing for the issuance thereof duly adopted by the Board of Directors; and
WHEREAS, it is the desire of the Board of Directors, pursuant to its authority as aforesaid, to authorize and fix the terms of a series of Preferred Stock and the number of shares constituting such series; and
WHEREAS, all currency amounts set forth herein shall be stated in United States Dollars (USD).
NOW, THEREFORE, BE IT RESOLVED:
1. Designation and Authorized Shares. The Corporation shall be authorized to issue ten thousand (10,000) shares of Series D Convertible Preferred Stock, par value $0.0001 per share (the “Series D Preferred Stock”).
2. Stated Value. Each share of Series D Preferred Stock shall have a stated value of $430 per share (the “Stated Value”).
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3. Liquidation.
3.1 Upon the liquidation, dissolution or winding up of the business of the Corporation, whether voluntary or involuntary (a “Liquidation”), each holder of Series D Preferred Stock shall be entitled to receive, for each share thereof, out of assets of the Corporation legally available therefor, a preferential amount in cash equal to (and not more than) the Stated Value. All preferential amounts to be paid to the holders of Series D Preferred Stock in connection with such liquidation, dissolution or winding up shall be paid before the payment or setting apart for payment of any amount for, or the distribution of any assets of the Corporation to the holders of any other class or series of capital stock of the Corporation other than Series A Preferred Stock and Series B Preferred Stock of the Corporation, which shall be senior securities to the Series D Preferred Stock, and Series C Convertible Preferred Stock and Series C-1 Convertible Preferred Stock which shall rank parri passu with the Series D Preferred Stock. If upon any such distribution the assets of the Corporation shall be insufficient to pay the holders of the outstanding shares of Series D Preferred Stock, the Series C Convertible Preferred Stock and the Series C-1 Convertible Preferred Stock the full amounts to which they shall be entitled, such holders shall share ratably in any distribution of assets in accordance with the sums which would be payable on such distribution if all sums payable thereon were paid in full. A Fundamental Transaction or Change of Control Transaction shall not be deemed a Liquidation. A “Change of Control Transaction” means a sale of all or substantially all of the Corporation’s assets or an acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, a reorganization, consolidated or merger) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Corporation. A “Fundamental Transaction” means that (i) the Corporation or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, (1) consolidate or merge with or into (whether or not the Corporation or any of its subsidiaries is the surviving corporation) any other person or entity, or (2) sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (3) allow any other person or entity to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of the Corporation (not including any shares of voting stock of the Corporation held by the persons or entities making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (4) consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of the Corporation (not including any shares of voting stock of the Corporation held by the other person or entity making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business combination), or (5) reorganize, recapitalize or reclassify the common stock of the Corporation, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 (the “1934 Act”) and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of the Corporation.
3.2 Any distribution in connection with the liquidation, dissolution or winding up of the Corporation, or any bankruptcy or insolvency proceeding, shall be made in cash to the extent possible. Whenever any such distribution shall be paid in property other than cash, the value of such distribution shall be the fair market value of such property as determined in good faith by the Board of Directors of the Corporation.
4. Voting. Except as otherwise expressly required by law, each holder of Series D Preferred Stock shall be entitled to vote on all matters submitted to shareholders of the Corporation and shall be entitled to the number of votes for each share of Series D Preferred Stock owned at the record date for the determination of shareholders entitled to vote on such matter or, if no such record date is established, at the date such vote is taken or any written consent of shareholders is solicited, equal to the number of shares of Common Stock (as defined below) that such shares of Series D Preferred Stock are convertible into at such time. Except as otherwise required by law, the holders of shares of Series D Preferred Stock shall vote together with the holders of Common Stock on all matters and shall not vote as a separate class.
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5. Conversion.
5.1 Conversion Right. Each holder of Series D Preferred Stock may, from time to time, convert any or all of such holder’s shares of Series D Preferred Stock into fully paid and non-assessable shares of Common Stock in an amount equal to 4,558.7519 shares of the Corporation’s common stock, par value $0.0001 per share (the “Common Stock”) for each one (1) share of Series D Preferred Stock surrendered (the “Conversion Rate”). The Corporation shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Corporation shall round such fraction of a share of Common Stock up to the nearest whole share.
5.2 Conversion Procedure. In order to exercise the conversion privilege under this Section 5, the holder of any shares of Series D Preferred Stock to be converted shall give written notice to the Corporation at its principal office that such holder elects to convert such shares of Series D Preferred Stock or a specified portion thereof into shares of Common Stock as set forth in such notice (the “Conversion Notice”, and such date of delivery of the Conversion Notice to the Corporation, the “Conversion Notice Delivery Date”). Within two (2) business days following the Conversion Notice Delivery Date, the Corporation shall issue and deliver a certificate or certificates representing the number of shares of Common Stock determined pursuant to this Section 5 (the “Share Delivery Date”). In case of conversion under this Section 5 of only a part of the shares of Series D Preferred Stock represented by a certificate surrendered to the Corporation, the Corporation upon the request of a holder shall issue and deliver to the holder or its designee a new certificate for the number of shares of Series D Preferred Stock which have not been converted, upon receipt of the original certificate or certificates representing shares of Series D Preferred Stock so converted. Until such time as the certificate or certificates representing shares of Series D Preferred Stock which have been converted are surrendered to the Corporation and a certificate or certificates representing the Common Stock into which such shares of Series D Preferred Stock have been converted have been issued and delivered, the certificate or certificates representing the shares of Series D Preferred Stock which have been converted shall represent the shares of Common Stock into which such shares of Series D Preferred Stock have been converted. The Corporation shall pay all documentary, stamp or similar issue or transfer tax due on the issue of shares of Common Stock issuable upon conversion of the Series D Preferred Stock.
(i) Buy-In. If, by the Share Delivery Date, the Corporation fails for any reason to deliver the shares of Common Stock issuable upon conversion of the Series D Preferred Stock, as set forth in the Conversion Notice, and after such Share Delivery Date, the converting holder purchases, in an arm’s length open market transaction or otherwise, shares of Common Stock (the “Covering Shares”) in order to make delivery in satisfaction of a sale of Common Stock by the converting holder (the “Sold Shares”), which delivery such converting holder anticipated to make using the shares to be issued upon such conversion (a “Buy-In”), the converting holder shall have the right to require the Corporation to pay to the converting holder the Buy-In Adjustment Amount. The Corporation shall pay the Buy-In Adjustment Amount to the converting holder in immediately available funds immediately upon demand by the converting holder. For purposes of this Certificate of Designation, the term “Buy-In Adjustment Amount” means the amount equal to the excess, if any, of (i) the converting holder’s total purchase price (including brokerage commissions, if any) for the Covering Shares associated with a Buy-In, over (ii) the net proceeds (after brokerage commissions, if any) received by the converting holder from the sale of the Sold Shares. By way of illustration and not in limitation of the foregoing, if the converting holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In, with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which the Corporation will be required to pay to the converting holder will be $1,000.
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5.3 Other Provisions.
(i) Reservation of Common Stock. The Corporation shall at all times reserve from its authorized Common Stock a sufficient number of shares to provide for conversion of all Series D Preferred Stock from time to time outstanding.
(ii) Record Holders. The Corporation and its transfer agent, if any, for the Series D Preferred Stock may deem and treat the record holder of any shares of Series D Preferred Stock as reflected on the books and records of the Corporation as the sole true and lawful owner thereof for all purposes, and neither the Corporation nor any such transfer agent shall be affected by any notice to the contrary.
(iii) Restriction and Limitations. Except as expressly provided herein or as required by law so long as any shares of Series D Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent of the holders of at least a majority of the then outstanding shares of the Series D Preferred Stock, take any action to modify the terms of the shares of Series D Preferred Stock or take any other action, including the creation of a new class or series of stock in the Corporation or the modification of the terms of any existing series or class of stock in the Corporation, which would, in the reasonable opinion of the holder, adversely affect any of the preferences, limitations or relative rights of the Series D Preferred Stock.
6. Certain Adjustments.
6.1 Stock Dividends and Stock Splits. If the Corporation, at any time while the Series D Preferred Stock is outstanding: (A) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Corporation pursuant to the Series D Preferred Stock), (B) subdivide outstanding shares of Common Stock into a larger number of shares, (C) combine (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (D) issue by reclassification of shares of the Common Stock any shares of capital stock of the Corporation, the Conversion Rate in effect immediately prior to any such event shall be proportionately adjusted, and each share of Series D Preferred Stock shall receive such consideration as if such number of shares of Series D Preferred Stock had been, immediately prior to such foregoing dividend, distribution, subdivision, combination or reclassification, the holder of the number of shares of Common Stock into which it could convert at such time. Any adjustment made pursuant to this Section shall become effective immediately upon the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately upon the effective date in the case of a subdivision, combination or re-classification.
IN WITNESS WHEREOF, the undersigned has executed this Certificate this 29th day of June 2021.
| By: | /S/ Larry Wert | |
| Name: | Larry Wert | |
| Title: | Chief Executive Officer |
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Exhibit 10.1
EXACTUS,
INC.
2021 EQUITY INCENTIVE PLAN
1. Purpose of the Plan.
This 2021 Equity Incentive Plan (the “Plan”) is intended as an incentive, to retain in the employ of and as directors, officers, consultants, advisors and employees to Exactus, Inc., a Nevada corporation (the “Company”), and any Subsidiary of the Company, within the meaning of Section 424(f) of the United States Internal Revenue Code of 1986, as amended (the “Code”), persons of training, experience and ability, to attract new directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage the sense of proprietorship and to stimulate the active interest of such persons in the development and financial success of the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the Plan shall constitute incentive stock options within the meaning of Section 422 of the Code (the “Incentive Options”) while certain other options granted pursuant to the Plan shall be nonqualified stock options (the “Nonqualified Options”). Incentive Options and Nonqualified Options are hereinafter referred to collectively as “Options.”
The Company intends that the Plan meet the requirements of Rule 16b-3 (“Rule 16b-3”) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and that transactions of the type specified in subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of the Company pursuant to the Plan will be exempt from the operation of Section 16(b) of the Exchange Act. Further, the Plan is intended to satisfy the performance-based compensation exception to the limitation on the Company’s tax deductions imposed by Section 162(m) of the Code with respect to those Options for which qualification for such exception is intended. In all cases, the terms, provisions, conditions and limitations of the Plan shall be construed and interpreted consistent with the Company’s intent as stated in this Section 1.
2. Administration of the Plan.
The Board of Directors of the Company (the “Board”) shall appoint and maintain as administrator of the Plan a Committee (the “Committee”) consisting of two or more directors who are (i) “Independent Directors” (as such term is defined under the rules of the NASDAQ Stock Market), (ii) “Non-Employee Directors” (as such term is defined in Rule 16b-3) and (iii) “Outside Directors” (as such term is defined in Section 162(m) of the Code), which shall serve at the pleasure of the Board. The Committee, subject to Sections 3, 5 and 6 hereof, shall have full power and authority to designate recipients of Options, restricted stock (“Restricted Stock”), preferred stock which may or may not be convertible (“Preferred Stock”), restricted share units (“RSUs”), and warrants which may qualify as Incentive Warrants or Non-Qualified Warrants (as such terms are defined herein, collectively, “Warrants”), and to determine the terms and conditions of the respective agreements (which need not be identical) and to interpret the provisions and supervise the administration of the Plan. The Committee shall have the authority, without limitation, to designate which Options granted under the Plan shall be Incentive Options and which shall be Nonqualified Options. To the extent any Option does not qualify as an Incentive Option, it shall constitute a separate Nonqualified Option.
In lieu of grants of Options and Restricted Stock, the Committee has the full power to and authority under the Plan to designate Participants to receive shares of the Company’s Preferred Stock. Further, to the extent that the Committee shall determine that the issuance of Options, Restricted Stock, RSUs or Warrants to a Participant (as defined below) could cause the beneficial ownership by such Participant or its affiliates to exceed more than 9.99% of the total outstanding shares of Common Stock of the Company upon the exercise of the Option or Warrant or the vesting of the Restricted Stock or RSU, as applicable, the Committee shall also have the full power and authority under the Plan to designate Participants to receive shares of the Company’s preferred stock in either a series of preferred that has already been authorized and designated by the Board or in a new series of preferred that shall be authorized and designated by the Board in accordance with the Company’s Amended and Restated Articles of Incorporation. The Committee shall determine the terms and conditions of the issuance of any Preferred Stock issued pursuant to the Plan (which terms and conditions may include standard equity blockers, conditions to issuance and the conversion price of the Preferred Stock) and any related agreements (which need not be identical) with respect to the issuance of the Preferred Stock and to interpret the provisions and supervise the administration of the Plan with respect to the issuance of any Preferred Stock.
Subject to the provisions of the Plan, the Committee shall interpret the Plan and all Options, Restricted Stock, RSUs, Preferred Stock and Warrants (collectively, the “Securities”) granted under the Plan, shall make such rules as it deems necessary for the proper administration of the Plan, shall make all other determinations necessary or advisable for the administration of the Plan and shall correct any defects or supply any omission or reconcile any inconsistency in the Plan or in any Securities granted under the Plan in the manner and to the extent that the Committee deems desirable to carry into effect the Plan or any Securities. The act or determination of a majority of the Committee shall be the act or determination of the Committee and any decision reduced to writing and signed by all of the members of the Committee shall be fully effective as if it had been made by a majority of the Committee at a meeting duly held for such purpose. Subject to the provisions of the Plan, any action taken or determination made by the Committee pursuant to this and the other Sections of the Plan shall be conclusive on all parties.
In the event that for any reason the Committee is unable to act or if the Committee at the time of any grant, award or other acquisition under the Plan does not consist of two or more Non-Employee Directors, or if there shall be no such Committee, or if the Board otherwise determines to administer the Plan, then the Plan shall be administered by the Board, and references herein to the Committee (except in the proviso to this sentence) shall be deemed to be references to the Board, and any such grant, award or other acquisition may be approved or ratified in any other manner contemplated by subparagraph (d) of Rule 16b-3; provided, however, that grants to the Company’s Chief Executive Officer or to any of the Company’s other four most highly compensated officers that are intended to qualify as performance-based compensation under Section 162(m) of the Code may only be granted by the Committee.
3. Designation of Optionees and Grantees.
The persons eligible for participation in the Plan as recipients of Options (the “Optionees”), Restricted Stock, Preferred Stock, RSUs or Warrants (the “Grantees” and together with Optionees, the “Participants”) shall include directors, officers and employees of, and consultants and advisors to, the Company or any Subsidiary; provided that Incentive Options may only be granted to employees of the Company and any Subsidiary. In selecting Participants, and in determining the number of shares to be covered by each Option or Warrant or award of Restricted Stock, Preferred Stock or RSU granted to Participants, the Committee may consider any factors it deems relevant, including, without limitation, the office or position held by the Participant or the Participant’s relationship to the Company, the Participant’s degree of responsibility for and contribution to the growth and success of the Company or any Subsidiary, the Participant’s length of service, promotions and potential. A Participant who has been granted an Option, Restricted Stock, Preferred Stock, RSU or Warrant, hereunder, may be granted additional Options, Restricted Stock, Preferred Stock, RSUs or Warrants, if the Committee shall so determine.
4. Stock Reserved for the Plan.
Subject to adjustment as provided in Section 8 hereof, a total of 113,383,460 shares of the Company’s common stock, par value $0.0001 per share (the “Common Stock”) (prior giving effect to a 1:28 reverse split of Common Stock outstanding as of June 30, 2021), shall be subject to the Plan. The shares of Common Stock subject to the Plan shall consist of unissued shares, treasury shares or previously issued shares held by any Subsidiary of the Company, and such number of shares of Common Stock shall be and is hereby reserved for such purpose. Any of such shares of Common Stock that may remain unissued and that are not subject to outstanding Options, Preferred Stock or Warrants at the termination of the Plan shall cease to be reserved for the purposes of the Plan, but until termination of the Plan, the Company shall at all times reserve a sufficient number of shares of Common Stock to meet the requirements of the Plan. Should any Securities expire or be canceled prior to its exercise, satisfaction of conditions or vesting in full, as applicable, or should the number of shares of Common Stock to be delivered upon the exercise or vesting in full of an Option or Warrant or award of Restricted Stock or RSU or conversion of Preferred Stock be reduced for any reason, the shares of Common Stock theretofore subject to such Option, Warrant, Restricted Stock, RSU or Preferred Stock, as applicable, may be subject to future Options, Warrants, Restricted Stock, RSUs or Preferred Stock under the Plan, except where such reissuance is inconsistent with the provisions of Section 162(m) of the Code where qualification as performance-based compensation under Section 162(m) of the Code is intended.
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5A. Terms and Conditions of Options.
Options granted under the Plan shall be subject to the following conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The purchase price of each share of Common Stock purchasable under an Incentive Option shall be determined by the Committee at the time of grant, but shall not be less than 100% of the Fair Market Value (as defined below) of such share of Common Stock on the date the Option is granted; provided, however, that with respect to an Optionee who, at the time such Incentive Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of any Subsidiary, the purchase price per share of Common Stock shall be at least 110% of the Fair Market Value per share of Common Stock on the date of grant. The purchase price of each share of Common Stock purchasable under a Nonqualified Option shall not be less than 100% of the Fair Market Value of such share of Common Stock on the date the Option is granted. The exercise price for each Option shall be subject to adjustment as provided in Section 8 below. “Fair Market Value” means the closing price on the final trading day immediately prior to the grant date of the Common Stock on the NASDAQ Capital Market LLC or other principal securities exchange or OTC Bulletin Board on which shares of Common Stock are listed (if the shares of Common Stock are so listed), or, if not so listed, the mean between the closing bid and asked prices of publicly traded shares of Common Stock in the over the counter market, or, if such bid and asked prices shall not be available, as reported by any nationally recognized quotation service selected by the Company, or as determined by the Committee in a manner consistent with the provisions of the Code. Anything in this Section 5A(a) to the contrary notwithstanding, in no event shall the purchase price of a share of Common Stock be less than the minimum price permitted under the rules and policies of any national securities exchange on which the shares of Common Stock are listed.
(b) Option Term. The term of each Option shall be fixed by the Committee, but no Option shall be exercisable more than ten years after the date such Option is granted and in the case of an Incentive Option granted to an Optionee who, at the time such Incentive Option is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of any Subsidiary, no such Incentive Option shall be exercisable more than five years after the date such Incentive Option is granted.
(c) Exercisability. Subject to Section 5A(j) hereof, Options shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of grant; provided, however, that in the absence of any Option vesting periods designated by the Committee at the time of grant, Options shall vest and become exercisable as to one-third of the total number of shares subject to the Option on each of the first, second and third anniversaries of the date of grant; and provided further that no Options shall be exercisable until such time as any vesting limitation required by Section 16 of the Exchange Act, and related rules, shall be satisfied if such limitation shall be required for continued validity of the exemption provided under Rule 16b-3(d)(3).
Upon the occurrence of a “Change in Control” (as hereinafter defined), the Committee may accelerate the vesting and exercisability of outstanding Options, in whole or in part, as determined by the Committee in its sole discretion. In its sole discretion, the Committee may also determine that, upon the occurrence of a Change in Control, each outstanding Option shall terminate within a specified number of days after notice to the Optionee thereunder, and each such Optionee shall receive, with respect to each share of Common Stock subject to such Option, an amount equal to the excess of the Fair Market Value of such shares immediately prior to such Change in Control over the exercise price per share of such Option; such amount shall be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or a combination thereof, as the Committee shall determine in its sole discretion.
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For purposes of the Plan, unless otherwise defined in an employment agreement between the Company and the relevant Optionee, a Change in Control shall be deemed to have occurred if:
(i) a tender offer (or series of related offers) shall be made and consummated for the ownership of 50% or more of the outstanding voting securities of the Company, unless as a result of such tender offer more than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to the commencement of such offer), any employee benefit plan of the Company or its Subsidiaries, and their affiliates;
(ii) the Company shall be merged or consolidated with another corporation, unless as a result of such merger or consolidation more than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to such transaction), any employee benefit plan of the Company or its Subsidiaries, and their affiliates;
(iii) the Company shall sell substantially all of its assets to another corporation that is not wholly owned by the Company, unless as a result of such sale more than 50% of such assets shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to such transaction), any employee benefit plan of the Company or its Subsidiaries and their affiliates; or
(iv) a Person (as defined below) shall acquire 50% or more of the outstanding voting securities of the Company (whether directly, indirectly, beneficially or of record), unless as a result of such acquisition more than 50% of the outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the stockholders of the Company (as of the time immediately prior to the first acquisition of such securities by such Person), any employee benefit plan of the Company or its Subsidiaries, and their affiliates.
Notwithstanding the foregoing, if Change of Control is defined in an employment agreement between the Company and the relevant Optionee, then, with respect to such Optionee, Change of Control shall have the meaning ascribed to it in such employment agreement.
For purposes of this Section 5A(c), ownership of voting securities shall take into account and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof) under the Exchange Act. In addition, for such purposes, “Person” shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; provided, however, that a Person shall not include (A) the Company or any of its Subsidiaries; (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Subsidiaries; (C) an underwriter temporarily holding securities pursuant to an offering of such securities; or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportion as their ownership of stock of the Company.
(d) Method of Exercise. Options to the extent then exercisable may be exercised in whole or in part at any time during the option period, by giving written notice to the Company specifying the number of shares of Common Stock to be purchased, accompanied by payment in full of the purchase price, in cash, or by check or such other instrument as may be acceptable to the Committee. As determined by the Committee, in its sole discretion, at or after grant, payment in full or in part may be made at the election of the Optionee (i) in the form of Common Stock owned by the Optionee (based on the Fair Market Value of the Common Stock which is not the subject of any pledge or security interest, (ii) in the form of shares of Common Stock or Preferred Stock withheld by the Company from the shares of Common Stock otherwise to be received with such withheld shares of Common Stock having a Fair Market Value equal to the exercise price of the Option, or (iii) by a combination of the foregoing, such Fair Market Value determined by applying the principles set forth in Section 5A(a), provided that the combined value of all cash and cash equivalents and the Fair Market Value of any shares surrendered to the Company is at least equal to such exercise price and except with respect to (ii) above, such method of payment will not cause a disqualifying disposition of all or a portion of the Common Stock received upon exercise of an Incentive Option. An Optionee shall have the right to dividends and other rights of a stockholder with respect to shares of Common Stock purchased upon exercise of an Option at such time as the Optionee (i) has given written notice of exercise and has paid in full for such shares, and (ii) has satisfied such conditions that may be imposed by the Company with respect to the withholding of taxes.
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(e) Non-transferability of Options. Options are not transferable and may be exercised solely by the Optionee during his lifetime or after his death by the person or persons entitled thereto under his will or the laws of descent and distribution. The Committee, in its sole discretion, may permit a transfer of a Nonqualified Option to (i) a trust for the benefit of the Optionee, (ii) a member of the Optionee’s immediate family (or a trust for his or her benefit) or (iii) pursuant to a domestic relations order. Any attempt to transfer, assign, pledge or otherwise dispose of, or to subject to execution, attachment or similar process, any Option contrary to the provisions hereof shall be void and ineffective and shall give no right to the purported transferee.
(f) Termination by Death. Unless otherwise determined by the Committee, if any Optionee’s employment with or service to the Company or any Subsidiary terminates by reason of death, the Option may thereafter be exercised, to the extent then exercisable (or on such accelerated basis as the Committee shall determine at or after grant), by the legal representative of the estate or by the legatee of the Optionee under the will of the Optionee, for a period of one (1) year after the date of such death (or, if later, such time as the Option may be exercised pursuant to Section 14(d) hereof) or until the expiration of the stated term of such Option as provided under the Plan, whichever period is shorter.
(g) Termination by Reason of Disability. Unless otherwise determined by the Committee, if any Optionee’s employment with or service to the Company or any Subsidiary terminates by reason of Disability (as defined below), then any Option held by such Optionee may thereafter be exercised, to the extent it was exercisable at the time of termination due to Disability (or on such accelerated basis as the Committee shall determine at or after grant), but may not be exercised after ninety (90) days after the date of such termination of employment or service (or, if later, such time as the Option may be exercised pursuant to Section 14(d) hereof) or the expiration of the stated term of such Option, whichever period is shorter; provided, however, that, if the Optionee dies within such ninety (90) day period, any unexercised Option held by such Optionee shall thereafter be exercisable to the extent to which it was exercisable at the time of death for a period of one (1) year after the date of such death (or, if later, such time as the Option may be exercised pursuant to Section 14(d) hereof) or for the stated term of such Option, whichever period is shorter. “Disability” shall mean an Optionee’s total and permanent disability; provided, that if Disability is defined in an employment agreement between the Company and the relevant Optionee, then, with respect to such Optionee, Disability shall have the meaning ascribed to it in such employment agreement
(h) Termination by Reason of Retirement. Unless otherwise determined by the Committee, if any Optionee’s employment with or service to the Company or any Subsidiary terminates by reason of Normal or Early Retirement (as such terms are defined below), any Option held by such Optionee may thereafter be exercised to the extent it was exercisable at the time of such Retirement (or on such accelerated basis as the Committee shall determine at or after grant), but may not be exercised after ninety (90) days after the date of such termination of employment or service (or, if later, such time as the Option may be exercised pursuant to Section 14(d) hereof) or the expiration of the stated term of such Option, whichever date is earlier; provided, however, that, if the Optionee dies within such ninety (90) day period, any unexercised Option held by such Optionee shall thereafter be exercisable, to the extent to which it was exercisable at the time of death, for a period of one (1) year after the date of such death (or, if later, such time as the Option may be exercised pursuant to Section 14(d) hereof) or for the stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), “Normal Retirement” shall mean retirement from active employment with the Company or any Subsidiary on or after the normal retirement date specified in the applicable Company or Subsidiary pension plan or if no such pension plan, age 65, and “Early Retirement” shall mean retirement from active employment with the Company or any Subsidiary pursuant to the early retirement provisions of the applicable Company or Subsidiary pension plan or if no such pension plan, age 55.
(i) Other Terminations. Unless otherwise determined by the Committee upon grant, if any Optionee’s employment with or service to the Company or any Subsidiary is terminated by such Optionee for any reason other than death, Disability, Normal or Early Retirement or Good Reason (as defined below), the Option shall thereupon terminate, except that the portion of any Option that was exercisable on the date of such termination of employment or service may be exercised for the lesser of ninety (90) days after the date of termination (or, if later, such time as the Option may be exercised pursuant to Section 14(d) hereof) or the balance of such Option’s term, which ever period is shorter. The transfer of an Optionee from the employ of or service to the Company to the employ of or service to a Subsidiary, or vice versa, or from one Subsidiary to another, shall not be deemed to constitute a termination of employment or service for purposes of the Plan.
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(i) In the event that the Optionee’s employment or service with the Company or any Subsidiary is terminated by the Company or such Subsidiary for “cause” any unexercised portion of any Option shall immediately terminate in its entirety. For purposes hereof, unless otherwise defined in an employment agreement between the Company and the relevant Optionee, “Cause” shall exist upon a good-faith determination by the Board, following a hearing before the Board at which an Optionee was represented by counsel and given an opportunity to be heard, that such Optionee has been accused of fraud, dishonesty or act detrimental to the interests of the Company or any Subsidiary of Company or that such Optionee has been accused of or convicted of an act of willful and material embezzlement or fraud against the Company or of a felony under any state or federal statute; provided, however, that it is specifically understood that “Cause” shall not include any act of commission or omission in the good-faith exercise of such Optionee’s business judgment as a director, officer or employee of the Company, as the case may be, or upon the advice of counsel to the Company. Notwithstanding the foregoing, if Cause is defined in an employment agreement between the Company and the relevant Optionee, then, with respect to such Optionee, Cause shall have the meaning ascribed to it in such employment agreement.
(ii) In the event that an Optionee is removed as a director, officer or employee by the Company at any time other than for “Cause” or resigns as a director, officer or employee for “Good Reason” the Option granted to such Optionee may be exercised by the Optionee, to the extent the Option was exercisable on the date such Optionee ceases to be a director, officer or employee. Such Option may be exercised at any time within one (1) year after the date the Optionee ceases to be a director, officer or employee (or, if later, such time as the Option may be exercised pursuant to Section 14(d) hereof), or the date on which the Option otherwise expires by its terms; whichever period is shorter, at which time the Option shall terminate; provided, however, if the Optionee dies before the Options terminate and are no longer exercisable, the terms and provisions of Section 5A(f) shall control. For purposes of this Section 5A(i), and unless otherwise defined in an employment agreement between the Company and the relevant Optionee, Good Reason shall exist upon the occurrence of the following:
| (A) | the assignment to Optionee of any duties inconsistent with the position in the Company that Optionee held immediately prior to the assignment; | |
| (B) | a Change of Control resulting in a significant adverse alteration in the status or conditions of Optionee’s participation with the Company or other nature of Optionee’s responsibilities from those in effect prior to such Change of Control, including any significant alteration in Optionee’s responsibilities immediately prior to such Change in Control; and | |
| (C) | the failure by the Company to continue to provide Optionee with benefits substantially similar to those enjoyed by Optionee prior to such failure. |
Notwithstanding the foregoing, if Good Reason is defined in an employment agreement between the Company and the relevant Optionee, then, with respect to such Optionee, Good Reason shall have the meaning ascribed to it in such employment agreement.
(j) Limit on Value of Incentive Option. The aggregate Fair Market Value, determined as of the date the Incentive Option is granted, of Common Stock for which Incentive Options are exercisable for the first time by any Optionee during any calendar year under the Plan (and/or any other stock option plans of the Company or any Subsidiary) shall not exceed $100,000.
5B. Terms and Conditions of Warrants.
Warrants may be issued under the Plan in the form of (a) warrants which qualify as Incentive Options (“Incentive Warrants”) or (b) warrants that do not qualify as incentive stock options (“Non-Qualified Warrants”). Warrants issued under the Plan shall be subject to the following conditions and shall contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
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(a) Warrant Grants. The Committee may grant Warrants to purchase shares of Common Stock from the Company, to such key persons, and in such amounts and subject to such vesting and forfeiture provisions and other terms and conditions, as the Committee shall determine, subject to the provisions of the Plan. The term “Incentive Warrant” means a Warrant that is intended to qualify for special federal income tax treatment pursuant to Sections 421 and 422 of the Code as now constituted or subsequently amended, or pursuant to a successor provision of the Code, and which is so designated in the applicable Award Agreement. Any Warrant that is not specifically designated as an Incentive Warrant shall under no circumstances be considered an Incentive Warrant. Any Warrant that is not an Incentive Warrant is referred to herein as a “Non-Qualified Warrant.” The Committee may grant Incentive Warrants only to employees, and any grants of Warrants to any other key persons shall only be Non-Qualified Warrants.
(b) Warrant Exercise Price. Each Award Agreement with respect to a Warrant shall set forth the amount (the “Warrant Exercise Price”) payable by the Grantee to the Company upon exercise of the Warrant evidenced thereby. The Warrant Exercise Price per share shall be determined by the Committee; provided, however, that with respect to an Grantee who, at the time an Incentive Warrant is granted, owns (within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of any Subsidiary, the purchase price per share of Common Stock shall be at least 110% of the Fair Market Value per share of Common Stock on the date of issuance. The purchase price of each share of Common Stock purchasable under a Non-Qualified Warrant shall not be less than 100% of the Fair Market Value of such share of Common Stock on the date such Warrant is issued. The exercise price for each Warrant shall be subject to adjustment as provided in Section 8 below.
(c) Term. Subject to Section 5B(i) hereof, the term of each Warrant shall be fixed by the Committee, but no Warrant shall be exercisable more than ten (10) years after the date such Warrant is issued.
(d) Exercisability. Subject to Section 5B(i) hereof, Warrants shall be exercisable at such time or times and subject to such terms and conditions as shall be determined by the Committee at the time of issuance; provided, however, that in the absence of any Warrant vesting periods designated by the Committee at the time of issuance, Warrants shall vest and become exercisable as to one-third of the total number of shares subject to the Warrant on each of the first, second and third anniversaries of the date of issuance; and, provided further, that no Warrants shall be exercisable until such time as any vesting limitation required by Section 16 of the Exchange Act, and related rules, shall be satisfied if such limitation shall be required for continued validity of the exemption provided under Rule 16b-3(d)(3).
Upon the occurrence of a “Change in Control” (as defined in Section 5A(c) hereof), the Committee may accelerate the vesting and exercisability of outstanding Warrants, in whole or in part, as determined by the Committee in its sole discretion. In its sole discretion, the Committee may also determine that, upon the occurrence of a Change in Control, each outstanding Warrant shall terminate within a specified number of days after notice to the Grantee thereunder, and each such Grantee shall receive, with respect to each share of Common Stock subject to such Warrant, an amount equal to the excess of the Fair Market Value of such shares immediately prior to such Change in Control over the exercise price per share of such Warrant; such amount shall be payable in cash, in one or more kinds of property (including the property, if any, payable in the transaction) or a combination thereof, as the Committee shall determine in its sole discretion.
For purposes of this Section 5B(d), ownership of voting securities shall consider and shall include ownership as determined by applying the provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof) under the Exchange Act. In addition, for such purposes, “Person” shall have the meaning given in Section 5A(c) hereof.
(e) Method of Exercise. Warrants to the extent then exercisable may be exercised in whole or in part from time to time as to all or part of the shares as to which such award is then exercisable, by giving written notice to the Company specifying the number of shares of Common Stock to be purchased, accompanied by payment in full of the purchase price, in cash, or by check or such other instrument as may be acceptable to the Committee. As determined by the Committee, in its sole discretion, at or after issuance, payment in full or in part may be made at the election of the Grantee (i) in the form of Common Stock owned by the Grantee (based on the Fair Market Value of the Common Stock which is not the subject of any pledge or security interest), (ii) in the form of shares of Common Stock or Preferred Stock withheld by the Company from the shares of Common Stock otherwise to be received with such withheld shares of Common Stock having a Fair Market Value equal to the Warrant Exercise Price of the Warrant, or (iii) by a combination of the foregoing, such Fair Market Value determined by applying the principles set forth in Section 5B(b), provided that the combined value of all cash and cash equivalents and the Fair Market Value of any shares surrendered to the Company is at least equal to such exercise price and except with respect to (ii) above, such method of payment will not cause a disqualifying disposition of all or a portion of the Common Stock received upon exercise of an Incentive Warrant. A Grantee shall have the right to dividends and other rights of a stockholder with respect to shares of Common Stock purchased upon exercise of a Warrant at such time as the Grantee (i) has given written notice of exercise and has paid in full for such shares, and (ii) has satisfied such conditions that may be imposed by the Company with respect to the withholding of taxes.
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(f) Non-transferability of Warrants. Warrants are not transferable and may be exercised solely by the Grantee during his lifetime or after his death by the person or persons entitled thereto under his will or the laws of descent and distribution. The Committee, in its sole discretion, may permit a transfer of a Non-Qualified Warrant to (i) a trust for the benefit of the Grantee, (ii) a member of the Grantee’s immediate family (or a trust for his or her benefit) or (iii) pursuant to a domestic relations order. Any attempt to transfer, assign, pledge or otherwise dispose of, or to subject to execution, attachment or similar process, any Warrant contrary to the provisions hereof shall be void and ineffective and shall give no right to the purported transferee.
(g) Termination. Unless otherwise determined by the Committee at or after issuance, Warrants issued to the Grantee that have not vested shall be forfeited upon termination of the Grantee in accordance with Section 5A(f), (g), (h) and (i), as applicable. The Committee may provide (on or after issuance) that restrictions or forfeiture conditions relating to the Warrants will be waived in whole or in part in the event of termination resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to the Warrants.
(h) Special Rules for Incentive Warrants. No Warrant that remains exercisable for more than three months following a Grantee’s termination of employment for any reason other than death (including death within three months after termination of employment or within one year after a termination of employment due to disability) or disability, or for more than one year following a Grantee’s termination of employment as the result of his becoming disabled, may be treated as an Incentive Warrant.
(i) Limitations of Incentive Warrants.
(i) Exercisability Limitation. The aggregate Fair Market Value, determined as of the date the Incentive Warrant is issued, of Common Stock for which Incentive Warrants are exercisable for the first time by any Grantee during any calendar year under the Plan (and/or any other stock option plans of the Company or any Subsidiary) shall not exceed $100,000.
(ii) 10% Owners. Notwithstanding the provisions of this Section 5B(d), an Incentive Warrant may not be issued under the Plan to an individual who, at the time the Warrant is issued, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its Subsidiary (as such ownership may be determined for purposes of Section 422(b) (6) of the Code), unless (i) at the time such Incentive Warrant is issued the Warrant Exercise Price is at least 110% of the Fair Market Value of the shares subject thereto and (ii) the Incentive Warrant by its terms is not exercisable after the expiration of five (5) years from the date it is issuance.
6A. Terms and Conditions of Restricted Stock.
Restricted Stock may be granted under this Plan aside from, or in association with, any other award and shall be subject to the following conditions and shall contain such additional terms and conditions (including provisions relating to the acceleration of vesting of Restricted Stock upon a Change of Control), not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
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(a) Grantee rights. A Grantee shall have no rights to an award of Restricted Stock unless and until Grantee accepts the award within the period prescribed by the Committee and, if the Committee shall deem desirable, makes payment to the Company in cash, or by check or such other instrument as may be acceptable to the Committee. After acceptance and issuance of a certificate or certificates, as provided for below, the Grantee shall have the rights of a stockholder with respect to Restricted Stock subject to the non-transferability and forfeiture restrictions described in Section 6(d) below.
(b) Issuance of Certificates. The Company shall issue in the Grantee’s name a certificate or certificates for the shares of Common Stock associated with the award promptly after the Grantee accepts such award.
(c) Delivery of Certificates. Unless otherwise provided, any certificate or certificates issued evidencing shares of Restricted Stock shall not be delivered to the Grantee until such shares are free of any restrictions specified by the Committee at the time of grant.
(d) Forfeitability, Non-transferability of Restricted Stock. Shares of Restricted Stock are forfeitable until the terms of the Restricted Stock grant have been satisfied. Shares of Restricted Stock are not transferable until the date on which the Committee has specified such restrictions have lapsed. Unless otherwise provided by the Committee at or after grant, distributions in the form of dividends or otherwise of additional shares or property in respect of shares of Restricted Stock shall be subject to the same restrictions as such shares of Restricted Stock.
(e) Change of Control. Upon the occurrence of a Change in Control as defined in Section 5A(c), the Committee may accelerate the vesting of outstanding Restricted Stock, in whole or in part, as determined by the Committee, in its sole discretion.
(f) Termination of Employment. Unless otherwise determined by the Committee at or after grant, in the event the Grantee ceases to be an employee or otherwise associated with the Company for any other reason, all shares of Restricted Stock theretofore awarded to him which are still subject to restrictions shall be forfeited and the Company shall have the right to complete the blank stock power. The Committee may provide (on or after grant) that restrictions or forfeiture conditions relating to shares of Restricted Stock will be waived in whole or in part in the event of termination resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Restricted Stock.
6B. Terms and Conditions of Preferred Stock.
In lieu of grants of Options, Warrants, Restricted Stock and RSUs, to the extent that the Committee shall determine that the issuance of Options, Warrants, Restricted Stock or RSUs to a Participant could cause the beneficial ownership by such Participant or its affiliates to exceed more than 9.99% of the total outstanding shares of Common Stock of the Company upon the exercise of the Option or Warrant or the vesting of the Restricted Stock or RSU, as applicable, Preferred Stock may be granted under this Plan aside from, or in association with, any other award and shall be subject to the following conditions and shall contain such additional terms and conditions (including provisions relating to the acceleration of vesting of Restricted Stock or RSU upon a Change of Control), not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Grantee rights. A Grantee shall have no rights to an award of Preferred Stock unless and until all of the following conditions have been met (A) the Committee designates an award of Preferred Stock in a series of Preferred Stock that has already been authorized and designated the Board, the Board passes a resolution authorizing and designating a new series of Preferred Stock on the terms and conditions determined by the Committee, (B) if applicable, the Company files a Certificate of Designation with the Secretary of State of the State of Nevada that sets forth the rights, preferences and other terms of any newly authorized and designated series of the Preferred Stock, and (C) Grantee accepts the award within the period prescribed by the Committee and, if the Committee shall deem desirable, executes an agreement that sets forth the terms and conditions of the issuance of the award of Preferred Stock as may be acceptable to the Committee. After acceptance and issuance of a certificate or certificates, as provided for below, the Grantee shall have the rights set forth in the applicable Certificate of Designation and any related agreement with respect to the Preferred Stock award. The Preferred Stock shall also be subject to the non-transferability and forfeiture restrictions described in Section 6B(d) below.
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(b) Issuance of Certificates. The Company shall issue in the Grantee’s name a certificate or certificates for the shares of Preferred Stock associated with the award promptly after the Grantee accepts such award. The Company shall issue in the Grantee’s name a certificate or certificates for the shares of Common Stock underlying the Preferred Stock associated with the award promptly after the Grantee converts the Preferred Stock in accordance with the terms and conditions set forth in the applicable Certificate of Designation and related agreement, if any.
(c) Delivery of Certificates. Unless otherwise provided, any certificate or certificates issued evidencing shares of Preferred Stock and/or the underlying Common Stock issuable upon the conversion of the Preferred Stock shall not be delivered to the Grantee until such shares are free of any restrictions specified by the Committee at the time of grant.
(d) Forfeitability, Non-transferability of Preferred Stock. Shares of Preferred Stock and any underlying shares of Common Stock issuable upon the conversion of the Preferred Stock are forfeitable until the terms of the Preferred Stock grant have been satisfied. Shares of Preferred Stock and any underlying shares of Common Stock issuable upon the conversion of the Preferred Stock are not transferable until the date on which the Committee has specified such have lapsed. Unless otherwise provided by the Committee at or after grant, distributions in the form of dividends or otherwise of additional shares or property in respect of shares of Preferred Stock if the applicable Certificate of Designation provides for such distributions, shall be subject to the same restrictions as such shares of Preferred Stock.
(e) Change of Control. Upon the occurrence of a Change in Control as defined in Section 5A(c), the Committee may waive any conditions and/or restrictions to the issuance of any contingent award of Preferred Stock, in whole or in part, as determined by the Committee, in its sole discretion.
(f) Termination of Employment or Consulting Agreement. Unless otherwise determined by the Committee at or after grant, in the event the Grantee ceases to be, as applicable, an employee, a consultant or otherwise associated with the Company for any other reason, all shares of Preferred Stock theretofore awarded to him which are still subject to restrictions shall be forfeited and the Company shall have the right to complete the blank stock power. The Committee may provide (on or after grant) that restrictions or forfeiture conditions relating to shares of Preferred Stock will be waived in whole or in part in the event of termination resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to Preferred Stock.
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(g) Maximum Percentage. Notwithstanding anything to the contrary set forth herein, the Company shall not affect any conversion of Preferred Stock issued under the Plan, and no Participant shall have the right to convert any Preferred Stock, to the extent that after giving effect to such conversion, the beneficial owner of such shares (together with such Participant’s affiliates) would have acquired, through conversion of such Preferred Stock or otherwise, beneficial ownership of a number of shares of Common Stock that exceeds 9.99% (the “Maximum Percentage”) of the number of shares of Common Stock outstanding immediately after giving effect to such conversion. The Company shall not give effect to any voting rights of such Preferred Stock, and any Participant shall not have the right to exercise voting rights with respect to any Preferred Stock pursuant hereto, to the extent that giving effect to such voting rights would result in such Participant (together with its affiliates) being deemed to beneficially own in excess of the Maximum Percentage of the number of shares of Common Stock outstanding immediately after giving effect to such exercise, assuming such exercise as being equivalent to conversion. For purposes of the foregoing, the number of shares of Common Stock beneficially owned by a Participant and its affiliates shall include the number of shares of Common Stock issuable upon conversion of the Preferred Stock with respect to which the determination of such sentence is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (A) conversion of the remaining, nonconverted shares of Preferred Stock beneficially owned by such Participant or any of its affiliates and (B) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company (including, without limitation, any notes or warrants) subject to a limitation on conversion or exercise analogous to the limitation contained in this Section 6B(g) beneficially owned by such Participant or any of its affiliates. Except as set forth in the preceding sentence, for purposes of this Section 6B(g), beneficial ownership shall be calculated in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended. For purposes of this Section 6B(g), in determining the number of outstanding shares of Common Stock, a Participant may rely on the number of outstanding shares of Common Stock as reflected in (1) the Company’s most recent Form 10-K, Form 10-Q, or Form 8-K, as the case may be, (2) a more recent public announcement by the Company, or (3) any other notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. For any reason at any time, upon the written request of any Participant, the Company shall within one (1) business day following the receipt of such notice, confirm orally and in writing to any such Participant the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including the Preferred Stock, by such Holder and its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. By written notice to the Company, the Participant may from time to time increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided, that (i) any such increase will not be effective until the sixty-first (61st) day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder providing such written notice and not to any other Holder. In the event that the Company cannot pay any portion of any dividend, distribution, grant or issuance hereunder to a Participant solely by reason of this Section 6B(g) (such shares, the “Limited Shares”), notwithstanding anything to the contrary contained herein, the Company shall not be required to pay cash in lieu of the payment that otherwise would have been made in such Limited Shares, but shall hold any such Limited Shares in abeyance for such Holder until such time, if ever, that the delivery of such Limited Shares shall not cause the Participant to exceed the Maximum Percentage, at which time such Participant shall be delivered such Limited Shares to the extent as if there had been no such limitation. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 6B(g) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation.
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6C. Terms and Conditions of Restricted Stock Units.
Restricted Stock Units, or RSUs, may be granted under this Plan aside from, or in association with, any other award and shall be subject to the following conditions and shall contain such additional terms and conditions (including provisions relating to the acceleration of vesting of RSUs upon a Change of Control), not inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Grantee rights. A Grantee shall have no rights to an award of RSUs unless and until Grantee accepts the award within the period prescribed by the Committee and, if the Committee shall deem desirable, makes payment to the Company in cash, or by check or such other instrument as may be acceptable to the Committee. After acceptance and issuance of a certificate or certificates, as provided for below, the Grantee shall have the rights of a stockholder with respect to the RSUs subject to the non-transferability and forfeiture restrictions described in Section 6C(d) below.
(b) Vesting. At the time of the grant of RSUs, the Committee may place restrictions on RSUs that shall lapse, in whole or in part, upon the passage of time. Unless otherwise provided in an Award Agreement, upon the vesting of a RSU, there shall be delivered to the Grantee, within 30 days of the date on which such Award (or any portion thereof) vests, the number of shares of common stock equal to the number of RSUs becoming so vested.
(c) Non-transferability of RSUs. Prior to the time that shares of common stock underlying RSUs have been delivered to the Grantee, RSUs are not transferable and may be exercised solely by the Grantee during his lifetime or after his death by the person or persons entitled thereto under his will or the laws of descent and distribution. The Committee, in its sole discretion, may permit a transfer of an RSU to (i) a trust for the benefit of the Grantee, (ii) a member of the Grantee’s immediate family (or a trust for his or her benefit) or (iii) pursuant to a domestic relations order. Any attempt to transfer, assign, pledge or otherwise dispose of, or to subject to execution, attachment or similar process, any RSU contrary to the provisions hereof shall be void and ineffective and shall give no right to the purported transferee.
(d) Change of Control. Upon the occurrence of a Change in Control as defined in Section 5A(c), the Committee may accelerate the vesting of outstanding RSUs, in whole or in part, as determined by the Committee, in its sole discretion.
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(e) Dividend Equivalents. To the extent provided in an Award Agreement, and subject to the requirements of Section 409A of the Code, an award of RSUs may provide the Grantee with the right to receive dividend equivalent payments with respect to common stock subject to such award, which payments may be settled in cash or common stock, as determined by the Committee. Any such settlements and any crediting of dividend equivalents may, at the time of grant of the RSU, be made subject to the transfer restrictions, forfeiture risks, vesting and conditions of the RSUs and subject to such other conditions, restrictions and contingencies as the Committee shall establish at the time of grant of the RSU, including the reinvestment of such credited amounts in common stock equivalents, provided that all such conditions, restrictions and contingencies shall comply with the requirements of Section 409A of the Code.
(f) Termination. Unless otherwise determined by the Committee at or after grant, RSUs awarded to the Grantee that have not vested shall be forfeited upon termination of the Grantee in accordance with Section 5A(f), (g), (h) and (i), as applicable. The Committee may provide (on or after grant) that restrictions or forfeiture conditions relating to the RSUs will be waived in whole or in part in the event of termination resulting from specified causes, and the Committee may in other cases waive in whole or in part restrictions or forfeiture conditions relating to the RSUs.
7. Term of Plan.
No Securities shall be granted pursuant to the Plan on or after the date which is ten years from the effective date of the Plan, but Options and Warrants and awards of Restricted Stock and/or Preferred Stock and/or RSUs theretofore granted may extend beyond that date.
8. Capital Change of the Company.
In the event of any merger, reorganization, consolidation, recapitalization, stock dividend, or other change in corporate structure affecting the Common Stock of the Company, the Committee shall make an appropriate and equitable adjustment in the number and kind of shares reserved for issuance under the Plan and (A) in the number and price of shares subject to outstanding Options or Warrants granted or issued under the Plan, to the end that after such event each Optionee’s or Grantee’s proportionate interest shall be maintained (to the extent possible) as immediately before the occurrence of such event and (B) in the number and conversion price of shares subject to outstanding Preferred Stock granted under the Plan, to the end that after such event each Participant’s (who has received a grant of Preferred Stock) proportionate interest shall be maintained (to the extent possible) as immediately before the occurrence of such event. The Committee shall, to the extent feasible, make such other adjustments as may be required under the tax laws so that any Incentive Options or Incentive Warrants previously granted or issued shall not be deemed modified within the meaning of Section 424(h) of the Code. Appropriate adjustments shall also be made in the case of outstanding Restricted Stock or RSUs granted under the Plan.
The adjustments described above will be made only to the extent consistent with continued qualification of the Option or Warrant under Section 422 of the Code (in the case of an Incentive Option or Incentive Warrant) and Section 409A of the Code.
9. Purchase for Investment/Conditions.
Unless the Securities, and shares of Common Stock underlying such Securities, covered by the Plan have been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the Company has determined that such registration is unnecessary, each person exercising or receiving Securities under the Plan may be required by the Company to give a representation in writing that he is acquiring the securities for his own account for investment and not with a view to, or for sale in connection with, the distribution of any part thereof. The Committee may impose any additional or further restrictions on awards of Securities as shall be determined by the Committee at the time of award.
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10. Taxes.
(a) The Company may make such provisions as it may deem appropriate, consistent with applicable law, in connection with any Securities granted under the Plan with respect to the withholding of any taxes (including income or employment taxes) or any other tax matters.
(b) If any Grantee, in connection with the acquisition of Restricted Stock, makes the election permitted under Section 83(b) of the Code (that is, an election to include in gross income in the year of transfer the amounts specified in Section 83(b)), such Grantee shall notify the Company of the election with the Internal Revenue Service pursuant to regulations issued under the authority of Code Section 83(b).
(c) If any Grantee shall make any disposition of shares of Common Stock issued pursuant to the exercise of an Incentive Option or Incentive Warrant under the circumstances described in Section 421(b) of the Code (relating to certain disqualifying dispositions), such Grantee shall notify the Company of such disposition within ten (10) days hereof.
11. Effective Date of Plan.
The Plan shall be effective on May 24, 2021; provided, however, that the Plan must subsequently be approved by majority vote of the Company’s shareholders in accordance with the rules and regulations of the NASDAQ Stock Market LLC no later than May 23, 2022.
12. Amendment and Termination.
The Board may amend, suspend, or terminate the Plan, except that no amendment shall be made that would impair the rights of any Participant under Securities theretofore granted without the Participant’s consent, and except that no amendment shall be made which, without the approval of the shareholders of the Company would:
(a) materially increase the number of shares that may be issued under the Plan, except as is provided in Section 8;
(b) materially increase the benefits accruing to the Participants under the Plan;
(c) materially modify the requirements as to eligibility for participation in the Plan;
(d) decrease the exercise price of an Incentive Option or Incentive Warrant to less than 100% of the Fair Market Value per share of Common Stock on the date of grant or issuance thereof or the exercise price of a Nonqualified Option or Non-Qualified Warrant to less than 100% of the Fair Market Value per share of Common Stock on the date of grant or issuance thereof;
(e) extend the term of any Option or Warrant beyond that provided for in Section 5A(b) and Section 5B(c), respectively;
(f) except as otherwise provided in Sections 5A(d), 5B(e) and 8 hereof, reduce the exercise price of outstanding Options or Warrants or effect repricing through cancellations and re-grants of new Options or Warrants;
(g) increase the number of shares of Common Stock to be issued or issuable under the Plan to an amount that is equal to or in excess of 19.99% of the number of shares of Common Stock outstanding before the issuance of the stock or securities; or
(h) otherwise require stockholder approval pursuant to the rules and regulations of the NASDAQ Stock Market LLC.
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Subject to the forgoing, the Committee may amend the terms of any Option or Warrant theretofore granted, prospectively or retrospectively, but no such amendment shall impair the rights of any Optionee or Grantee without the Optionee’s or Grantee’s consent.
It is the intention of the Board that the Plan comply strictly with the provisions of Section 409A of the Code and Treasury Regulations and other Internal Revenue Service guidance promulgated thereunder (the “Section 409A Rules”) and the Committee shall exercise its discretion in granting awards hereunder (and the terms of such awards), accordingly. The Plan and any grant of an award hereunder may be amended from time to time (without, in the case of an award, the consent of the Participant) as may be necessary or appropriate to comply with the Section 409A Rules.
13. Government Regulations.
The Plan, and the grant and exercise or conversion, as applicable, of Securities hereunder, and the obligation of the Company to issue and deliver shares under such Securities shall be subject to all applicable laws, rules and regulations, and to such approvals by any governmental agencies, national securities exchanges and interdealer quotation systems as may be required.
14. General Provisions.
(a) Certificates. All certificates for shares of Common Stock or Preferred Stock delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, or other securities commission having jurisdiction, any applicable Federal or state securities law, any stock exchange or interdealer quotation system upon which the Common Stock is then listed or traded and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions.
(b) Employment Matters. Neither the adoption of the Plan nor any grant or award under the Plan shall confer upon any Participant who is an employee of the Company or any Subsidiary any right to continued employment or, in the case of a Participant who is a director, continued service as a director, with the Company or a Subsidiary, as the case may be, nor shall it interfere in any way with the right of the Company or any Subsidiary to terminate the employment of any of its employees, the service of any of its directors or the retention of any of its consultants or advisors at any time.
(c) Limitation of Liability. No member of the Committee, or any officer or employee of the Company acting on behalf of the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Committee and each and any officer or employee of the Company acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.
(d) Registration of Stock. Notwithstanding any other provision in the Plan, no Option or Warrant may be exercised unless and until the Common Stock to be issued upon the exercise thereof has been registered under the Securities Act and applicable state securities laws, or are, in the opinion of counsel to the Company, exempt from such registration in the United States. The Company shall not be under any obligation to register under applicable federal or state securities laws any Common Stock to be issued upon the exercise of an Option or Warrant granted or issued hereunder in order to permit the exercise of an Option or Warrant and the issuance and sale of the Common Stock subject to such Option or Warrant, although the Company may in its sole discretion register such Common Stock at such time as the Company shall determine. If the Company chooses to comply with such an exemption from registration, the Common Stock issued under the Plan may, at the direction of the Committee, bear an appropriate restrictive legend restricting the transfer or pledge of the Common Stock represented thereby, and the Committee may also give appropriate stop transfer instructions with respect to such Common Stock to the Company’s transfer agent.
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15. Non-Uniform Determinations.
The Committee’s determinations under the Plan, including, without limitation, (i) the determination of the Participants to receive awards, (ii) the form, amount and timing of such awards, (iii) the terms and provisions of such awards and (ii) the agreements evidencing the same, need not be uniform and may be made by it selectively among Participants who receive, or who are eligible to receive, awards under the Plan, whether or not such Participants are similarly situated.
16. Governing Law.
The validity, construction, and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the internal laws of the State of Nevada, without giving effect to principles of conflicts of laws, and applicable federal law.
17. Additional Issuance Restrictions.
If the Company has not obtained the approval of its stockholders in accordance with NASDAQ Listing Rule 5635(d), then the Company may not issue any Securities under this Plan that would upon the issuance of any Securities or upon the exercise on conversion of such Securities, as applicable, into shares of the Company’s Common Stock, when aggregated with any other shares of Common Stock (i) held by a Participant, (ii) underlying any convertible security held by a Participant, and (iii) issuable upon prior exercise of any convertible security held by a Participant, would exceed 19.99% shares of the Company’s Common Stock, subject to adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the date of the adoption of this Plan (such number of shares, the “Issuable Maximum”). The Participant shall be entitled to a portion of the Issuable Maximum as reasonably determined by the Committee so as not to violate NASDAQ Listing Rule 5635(d). In addition, the Participant may allocate its pro-rata portion of the Issuable Maximum among Securities held by it in its sole discretion. Such portion shall be adjusted upward ratably in the event a Participant no longer holds any Securities and the amount of shares issued to such Participant pursuant to its Securities was less than such Participant’s pro-rata share of the Issuable Maximum.
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Exhibit 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the “Agreement”), dated as of June 30, 2021 by and between Exactus, Inc. (the “Company”), and Leslie Buttorff (the “Executive”) shall commence on July 1, 2021 (the “Commencement Date”) and replaces in its entirety that certain Employment Agreement, dated as of December 31, 2017 with Executive and Panacea Life Sciences, Inc.
WHEREAS, the Board of Directors (the “Board”) of the Company, has determined it is in the best interests of the Company shareholders to employ the Executive, and the Executive desires to be employed by the Company, on the terms and subject to the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and agreements set forth in this Agreement, the parties hereto hereby agree as follows:
1. Employment. During the Employment Term (as defined below), the Company shall employ the Executive as the Chief Executive Officer, and the Executive shall serve the Company, upon the terms and conditions set forth in this Agreement.
2. Term. Subject to earlier termination as provided in Section 5, the Company shall employ Executive on the terms and conditions set forth herein during the period commencing on the Commencement Date and ending on June 30, 2024 or when terminated in accordance with Section 5 hereof (the “Employment Term”).
3. Duties and Responsibilities.
(a) During the Employment Term, the Executive shall serve as the Chief Executive Officer of the Company. During the Employment Term, the Executive shall (i) be subject to all of the Company’s policies, rules and regulations applicable to its executive officers, (ii) report to, and be subject to the direction and control of, the Board, and (iii) perform such duties commensurate with the Executive’s position as shall be assigned to the Executive by the Board.
(b) During the term of the Executive’s employment, it shall not be a violation of this Agreement for the Executive to (i) serve on corporate, civic or charitable boards or committees, (ii) deliver lectures or fulfill speaking engagements, (iii) manage personal investments, (iv) serve as an officer, director or manager of one or more of her affiliates, or (v) serve on the boards of directors of companies as approved by the Board, so long as such activities do not (x) violate the terms of this Agreement or any other agreement between the Executive and the Company, or between the Company and any third party or (y) interfere with the performance of the Executive’s responsibilities as an employee of the Company in accordance with this Agreement.
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4. Compensation.
(a) General. For all services rendered by the Executive to the Company, the Company shall pay or cause to be paid to the Executive, and the Executive shall accept, the payments and benefits set forth in this Section 4. The Company shall be entitled to deduct and/or withhold, as the case may be, from the compensation amounts payable under this Agreement, all amounts required to be deducted or withheld under any Federal, state or local law or regulation, or in connection with any Benefit Plan (as defined below) in which the Executive participates and which mandates a contribution, assessment or co-payment by the participants therein.
(b) Base Salary. During the Employment Term, the Company shall pay the Executive an annualized base salary. The initial annualized base salary is $380,000 (the “Base Salary”). Thereafter, during the Employment Term, the Executive’s Base Salary shall be reviewed at least annually by the Board or its compensation committee and may be increased (but not decreased without the prior written consent of the Executive). The Base Salary shall not be reduced after any such increase, and the term Base Salary as used in this Agreement shall refer to the Base Salary as so increased from time to time. The Base Salary shall be payable in bi-weekly installments in accordance with the Company’s regular practices, as such practices may be modified from time to time, but in no event less often than bi-monthly.
(c) Cash Bonus. During the Employment Term, the Executive shall be eligible to earn an annual performance bonus (the “Bonus”) with a target equal to 100% of the amount of the Base Salary paid during the corresponding fiscal year, if the Executive and the Company meet the performance objectives established by the Board, or a committee thereof, for such fiscal year. The Board or its compensation committee shall establish the performance objectives and the Bonus amount which the Executive is eligible to earn upon the satisfaction thereof, at least annually and, if requested by the Executive, shall deliver to the Executive a letter detailing the performance objectives. The satisfaction of the performance objectives shall be determined by the Board or the committee that established such performance objectives. If earned, the Bonus will be paid by the Company in cash, no later than April 15 of the fiscal year next following the fiscal year for which the Bonus is awarded. The Bonus amount shall be reviewed at least annually by the Board or a committee thereof. A sales commission of 2% of revenue from sales generated by the Executive will also be paid after revenue exceeds $500,000 for three consecutive months and will be paid in cash on the 10th day of each applicable month.
(d) Restricted Stock. Executive shall be entitled to participate in all benefit and incentive plans of the Company adopted from time-to-time, including the 2021 Executive Incentive Plan (the “Plan”). In addition to any awards under the Plan, Executive shall be awarded a restricted stock grant of $2.2 million of shares of Common Stock under the Plan of the Company upon approval prior to expiration of the Employment Term of the Company’s Common Stock for listing on The Nasdaq Capital Market (or other market of the Nasdaq Stock Market). Such shares of Common Stock shall be issued at the 20 Day VWAP of shares on the day immediately prior to the day of commencement of trading on The Nasdaq Stock Market and shall vest on the one year anniversary of the date of this Agreement, subject to continued employment. “20 Day VWAP” means the average of the Daily VWAP for the twenty (20) trading days ending on the trading day prior to commencement of trading on the Nasdaq Stock Market. “Daily VWAP” means, for any trading day, the per share volume-weighted average price of Buyer’s common stock as displayed on Bloomberg, L.P. (or its equivalent successor if such service is not available) in respect of the period from the scheduled open of trading until the scheduled close of trading of the primary trading session on such trading day on OTCQB. The Daily VWAP will be determined without regard to after-hours trading or any other trading outside of the regular trading session trading hours.
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(e) PTO. During the Employment Term, the Executive shall be entitled annually to 30 days (or such greater number as is authorized by the Board) of paid time off vacation, personal leave and sick leave in accordance with the Company’s policies, plans and regular practices, as may be modified from time to time in addition to paid federal holidays.
(f) Expenses. During the Employment Term, the Executive shall be authorized to incur reasonable documented expenses in the performance of Executive’s duties described above. The Company shall reimburse the Executive for all such expenses promptly after the presentation by the Executive of itemized accounts of such expenditures, all in accordance with the Company’s procedures and policies as adopted and in effect from time to time, including applicable reimbursement policies covering the Executive with respect to reasonable business-travel expenses, all in accordance with current and prior practice.
(g) Benefit Plans. During the Employment Term, the Executive shall be eligible to participate in all benefit plans of the Company (“Benefit Plans”), including, without limitation, qualified retirement, deferred compensation, group medical, dental, vision, accident, disability, life and other health benefit plans of the Company as may be provided by the Company from time to time to Company executives of comparable status, subject to, and to the extent that, the Executive is eligible under such Benefit Plans in accordance with their respective terms.
5. Termination.
(a) Death or Disability. The Executive’s employment shall terminate automatically upon the Executive’s death. If a Disability (each as defined below) of the Executive has occurred during the term of Executive’s employment hereunder, the Company may give to the Executive written notice in accordance with Section 9(b) of its intention to terminate the Executive’s employment. In such event, the Executive’s employment with the Company shall terminate effective on the thirtieth (30th) day after receipt of such notice by the Executive (the “Disability Effective Date”), unless the Executive shall have (i) returned to perform, with or without reasonable accommodations, the essential function of her position on a full-time basis prior to the Disability Effective Date and (ii) demonstrated to the reasonable satisfaction of the Board that the Executive is capable of sustaining those duties on a full time basis going forward. “Disability” shall mean a physical or mental infirmity which prevents the Executive from performing the essential function of her position for a period of at least ninety (90) consecutive days in any twelve-month period.
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(b) Cause. The Company may terminate the Executive’s employment at any time for Cause or without Cause (as defined below). For purposes of this Agreement, “Cause” shall mean (i) a material breach by the Executive of any provision of this Agreement or any other material contract or agreement with the Company which (if capable of being remedied) is not fully remedied, to the reasonable good faith satisfaction of the Board, within thirty (30) days following the receipt by the Executive of the applicable Notice of Termination (as defined below); (ii) commission by the Executive of an act of fraud upon, or gross negligence or willful gross misconduct of a material nature toward, the Company which causes material damages to the Company, as reasonably determined in good faith by the Board; (iii) the Executive’s conviction of or plea of nolo contendere to any felony; (iv) the Executive is found by a court after an opportunity for a hearing to have breached any provision of Section 6; (v) the Executive becomes subject to a preliminary or permanent injunction issued by a United States District Court enjoining the Executive from violating any securities law administered or regulated by the SEC; (vi) the Executive becomes subject to a cease and desist order or other order issued by the SEC after an opportunity for a hearing or (vii) the willful and continuing failure of the Executive to carry out, or comply with, in any material respect, any legal directive of the Board consistent with the terms of this Agreement which (if capable of being remedied) is not fully remedied, to the reasonable good faith satisfaction of the Board, within thirty (30) days following the receipt by Executive of the applicable Notice of Termination. Notwithstanding the foregoing, the Executive’s termination of employment by the Company shall not constitute a termination by the Company for Cause unless each of the following conditions is satisfied: (1) the Company has provided a Notice of Termination to the Executive within 90 days following the initial existence of the conditions or circumstances allegedly constituting Cause (or if later, within 90 days following the Company’s initial discovery thereof); (2) any applicable cure period, as set forth above, has lapsed without remedy by the Executive; (3) the Executive has been provided a timely and reasonable opportunity to appear before the Board, represented by legal counsel, to discuss such termination of employment; and (4) a majority of the Board has voted in favor of terminating the Executive’s employment for Cause within 30 days following the hearing described in clause (2). For purposes of this Agreement, “without Cause” shall mean a termination by the Company of the Executive’s employment for any reason other than a termination based upon Cause, death or Disability and shall include a termination of the Executive’s employment for any reason other than for Cause following the nonrenewal of the Employment Term by the Company.
(c) Termination by the Executive. The Executive may terminate her employment at any time for Good Reason or without Good Reason. For purposes of this Agreement “Good Reason” shall mean the occurrence of one or more of the following events (in each case, without the Executive’s prior written consent): (i) any material breach of this Agreement (including, but not limited to, a failure to comply with any of the provisions of Sections 3 and 4 of this Agreement in any respect by the Company, (ii) the Company’s assignment of the Executive to a position that has materially less authority, status, or functional responsibility than the Executive’s position with the Company as of the Commencement Date, or the Company’s assignment to the Executive (without a change in position) of duties that are not those of an executive at the Executive’s management level, (iii) the reduction of the Executive’s Base Salary, (iv) the Company’s requirement that the Executive move her primary place of employment more than thirty (30) miles from her initial place of employment or (v) upon any Change of Control event as defined in Treasury Regulation Section 1.409A-3(i)(5) provided, that, within 12 months of the Change of Control event the Company terminates the Executive’s employment or fails 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 perform if no succession had taken place. Notwithstanding the foregoing, the Executive shall not have G0ood Reason to terminate her employment unless the event giving rise to Good Reason is not fully remedied within thirty (30) days after receipt by the Company of a written notice from the Executive of such event, which written notice must be provided within ninety (90) days after the initial occurrence of such event (or if later, the Executive’s discovery of such event). A termination for Good Reason cannot occur later than two (2) years following the initial occurrence of the applicable event (or, if later, the Executive’s discovery of such event). For purposes of this Agreement, termination by the Executive “without Good Reason” shall mean termination by the Executive of her employment for any reasons other than a termination for Good Reason.
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(d) Notice of Termination. Any termination by (i) the Company whether for Cause or without Cause, or (ii) the Executive, whether for Good Reason or without Good Reason, shall be communicated by Notice of Termination (as defined below) to the other party hereto given in accordance with Section 9(b). For purposes of this Agreement, a “Notice of Termination” means a written notice which (x) indicates the specific termination provision in this Agreement relied upon, (y) to the extent applicable, sets forth in reasonable detail the facts and circumstances, if any, claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (z) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date. The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.
(e) Date of Termination. “Date of Termination” means (i) if the Executive’s employment is terminated by the Company for Cause or without Cause, the date of the Notice of Termination or any later date specified therein, as the case may be; (ii) if the Executive terminates her employment for Good Reason or without Good Reason, the date of termination specified in the Notice of Termination, or such earlier date (no earlier than the date on which the Notice of Termination is delivered to the Company) as is determined by the Board, and (iii) if the Executive’s employment is terminated by reason of death or Disability, the date of death of the Executive or the Disability Effective Date, as the case may be.
(f) Obligations of the Company Upon Termination.
(1) If (i) the Company shall terminate the Executive’s employment without Cause, or Disability of the Executive, (ii) the Executive’s employment shall terminate due to the Executive’s death or Disability or (iii) the Executive shall terminate her employment, for Good Reason, then the Company shall pay to the Executive within ten (10) days after the Date of Termination the sum of (A) the Executive’s Base Salary for two years, plus (B) all unreimbursed business expenses and other accrued but unpaid compensation described in Section 4(b); (y) without duplication, any annual Bonus earned but not yet paid for any fiscal year ending prior to the fiscal year in which the Date of Termination occurs, payable at the time otherwise scheduled to be paid (the amounts described in (x) and (y), the “Accrued Obligations”); and (z) any amount arising from the Executive’s participation in, or benefits under, any Benefit Plans (“Accrued Plan Amounts”), which amounts shall be payable in accordance with the terms and conditions of such Benefit Plans, as the case may be. The Accrued Plan Amounts shall include but not be limited to any accrued but unused PTO.
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(2) Not in limitation of Section 6(a), if the Company shall terminate the Executive’s employment without Cause, then upon the execution and delivery by the Executive of a general release of claims in favor of the Company in a form reasonably satisfactory to the Company (“Release”), the Company shall pay to the Executive (i) a termination settlement which shall be paid in substantially equal installments in accordance with the customary payroll practices of the Company, in an amount equal to the Base Salary (as in effect on the date of termination) for twenty-four (24) months, and (ii) an amount equal to the annual Bonus which the Executive would have been entitled to receive in respect of the year of termination based on the achievement of any performance objectives for the Company and the Executive at no less than target level for such year of termination, prorated for the amount of the year in which Executive was employed, which amount shall be paid to the Executive when the Company pays bonuses to its employees generally, but no later than April 15 of the year following the year of termination (such salary continuation and bonus payments, the “Severance Benefits”).
(3) Except as set forth in this Section 5, the Company shall have no further severance, payment or other benefit obligations to the Executive other than for the continuance of benefits under the Benefit Plans to the Date of Termination and such obligations which may be expressly provided to be paid on termination or to survive on termination as set forth in any other written agreement entered into simultaneously or hereafter between the Executive and the Company and approved by the Board.
6. Restrictive Covenants.
(a) Agreement to Provide Proprietary Information; Mutual Promises. The Company agrees to provide Proprietary Information (as defined below) to the Executive as may be necessary to carry out the object of this Agreement. The parties agree that the Proprietary Information, if revealed to the Company’s competitors, could prove highly disadvantageous to the Company and damage the Company’s business and goodwill. The Company agrees to furnish this information to facilitate the Executive’s performance of her duties required by this Agreement.
(1) Except in connection with the performance of her duties, the Executive promises not to disclose Proprietary Information to any third party or unauthorized party during the term of this Agreement or at any time following the expiration or termination of this Agreement. The Executive acknowledges that this promise is in consideration for, among other things, the Company’s promise to provide the Executive with Proprietary Information.
(2) “Proprietary Information” includes, by way of illustration and without limitation, any trade secret under applicable state laws including Colorado law where the services will be partially performed or common law, confidential knowledge, data, information relating to existing products, new products, processes, know-how, designs, specifications, inventions, formulas, methods, samples, developmental or experimental work, improvements, discoveries, past, current and planned research, databases, software programs, including source code and object code, software source documentation, flow diagrams, development tools, unpublished patent applications, marketing and selling plans, business plans, strategic plans, operations, budgets and unpublished financial information, licenses, prices and cost information, suppliers, vendors and customers, information regarding the skills, employment and compensation of other employees of the Company, other information developed or acquired by or on behalf of the Company, whenever and however acquired by the Executive, which relate to or could reasonably be expected to affect any aspect of the Company’s Business and affairs, or any other proprietary information of the Company. “Proprietary Information” includes information developed by the Executive to be used in the Business of the Company, as well as other information to which the Executive may have access in connection with the Executive’s employment. For purposes of this Agreement, “Business” means: (i) the growing, manufacturing, marketing and sale of products containing hemp and the marketing and sale of personal protective equipment, and (ii) any other business, at any stage of conception or development, engaged in by the Company during the period of the Executive’s employment by the Company of which the Executive may be aware.
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(3) The Executive acknowledges that the Company has received and in the future will receive from third parties their confidential or proprietary information subject to a duty on the Company’s part to maintain the confidentiality of such information and, in some cases to use it only for certain limited purposes. The Executive acknowledges that she owes the Company and such third parties, both during the period of her employment and thereafter, a duty to hold all such third-party confidential or proprietary information in the strictest confidence and not to disclose it to any person or entity or use it for the benefit of anyone other than the Company or such third party, unless expressly authorized by the terms of the Company’s agreement with the third party.
(4) These confidentiality obligations shall not apply to information that has entered the public domain, other than as a result of the Executive’s breach of this Agreement, or that the Executive is ordered to disclose by a court of competent jurisdiction or a state or federal regulatory authority pursuant to applicable law; provided that prior to such ordered disclosure the Executive will to the extent practicable consult with the Company so that the Company may seek an appropriate protective order.
(5) The Executive acknowledges that public disclosure of the Proprietary Information could have a material adverse impact on the Company and its business. The Executive further acknowledges that the provisions of this Section 6 are reasonable and necessary precautions against the improper use or disclosure of Proprietary Information, and the Executive agrees to keep the same in a fiduciary capacity for the sole benefit of the Company.
(b) Remedies for Breach of Restrictive Covenants.
(1) The Executive acknowledges that, because the Executive’s services are personal and unique and because the Executive may have access to and become acquainted with the confidential and Proprietary Information of the Company, the damages that would be suffered by the Company as a result of a breach of the provisions of this Agreement contained in this Section 6 may not be calculable, and that an award of a monetary judgment to the Company for such a breach would be an inadequate remedy. Consequently, the Company shall have the right, in addition to any other rights it may have under this Agreement or elsewhere at law, to obtain injunctive relief in any court of competent jurisdiction to restrain any breach or threatened breach hereof or otherwise to specifically enforce any of the provisions of this Agreement. The Company shall not be obligated to post a bond or other security in seeking such relief. The party who substantially prevails shall be entitled to its reasonable attorney’s fees and costs.
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(2) The covenants made by the Executive in this Section 6 shall be construed as agreements independent of any other provisions of this Agreement, and the existence of any claim or cause of action of the Executive against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of these covenants.
If a court shall determine that any provision of (or portion of a provision of) this Section 6 of this Agreement is unenforceable in accordance with its terms, either because it extends for too long a period of time or over too great a range of activities or in too broad a geographic area or for any other reason, it shall nonetheless be enforced on such terms as that court determines are equitable and legally enforceable.
(c) Return of Company Material. All documents, records, apparatus, equipment and other physical property, whether or not pertaining to Proprietary Information, which are furnished to the Executive by the Company or are produced by the Executive in connection with her employment with the Company will be and remain the sole property of the Company (“Company Property”). Immediately upon termination of her employment with the Company, however and whenever that may occur, the Executive agrees that she will deliver all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, blueprints, sketches, materials, equipment, other documents or property, together with all copies thereof (in whatever medium recorded), belonging to the Company, its successors or assigns. The Executive further agrees that the Executive will not take from the Company any such material or property or any copies thereof upon such termination. The Executive acknowledges and agrees that any property situated in the Company’s premises and owned by the Company, including disks and other storage media, filing cabinets or other work areas, is subject to inspection by Company personnel at any time with or without notice. The Executive further agrees that, during the period of employment with the Company, the Executive will return to the Company’s premises any Company Property upon request of any officer of the Company, and will provide any officer of the Company with access to any Company Property upon reasonable notice of a request to inspect any such property.
(d) Notification to New Employer. In the event that the Executive’s employment by the Company terminates, the Executive hereby consents to and will to the best of her ability facilitate the notification of the Executive’s new employer of her obligations under Section 6 of this Agreement.
(e) Full Settlement. The Company shall not be liable to the Executive for any damages in addition to the amounts payable under Section 5 arising out of the termination of the Executive’s employment hereunder. This provision shall not be construed to modify Section 9(k) of this Agreement.
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(f) Successors.
(1) No rights or obligations of the Executive under this Agreement may be assigned or transferred by the Executive other than Executive’s rights to payments or benefits hereunder, which may be transferred only by will or the laws of descent and distribution. Upon the Executive’s death, this Agreement and all rights of the Executive hereunder shall inure to the benefit of and be enforceable by the Executive’s beneficiary or beneficiaries, personal or legal representatives, or estate, to the extent any such person succeeds to the Executive’s interests under this Agreement. Subject to compliance with the terms of any Company sponsored Benefit Plan, the Executive shall be entitled to select and change a beneficiary or beneficiaries to receive following the Executive’s death any benefit or compensation payable hereunder by giving the Company written notice thereof. In the event of the Executive’s death or a judicial determination of Executive’s incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to Executive’s beneficiary(ies), estate or other legal representative(s).
(2) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and permitted assigns.
(3) The Company shall have the right to assign this Agreement to any successor of substantially all of its business or assets, and any such successor shall be bound by all of the provisions hereof; provided, however, that such assignment shall not preclude the exercise of the Executive’s rights to terminate this Agreement.
7. Indemnification. During the Employment Term, the Executive will be covered pursuant to the Company’s existing Director and Officer’s Liability insurance coverage and shall receive all of the same indemnification protection that is now or hereafter provided by the Company to its executive officers and/or the Board. If 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, by reason of the fact that the Executive is or was a trustee, director, officer or employee of the Company or any subsidiary or is or was serving at the request of the Company or any subsidiary as a trustee, 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 fullest extent authorized by Nevada law, and the Company’s articles of incorporation and by-laws as the same exist or may hereafter be amended, against all expenses (including, without limitation, attorney fees) incurred or suffered by Executive in connection therewith, and such indemnification shall continue as to Executive even if Executive has ceased to be an officer, director, trustee or agent, or is no longer employed by the Company and shall inure to the benefit of Executive’s heirs, executors and administrators. In addition, the Company shall, if requested by Executive and to the extent permitted by and subject to any terms and conditions contained in, Nevada law and the Company’s articles of incorporation and by-laws, advance to Executive sufficient amounts necessary to pay any expenses, including fees of counsel, incurred by Executive in connection with such proceeding. In order to ensure that resources are available to the Company to satisfy its indemnification obligations hereunder, the Company shall obtain and thereafter maintain directors and officer’s insurance with levels of coverage appropriate for the Company based upon its industry and size. The indemnification provided by this Section 7 shall be in addition to (and not limited by) any other indemnification rights to which the Executive may be entitled under any other agreement with the Company or any subsidiary or the Company’s articles of incorporation or by-laws. No amendment, modification or repeal of any provisions of the Company’s articles of incorporation or by-laws on or after the Commencement Date shall limit or deny any right to indemnification hereunder for any matter arising or accruing prior to such amendment, modification or repeal.
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8. Section 409A.
(a) General. The parties hereto acknowledge and agree that, to the extent applicable, this Agreement shall be interpreted in accordance with, and incorporate the terms and conditions required by, Section 409A of the Internal Revenue Code of 1986, as amended (“Section 409A”), and the parties hereby acknowledge and agree that the amounts and benefits payable under this Agreement are either exempt from or compliant with Section 409A. The parties agree not to take any position inconsistent with the preceding sentence for any reporting purposes, whether internal or external, and to cause their affiliates, agents, successors and assigns not to take any such inconsistent position Notwithstanding any provision of this Agreement to the contrary, in the event that the Company determines that any amounts payable hereunder will be immediately taxable to the Executive under Section 409A, the Company reserves the right (without any obligation to do so or to indemnify the Executive for failure to do so) to (i) adopt such amendments to this Agreement and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Company determines to be necessary or appropriate to preserve the intended tax treatment of the benefits provided by this Agreement, to preserve the economic benefits of this Agreement and to avoid less favorable accounting or tax consequences for the Company and/or (ii) take such other actions as the Company determines to be necessary or appropriate to exempt the amounts payable hereunder from Section 409A or to comply with the requirements of Section 409A and thereby avoid the application of penalty taxes thereunder. No provision of this Agreement shall be interpreted or construed to transfer any liability for failure to comply with the requirements of Section 409A from the Executive or any other individual to the Company or any of its affiliates, employees or agents.
(b) Section 409A Compliance Matters. Notwithstanding any provision to the contrary in this Agreement: (i) no amount shall be payable pursuant to Sections 6(b)-(c) unless the termination of Executive’s employment constitutes a “separation from service” within the meaning of Section 1.409A-1(h) of the Department of Treasury Regulations; (ii) for purposes of Section 409A, Executive’s right to receive installment payments hereunder shall be treated as a right to receive a series of separate and distinct payments; (iii) amounts payable to Executive pursuant to Sections 6(b)-(c) shall, to the maximum extent permitted by Section 409A, be made in reliance on Section 1.409A-1(b)(9) (Separation Pay Plans) or Section 1.409A-1(b)(4) (Short- Term Deferrals) of the Department of Treasury Regulations; and (iv) to the extent that any reimbursement of expenses or in-kind benefits constitute “deferred compensation” under Section 409A, such reimbursement shall be provided no later than December 31 of the year following the year in which the expense was incurred, the amount of any expenses reimbursed or in-kind benefits provided in one year shall not affect the amount eligible for reimbursement or in-kind benefits provided in any subsequent year (other than an arrangement providing for the reimbursement of medical expenses referred to in Section 105(b) of the Code), and the Executive’s right to such payments or reimbursement of any such expenses shall not be subject to liquidation or exchange for any other benefit. Notwithstanding any provision to the contrary in this Agreement, if the Executive is deemed at the time of her separation from service to be a “specified employee” for purposes of Section 409A, to the extent delayed commencement of any portion of the termination benefits to which the Executive is entitled under this Agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of the Executive’s termination benefits shall not be provided to the Executive prior to the earlier of (x) the expiration of the six-month period measured from the date of the Executive’s “separation from service” with the Company (within the meaning of Section 409A) or (y) the date of the Executive’s death; upon the earlier of such dates, all payments deferred pursuant to this sentence shall be paid in a lump sum to the Executive, and any remaining payments due under the Agreement shall be paid as otherwise provided herein. The determination of whether the Executive is a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code as of the time of the Executive’s separation from service shall be made by the Company in accordance with the terms of Section 409A (including, without limitation, Section 1.409A-1(i) of the Department of Treasury Regulations and any successor provision thereto).
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(c) Release. Notwithstanding anything to the contrary in this Agreement, to the extent that any payments of “nonqualified deferred compensation” (within the meaning of Section 409A) due under this Agreement as a result of the Executive’s termination of employment are subject to the Executive’s execution and delivery of a Release, (i) the Company shall deliver the Release to the Executive within 10 business days following the Date of Termination, and the Company’s failure to deliver the Release prior to the expiration of such 10 business day period shall constitute a waiver of any requirement to execute the Release, (ii) if, after timely delivery by the Company of the Release, the Executive fails to execute the Release on or prior to the Release Expiration Date (as defined below) or timely revokes her acceptance of the Release thereafter, the Executive shall not be entitled to any payments or benefits otherwise conditioned on the Release, and (iii) in any case where the Date of Termination and the Release Expiration Date fall in two separate taxable years, any payments required to be made to the Executive that are conditioned on the Release, are treated as nonqualified deferred compensation for purposes of Section 409A and, but for this clause (iii), would be been made in the first calendar year shall be delayed and made as set forth below. For purposes of this Section 8(c), “Release Expiration Date” shall mean the date that is 21 days following the date upon which the Company timely delivers the Release to Executive, or, in the event that Executive’s termination of employment is “in connection with an exit incentive or other employment termination program” (as such phrase is defined in the Age Discrimination in Employment Act of 1967), the date that is 45 days following such delivery date. To the extent that any payments of nonqualified deferred compensation (within the meaning of Section 409A) due under this Agreement as a result of Executive’s termination of employment are delayed pursuant to this Section 8(c), such amounts shall be paid in a lump sum on the first payroll date following the date that Executive executes and does not revoke the Release (and the applicable revocation period has expired) or, in the case of any payments subject to Section 13(c)(iii), on the first payroll date of the Company to occur in the subsequent taxable year, if later, with all subsequent payments to be made as if no such delay had occurred.
9. Miscellaneous.
(a) Except as otherwise provided herein, this Agreement shall be governed by and construed in accordance with the laws of Nevada, without giving effect to the principles of conflict of laws thereof.
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(b) Any notice required or permitted to be given pursuant to this Agreement shall be in writing and shall be given to the other party in person, by reputable overnight courier, overnight delivery requested, or by electronic mail addressed as follows:
If to the Executive:
Leslie Buttorff
_____________________
_____________________
Email: _______________
If to the Company:
5910 South University Blvd, C18-193
Greenwood Village, CO 80121
Attention: Nathan Berman.
Email: nathan.berman@panacealife.com
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when delivered in person by electronic mail or the next business day after being sent by overnight courier.
(c) This Agreement may not be changed, amended, terminated or superseded orally, but only by an agreement in writing, nor may any of the provisions hereof be waived orally, but only by an instrument in writing, in any such case signed by the party against whom enforcement of any change, amendment, termination, waiver, modification, extension or discharge is sought.
(d) The Company may, from time to time apply for and take out, in its own name and at its own expense, life, health, accident, disability or other insurance upon the Executive in any sum or sums that it may deem necessary to protect its interests, and the Executive agrees to aid and cooperate in all reasonable respects with the Company in procuring any and all such insurance, including without limitation, submitting to the usual and customary medical examinations, and by filling out, executing and delivering such applications and other instruments in writing as may be reasonably required by an insurance company or companies to which an application or applications for such insurance may be made by or for the Company.
(e) If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the application of such provision in such circumstances shall be deemed modified to permit its enforcement to the maximum extent permitted by law, and both the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable and the remainder of this Agreement shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.
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(f) The Executive’s or the Company’s failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Company to terminate the Executive’s employment for Cause or the Executive to terminate employment for Good Reason pursuant to this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement.
(g) The Executive and the Company acknowledge that, effective as of the Commencement Date, this Agreement constitutes the entire agreement of the parties hereto with respect to the Executive’s employment by the Company and supersede any and all prior understandings or agreements, whether oral or written, express or implied.
(h) All descriptive headings of the Sections of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
(i) This Agreement may be executed in two counterparts each of which shall be original and both of which together shall constitute one and the same instrument.
(j) Each of the parties hereto shall, at any time and from time-to-time hereafter, upon the reasonable request of the other, take such further action and execute, acknowledge and deliver all such instruments of further assurance as necessary to carry out the provisions of this Agreement.
(k) If either party substantially prevails with respect to any claim, dispute or controversy under or in connection with this Agreement or the Executive’s employment with the Company, then such prevailing party shall be entitled to prompt reimbursement from the other party for all reasonable legal fees and costs incurred in connection with any such claim, dispute or controversy.
(l) Sections 5 (to the extent it requires payments post termination), 6, 7, 8, and 9 of this Agreement shall survive the termination of this Agreement and the Executive’s employment by the Company pursuant hereto.
(m) 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 such amounts shall not be reduced whether or not the Executive obtains other employment.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as a sealed instrument of the date first above written.
| COMPANY: | ||
| Exactus, Inc. | ||
| By: | /s/ Nathan Berman | |
| Nathan Berman | ||
| Principal Accounting Officer | ||
| EXECUTIVE: | ||
| By: | /s/ Leslie Buttorff | |
| Leslie Buttorff | ||
| 14 |
Exhibit 10.5
PANACEA LIFE SCIENCES, INC.
PROMISSORY NOTE
| Issuance Date: June 30, 2021 | $4,062,713.72 |
FOR VALUE RECEIVED, PANACEA LIFE SCIENCES, INC., a Colorado corporation (the “Borrower”), having its principal place of business and mailing address at 16194 West 45th Avenue, Golden, Colorado 80403, hereby unconditionally agrees and promises to pay to the order, Quintel-MC, Incorporated, a Colorado corporation (the “Holder”), the amount set out above (the “Principal Indebtedness”), together with interest on the outstanding Principal Indebtedness evidenced by this Note at the Applicable Interest Rate (as defined below). This Promissory Note replaces that certain Promissory Note dated November 30, 2019 issued by the Borrower to the Holder.
1. Principal Indebtedness of the Note.
(a) The unpaid Principal Indebtedness of this Promissory Note (the “Note”) is $4,062,713.72 as of the Issuance Date of the Note (the “Issuance Date”).
(b) The unpaid Principal Indebtedness outstanding, plus accrued and unpaid interest calculated pursuant to Section 2 shall be payable in full upon demand.
2. Interest. Interest shall accrue and be payable as follows: Interest on the outstanding Principal Indebtedness as of the date hereof shall accrue at the rate of ten (10%) percent per annum and shall be calculated for actual days elapsed on the basis of a 360-day year.
3. The unpaid Principal Indebtedness and accrued interest is secured by certain collateral under a Pledge Agreement dated June 30, 2021 by and among the Borrower, the Holder and Leslie Buttorff.
4. Events of Default. The Holder is hereby authorized to declare all or any part of the Indebtedness immediately due and payable upon the occurrence and during the continuation of any of the following events (each, an “Event of Default”):
(a) the failure of Borrower to pay the Indebtedness when the same shall be due and payable, which failure is not cured by the Borrower within ten (10) days after written notice of such failure to pay has been given by the Holder to the Borrower;
(b) the filing by the Borrower of any petition for relief under the United States Bankruptcy Code or any similar federal or state statute, or the Borrower’s consent to or acquiescence in any such filing by a third party, or the Borrower shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing;
(c) an involuntary petition is filed against the Borrower (unless such petition is dismissed or discharged within 60 days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Borrower; or
(d) the dissolution, winding up, or termination of the business or cessation of operations of the Borrower (including any transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Borrower pursuant to the provisions of its charter documents), or the Borrower shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing.
5. Prepayment. Borrower may prepay all or any portion of any amount due under this Note at any time without premium or penalty. All payments shall be applied first to interest and then to Principal Indebtedness.
6. Governing Law. The provisions of this Note shall be construed according to the internal substantive laws of the State of Colorado without regard to conflict of laws principles that would result in the application of the laws of any other jurisdiction. If any provision of this Note is in conflict with any statute or rule of law of the State of Colorado or is otherwise unenforceable for any reason whatsoever, then such provision shall be deemed to be restated so that it may be enforced to the fullest extent permitted by law, and the remainder of this Note shall remain in full force and effect.
7. Acceleration. Upon the occurrence and during the continuation of an Event of Default under this Note that is not cured within the applicable cure period, if any, set forth in Section 3, the Holder shall have the right and option to declare all outstanding Indebtedness evidenced by this Note immediately due and payable by written notice to Borrower; provided, however, that upon the occurrence of an Event of Default described in Sections 3(b), 3(c) or 3(d), the Indebtedness and all other amounts due and owing under this Note (if not then due and payable) shall become due and payable immediately, without presentment, demand, notice, protest, declaration or any other requirement of any kind, all which Borrower expressly waives.
8. Fees. Borrower shall pay all of Holder’s reasonable fees and costs incurred in the preparation of this Note and any related documents. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to enforce its collection, Borrower shall pay all reasonable costs of collection including reasonable attorneys’ fees.
9. Waivers. Borrower hereby waives diligence, presentment, demand, protest, notice of intent to accelerate, notice of acceleration, and any other notice of any kind. No delay or omission on the part of the Holder in exercising any right hereunder shall operate as a waiver of such right or of any other remedy under this Note. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on a future occasion.
10. Transfer. This Note may be transferred or assigned, in whole or in part, by the Holder at any time. The term “Holder” as used herein shall also include any transferee of this Note.
11. Unconditional Obligation. The obligation of Borrower to repay the Indebtedness under this Note is absolute and unconditional, and there exists no right of set off, recoupment, counterclaim or defense of any nature whatsoever to the Borrower’s obligation to make payment under this Note.
12. Notices. All notices, requests, demands and other communications under this Note or in connection herewith shall be given to or made upon the respective parties as follows:
If to the Borrower, to:
Panacea Life Sciences, Inc.
16194 W. 45th Drive
Golden, Colorado 80403
Attention: Nathan Berman, Controller
E-mail: Nathan.berman@panacealife.com
If to the Holder, to:
Quintel-MC, Incorporated
5910 South University, Suite C18-193
Greenwood Village, Colorado 80121
Attention: Mary Cavarra, Treasurer
E-mail: mary.cavarra@quintel-mc.com
Unless otherwise provided, any notice required or permitted by this Note shall be in writing and shall be deemed sufficient upon (i) delivery, when delivered personally or by overnight courier, (ii) confirmed transmission when sent by electronic mail, or (iii) seventy-two (72) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid.
13. Waiver of Jury Trial. HOLDER AND BORROWER IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST HOLDER OR BORROWER IN RESPECT OF THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING, GOVERNING OR SECURING THIS NOTE. BORROWER ACKNOWLEDGES THAT THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS PART OF A COMMERCIAL TRANSACTION.
[Signature page follows.]
IN WITNESS WHEREOF, this Note has been executed by Borrower as of the day and year first set forth above.
| PANACEA LIFE SCIENCES, INC. | ||
| By: | ||
| Name: | Nathan Berman | |
| Title: | Controller | |
Exhibit 10.6
PANACEA LIFE SCIENCES, INC.
PROMISSORY NOTE
| Issuance Date: June 30, 2021 | $1,624,000 |
FOR VALUE RECEIVED, PANACEA LIFE SCIENCES, INC., a Colorado corporation (the “Borrower”), having its principal place of business and mailing address at 16194 West 45th Avenue, Golden, Colorado 80403, hereby unconditionally agrees and promises to pay to the order, Leslie Buttorff and/or its successors and assigns (the “Holder”), the amount set out above (the “Principal Indebtedness”), together with interest on the outstanding Principal Indebtedness evidenced by this Note at the Applicable Interest Rate (as defined below). This Promissory Note replaces that certain Promissory Note dated January 1, 2021 issued by the Borrower to the Holder.
1. Principal Indebtedness of the Note.
(a) The unpaid Principal Indebtedness of this Promissory Note (the “Note”) is $1,624,000 as of the Issuance Date of the Note (the “Issuance Date”).
(b) The unpaid Principal Indebtedness outstanding, plus accrued and unpaid interest calculated pursuant to Section 2 shall be payable in full upon demand.
2. Interest. Interest shall accrue and be payable as follows: Interest on the outstanding Principal Indebtedness as of the date hereof shall accrue at the rate of ten (10%) percent per annum and shall be calculated for actual days elapsed on the basis of a 360-day year.
3. The unpaid Principal Indebtedness and accrued interest is secured by certain collateral under a Pledge Agreement dated June 30, 2021 by and among the Borrower, the Holder and Quintel-MC, Incorporated.
4. Events of Default. The Holder is hereby authorized to declare all or any part of the Indebtedness immediately due and payable upon the occurrence and during the continuation of any of the following events (each, an “Event of Default”):
(a) the failure of Borrower to pay the Indebtedness when the same shall be due and payable, which failure is not cured by the Borrower within ten (10) days after written notice of such failure to pay has been given by the Holder to the Borrower;
(b) the filing by the Borrower of any petition for relief under the United States Bankruptcy Code or any similar federal or state statute, or the Borrower’s consent to or acquiescence in any such filing by a third party, or the Borrower shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing;
(c) an involuntary petition is filed against the Borrower (unless such petition is dismissed or discharged within 60 days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Borrower; or
(d) the dissolution, winding up, or termination of the business or cessation of operations of the Borrower (including any transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Borrower pursuant to the provisions of its charter documents), or the Borrower shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing.
5. Prepayment. Borrower may prepay all or any portion of any amount due under this Note at any time without premium or penalty. All payments shall be applied first to interest and then to Principal Indebtedness.
6. Governing Law. The provisions of this Note shall be construed according to the internal substantive laws of the State of Colorado without regard to conflict of laws principles that would result in the application of the laws of any other jurisdiction. If any provision of this Note is in conflict with any statute or rule of law of the State of Colorado or is otherwise unenforceable for any reason whatsoever, then such provision shall be deemed to be restated so that it may be enforced to the fullest extent permitted by law, and the remainder of this Note shall remain in full force and effect.
7. Acceleration. Upon the occurrence and during the continuation of an Event of Default under this Note that is not cured within the applicable cure period, if any, set forth in Section 3, the Holder shall have the right and option to declare all outstanding Indebtedness evidenced by this Note immediately due and payable by written notice to Borrower; provided, however, that upon the occurrence of an Event of Default described in Sections 3(b), 3(c) or 3(d), the Indebtedness and all other amounts due and owing under this Note (if not then due and payable) shall become due and payable immediately, without presentment, demand, notice, protest, declaration or any other requirement of any kind, all which Borrower expressly waives.
8. Fees. Borrower shall pay all of Holder’s reasonable fees and costs incurred in the preparation of this Note and any related documents. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to enforce its collection, Borrower shall pay all reasonable costs of collection including reasonable attorneys’ fees.
9. Waivers. Borrower hereby waives diligence, presentment, demand, protest, notice of intent to accelerate, notice of acceleration, and any other notice of any kind. No delay or omission on the part of the Holder in exercising any right hereunder shall operate as a waiver of such right or of any other remedy under this Note. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on a future occasion.
10. Transfer. This Note may be transferred or assigned, in whole or in part, by the Holder at any time. The term “Holder” as used herein shall also include any transferee of this Note.
11. Unconditional Obligation. The obligation of Borrower to repay the Indebtedness under this Note is absolute and unconditional, and there exists no right of set off, recoupment, counterclaim or defense of any nature whatsoever to the Borrower’s obligation to make payment under this Note.
12. Notices. All notices, requests, demands and other communications under this Note or in connection herewith shall be given to or made upon the respective parties as follows:
If to the Borrower, to:
Panacea Life Sciences, Inc.
16194 W. 45th Drive
Golden, Colorado 80403
Attention: Nathan Berman, Controller
E-mail: Nathan.berman@panacealife.com
If to the Holder, to:
Leslie Buttorff
____________
____________
Unless otherwise provided, any notice required or permitted by this Note shall be in writing and shall be deemed sufficient upon (i) delivery, when delivered personally or by overnight courier, (ii) confirmed transmission when sent by electronic mail, or (iii) seventy-two (72) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid.
13. Waiver of Jury Trial. HOLDER AND BORROWER IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST HOLDER OR BORROWER IN RESPECT OF THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING, GOVERNING OR SECURING THIS NOTE. BORROWER ACKNOWLEDGES THAT THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS PART OF A COMMERCIAL TRANSACTION.
[Signature page follows.]
IN WITNESS WHEREOF, this Note has been executed by Borrower as of the day and year first set forth above.
| PANACEA LIFE SCIENCES, INC. | ||
| By: | ||
| Name: | Nathan Berman | |
| Title: | Controller | |
Exhibit 10.7
EXACTUS, INC.
PROMISSORY NOTE
| Issuance Date: July 1, 2021 | $1,000,000 |
FOR VALUE RECEIVED, EXACTUS, INC., a Nevada corporation (the “Borrower”), having its principal place of business and mailing address at 5910 South University Blvd., C18-193, Greenwood Village, Colorado 80121, hereby unconditionally agrees and promises to pay to the order, Leslie Buttorff and/or its successors and assigns (the “Holder”), the amount set out above (the “Principal Indebtedness”), together with interest on the outstanding Principal Indebtedness evidenced by this Note at the Applicable Interest Rate (as defined below).
1. Principal Indebtedness of the Note.
(a) The unpaid Principal Indebtedness of this Promissory Note (the “Note”) is $1,000,000 as of the Issuance Date of the Note (the “Issuance Date”).
(b) The unpaid Principal Indebtedness outstanding, plus accrued and unpaid interest calculated pursuant to Section 2 shall be payable in full upon demand.
2. Interest. Interest shall accrue and be payable as follows: Interest on the outstanding Principal Indebtedness as of the date hereof shall accrue at the rate of ten (10%) percent per annum and shall be calculated for actual days elapsed on the basis of a 360-day year.
3. Intentionally omitted.
4. Events of Default. The Holder is hereby authorized to declare all or any part of the Indebtedness immediately due and payable upon the occurrence and during the continuation of any of the following events (each, an “Event of Default”):
(a) the failure of Borrower to pay the Indebtedness when the same shall be due and payable, which failure is not cured by the Borrower within ten (10) days after written notice of such failure to pay has been given by the Holder to the Borrower;
(b) the filing by the Borrower of any petition for relief under the United States Bankruptcy Code or any similar federal or state statute, or the Borrower’s consent to or acquiescence in any such filing by a third party, or the Borrower shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing;
(c) an involuntary petition is filed against the Borrower (unless such petition is dismissed or discharged within 60 days) under any bankruptcy statute now or hereafter in effect, or a custodian, receiver, trustee, assignee for the benefit of creditors (or other similar official) is appointed to take possession, custody or control of any property of the Borrower; or
(d) the dissolution, winding up, or termination of the business or cessation of operations of the Borrower (including any transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Borrower pursuant to the provisions of its charter documents), or the Borrower shall take any corporate action for the purpose of effecting, approving, or consenting to any of the foregoing.
5. Prepayment. Borrower may prepay all or any portion of any amount due under this Note at any time without premium or penalty. All payments shall be applied first to interest and then to Principal Indebtedness.
6. Governing Law. The provisions of this Note shall be construed according to the internal substantive laws of the State of Colorado without regard to conflict of laws principles that would result in the application of the laws of any other jurisdiction. If any provision of this Note is in conflict with any statute or rule of law of the State of Colorado or is otherwise unenforceable for any reason whatsoever, then such provision shall be deemed to be restated so that it may be enforced to the fullest extent permitted by law, and the remainder of this Note shall remain in full force and effect.
7. Acceleration. Upon the occurrence and during the continuation of an Event of Default under this Note that is not cured within the applicable cure period, if any, set forth in Section 4, the Holder shall have the right and option to declare all outstanding Indebtedness evidenced by this Note immediately due and payable by written notice to Borrower; provided, however, that upon the occurrence of an Event of Default described in Sections 4(b), 4(c) or 4(d), the Indebtedness and all other amounts due and owing under this Note (if not then due and payable) shall become due and payable immediately, without presentment, demand, notice, protest, declaration or any other requirement of any kind, all which Borrower expressly waives.
8. Fees. Borrower shall pay all of Holder’s reasonable fees and costs incurred in the preparation of this Note and any related documents. If this Note is placed in the hands of an attorney for collection, by suit or otherwise, or to enforce its collection, Borrower shall pay all reasonable costs of collection including reasonable attorneys’ fees.
9. Waivers. Borrower hereby waives diligence, presentment, demand, protest, notice of intent to accelerate, notice of acceleration, and any other notice of any kind. No delay or omission on the part of the Holder in exercising any right hereunder shall operate as a waiver of such right or of any other remedy under this Note. A waiver on any one occasion shall not be construed as a bar to or waiver of any such right or remedy on a future occasion.
10. Transfer. This Note may be transferred or assigned, in whole or in part, by the Holder at any time. The term “Holder” as used herein shall also include any transferee of this Note.
11. Unconditional Obligation. The obligation of Borrower to repay the Indebtedness under this Note is absolute and unconditional, and there exists no right of set off, recoupment, counterclaim or defense of any nature whatsoever to the Borrower’s obligation to make payment under this Note.
12. Notices. All notices, requests, demands and other communications under this Note or in connection herewith shall be given to or made upon the respective parties as follows:
If to the Borrower, to:
Exactus, Inc.
5910 South University Blvd., C18-193
Greenwood Village, Colorado 80121
Attention: Nathan Berman, Controller
E-mail: Nathan.berman@panacealife.com
If to the Holder, to:
Leslie Buttorff
____________
____________
Unless otherwise provided, any notice required or permitted by this Note shall be in writing and shall be deemed sufficient upon (i) delivery, when delivered personally or by overnight courier, (ii) confirmed transmission when sent by electronic mail, or (iii) seventy-two (72) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid.
13. Waiver of Jury Trial. HOLDER AND BORROWER IRREVOCABLY WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY PROCEEDING HEREAFTER INSTITUTED BY OR AGAINST HOLDER OR BORROWER IN RESPECT OF THIS NOTE OR ARISING OUT OF ANY DOCUMENT, INSTRUMENT OR AGREEMENT EVIDENCING, GOVERNING OR SECURING THIS NOTE. BORROWER ACKNOWLEDGES THAT THE INDEBTEDNESS EVIDENCED BY THIS NOTE IS PART OF A COMMERCIAL TRANSACTION.
[Signature page follows.]
IN WITNESS WHEREOF, this Note has been executed by Borrower as of the day and year first set forth above.
| EXACTUS, INC. |
| By: | ||
| Name: | Nathan Berman | |
| Title: | Controller |
Exhibit 10.8
Portions of this exhibit indicated by “[*]” have been omitted as permitted by the rules of the Securities and Exchange Commission (the “SEC”). The information excluded is both (i) not material and (ii) would be competitively harmful if publicly disclosed. The Company undertakes to submit a marked copy of this exhibit for review by the SEC staff, to the extent it has not been previously provided, and provide supplemental materials to the SEC staff promptly upon request.
PROMISSORY NOTE EXCHANGE AGREEMENT
THIS PROMISSORY NOTE EXCHANGE AGREEMENT (this “Agreement”) is made this 30th day of June, 2021 (the “Effective Date”), by and between PANACEA LIFE SCIENCES INC., a Colorado corporation with an address of 5910 South University Blvd, C18-193, Greenwood Village, CO 80121 (“Seller”), J & N REAL ESTATE COMPANY, L.L.C., a Colorado limited liability company with an address of 5910 South University Blvd, C18-193, Greenwood Village, CO 80121 (“Borrower”), 22ND CENTURY GROUP, INC., a Nevada corporation or its assignees or with an address of 8560 Main Street, Suite 4, Williamsville, New York 14221 (“22CG”) and 22ND CENTURY HOLDINGS, LLC, a Delaware limited liability company with an address of 8560 Main Street, Suite 4, Williamsville, New York 14221 (“Holdings”, and together with 22CG, “Buyer”).
W I T N E S S E T H:
WHEREAS, 22CG is the holder of that certain $7,000,000 Convertible Note dated December 3, 2019 made by Seller in favor of 22CG (the “Existing Note”); and
WHEREAS, Seller is the fee simple owner of certain real property and improvements located in Delta County, Colorado, further identified as tax parcel identification number 300514715 and comprised of approximately 234.394 acres of land, together with all rights and appurtenances pertaining thereto, which is identified as Parcel B on the survey map attached to this Agreement as Exhibit A attached hereto and made a part hereof (the “Farm Parcel”); and
WHEREAS, Borrower is the fee simple owner of certain real property and improvements located at 16194 W 45th Drive, Golden Colorado, further identified on Exhibit B attached hereto and made a part hereof (the “Golden Parcel”) (for purposes of this Agreement, the Farm Parcel (as and only with respect to Seller) and the Golden Parcel (as and only with respect to Borrower) are referred to herein, individually and collectively, as the context requires, as the “Premises”); and
WHEREAS, the parties desire to consummate the following transactions at the Closing: (i) the transfer by Seller of the Farm Parcel, and all personal property located thereon, to Holdings, an affiliate of, and wholly owned by, 22CG, for a value equal to the Purchase Price (as hereinafter defined); (ii) Buyer converting $500,000.00 of the original outstanding principal balance of the Existing Note into Seller’s Series B Preferred Stock; (iii) as to the Existing Note, (a) the outstanding balance under the Existing Note being reduced to $4,300,000.00 by reason of the events, and correlating consideration received by 22CG (whether directly or as the sole owner of Holdings), under subsections (i) and (ii), and (b) 22CG assigning to Borrower, and Borrower assuming from 22CG, all of 22CG’s right, title and interest in, to and under the Existing Note; and (iv) in consideration of Borrower’s assumption of 22CG’s right, title and interest in, to and under the Existing Note, the issuance by Borrower of a new $4,300,000 promissory note from Borrower to 22CG, which new note is to be secured by a first deed of trust on the Golden Parcel; and
WHEREAS, 22CG currently occupies the Farm Parcel pursuant to an oral occupancy arrangement between Seller and 22CG (the “Crop Lease”), which Crop Lease is to expire and terminate upon the Closing;
NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Sale of Farm Parcel.
1.1 Seller agrees to sell and convey to Holdings, and Holdings agrees to purchase from Seller, the Farm Parcel upon the terms and subject to the conditions of this Agreement.
1.2 The Farm Parcel shall include all of the right, title, and interest of Seller (solely as to the owner of the Farm Parcel), if any, in and to the following:
1.2.1 All buildings, improvements and structures located on the Farm Parcel;
1.2.2 All machinery, fixtures, equipment and other personal property located on or attached or appurtenant to the Farm Parcel;
1.2.3 All strips and gores of land adjoining or abutting the Farm Parcel, if any;
1.2.4 All right of Seller, if any, in and to land lying in the bed of any street, road, avenue or alley, opened or proposed, in front of, running through or adjoining the Farm Parcel;
1.2.5 All easements, privileges or rights-of-way over, contiguous or adjoining the Farm Parcel, and all other rights belonging to and accruing to the benefit of the Farm Parcel;
1.2.6 All appurtenances and hereditaments belonging or in any way appertaining to the Farm Parcel;
1.2.7 All mineral, oil and gas, or other minerals and subsurface assets appurtenant to, or relating in any way, to the Farm Parcel;
1.2.8 To the extent they may be transferred under applicable law and otherwise at no additional cost or expense to Seller, all of Seller’s licenses, permits, approvals and authorizations required for the use and operation of all or any portion of the Farm Parcel;
1.2.9 All Seller’s rights and interests into the crops growing on the Farm Parcel as of the Closing Date; and
1.2.10 All of the Seller’s water rights appurtenant to the Farm Parcel, servicing the Farm Parcel and/or owned by Seller and relating in any way to the Farm Parcel.
2. Consideration.
2.1 The consideration for the transactions contemplated under this Agreement are comprised, in the aggregate, of the following actions and amounts, as applicable, being executed, performed and/or delivered, as applicable, as of the Closing Date, all subject to and otherwise in accordance with the terms and conditions of this Agreement: (i) Seller transferring to Holdings the Farm Parcel for an allocated value of $2,200,000.00 (“Purchase Price”), (ii) Seller increasing the stated value of the existing Series B Preferred Stock held by 22CG in Seller by $500,000.00 (“Increased Series B Value”), (iii) 22CG assigning all of its right, title and interest in, to and under the Existing Note (with the outstanding principal balance thereunder reduced by the consideration received by 22CG (whether directly or as the sole owner of Holdings) by reason of its acquisition of the Farm Parcel for the allocated Purchase Price and the Increased Series B Value), to Borrower by executing and delivering the Allonge to Existing Note (as hereinafter defined) and (iv) and in consideration of such assumption by Borrower of the Existing Note in accordance with the Existing Note Allonge, Borrower executing and delivering to 22CG the New Note and Deed of Trust. The Purchase Price for the Farm Parcel shall be allocated as follows: (i) $1,770,000.00 for the real property and improvements which constitute a part of the Farm Parcel; and (ii) $430,000.00 for the equipment, machinery and other personal property which constitute a part of the Farm Parcel.
3. Exchange of Existing Note.
3.1 At the Closing, (a) 22CG will execute and deliver to Borrower an allonge to the Existing Note in a form reasonably acceptable to 22CG and Borrower (the “Allonge to Existing Note”) and (b) in consideration of Borrower receiving the Allonge to Existing Note, the $4,300,000 outstanding balance under the Existing Note originally due to 22CG shall be exchanged for a new promissory note payable from Borrower to 22CG in the principal amount of $4,300,000 in the form attached hereto as Exhibit C-1 (the “New Note”). The New Note shall be secured by a first deed of trust on the Golden Parcel, which deed of trust shall be in the form attached hereto as Exhibit D (the “Deed of Trust”).
4. Closing. The Closing of the purchase of the Premises (the “Closing”) shall take place via escrow at the offices of the Title Company on the same day as, and immediately following, the execution of this Agreement by the Parties (the “Closing Date”).
5 Title and Conveyance.
5.1 At the Closing, Seller agrees to assign and convey to Holdings, for a designated value equal to the Purchase Price, good, marketable, fee simple title of the Farm Parcel, free and clear of all liens, encumbrances, easements and restrictions, except for the Permitted Encumbrances. For purposes of this Agreement, “Permitted Encumbrances” as to each respective Premises shall mean, collectively, (i) local, state and federal laws, ordinances or governmental regulations, including, but not limited to, building and zoning laws, ordinances and regulations, now or hereafter in effect relating to the applicable Premises, respectively, (ii) real estate taxes and assessments for the year of Closing and subsequent years, a lien not yet due and payable, (iii) assessments and dues imposed by any property owners’ association for the year of Closing and subsequent years, a lien not yet due and payable, (iv) all matters created by, through or under Buyer and/or its employees, contractors, representatives, professionals and/or agents (provided the foregoing shall not be deemed to grant any right to Buyer to bind the Farm Parcel on or before the Closing Date, or to bind the Golden Parcel, respectively), (v) with respect to the Farm Parcel, all covenants, restrictions, easements, agreements and other matters of record (including, without limitation, the Quiet Title Action and CMI Lien (as hereinafter defined)) and (vi) with respect to the Golden Parcel, all matters disclosed in that Commitment for Title Insurance issued by Fidelity National Title Insurance Company dated May 27, 2021 as last amended prior to the Closing.
6. Representations and Warranties of Seller, Borrower and Buyer.
6.1. Seller represents and warrants to Buyer that the statements contained in this Section 6.1 are correct and complete as of the date of this Agreement and, subject to Section 6.5 below, will be correct and complete, as of the Closing:
6.1.1 Seller is a duly formed and validly existing Colorado corporation, organized under the laws of the jurisdiction of its formation and is qualified under the laws of the jurisdiction of its formation to conduct business therein. Seller has the full legal right, power and authority to enter into this Agreement and all documents now or hereafter to be executed by Seller pursuant to this Agreement (collectively referred to as the “Seller’s Documents”), to perform all of the obligations of Seller contained herein and under the Seller’s Documents and to consummate the transaction applicable to Seller contemplated hereby.
6.1.2 Except in connection with that quiet title action filed by DD Needle Rock Ranch, LLC under case number 21CV30005 (“Quiet Title Action”), no other action, suit or other proceeding (including, but not limited to, condemnation actions) is pending or, to Seller’s knowledge, has been threatened that concerns or involves its Premises or Seller’s interest in its Premises.
6.1.3 Except in connection with the Crop Lease and Permitted Encumbrances, (i) no portion of its Premises is occupied or used in any other manner by any other person or entity other than Seller and/or Seller’s employees, contractors, representatives, professionals and/or agents, and (ii) there are no leases, subleases, licenses, concessions, occupancy agreements or other agreements (written or oral) in effect with respect to its Premises that would survive the Closing. Except Buyer in connection with this Agreement, no other person or entity has any right or option to purchase or otherwise acquire its Premises or any portion thereof, or any other rights with respect to its Premises.
6.1.4 To Seller’s knowledge, there are no outstanding violations of any laws, ordinances, orders, regulations or requirements of any federal, state, county or municipal authority or any insurance carrier (“Laws”) affecting its Premises or any portion thereof (including, without limitation, Environmental Laws, the Americans with Disabilities Act, federal and state laws regulating the operation of as hemp farm) and Seller has not received any written notices of violation thereof that remains outstanding.
6.1.5 Excepting that certain Statement of Lien filed by CMI Legacy, L.L.C. in the official records of Jefferson County, Colorado and having a file number of 2020163362 (“CMI Lien”), and excluding any work performed and/or materials furnished to, or on behalf of, Buyer, in connection with the Crop Lease, no work has been performed at its Premises by, or on behalf of, Seller, and no materials have been furnished to its Premises by, or on behalf of, Seller, which though not presently the subject of a lien might give rise, prior to Closing, to mechanics’, materialmen’s or other liens against Seller’s interest in its Premises, or any portion thereof.
6.1.6 To Seller’s knowledge, its Premises is zoned to permit Seller’s current (as of the Effective Date) use of same and to the best of Seller’s knowledge there is no threatened change in the zoning classification of its Premises or any portion thereof.
6.1.7 Excluding any permits required to be maintained by Buyer in connection with its operations under the Crop Lease, to Seller’s knowledge, all other permits lawfully required for Seller’s current (as of the Effective Date) operation of the Premises, if any, have been obtained and are in full force and effect.
6.1.8 Except for this Agreement and the Crop Lease, Seller has not entered into any other contract to sell or lease its Premises or any part thereof and Seller will not do so during the term of this Agreement.
6.1.9 Seller represents and warrants to Buyer that, to its actual knowledge and except as otherwise disclosed to the Buyer, it has not received any written notice or report claiming or alleging: (1) that the Premises is not currently, as of the Effective Date, in compliance with all applicable Environmental Laws (as hereinafter defined); (2) that any Hazardous Substances (as hereinafter defined) have been released or are otherwise present, at, on, in, upon, beneath or about the Premises in violation of Environmental Laws; (3) that the Premises contains underground tanks of any type; (4) that Seller may be a potentially responsible party under any Environmental Laws for any currently, as of the Effective Date, ongoing investigation or remediation of Hazardous Substances on or in the vicinity of the Premises. The term “Environmental Laws,” as used in this Agreement, shall mean collectively, all U.S. federal, national, state and local laws, statutes, rules, regulations, ordinances, codes, common law, directives, decisions, and orders (including all amendments thereto) pertaining to environmental matters (which includes air, water vapor, surface water, groundwater, soil, natural resources, chemical use, health, safety, sanitation, zoning, land use, etc.), Hazardous Substances, and/or the protection of the environment or human health, including but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, the Resource Conservation and Recovery Act, the Clean Air Act, the Federal Water Pollution Control Act, the Safe Water Drinking Act, the Toxic Substance Control Act, the Hazardous Materials Transportation Act, the Occupational Safety and Health Act, and/or any other applicable Environmental Laws and/or the rules and regulations promulgated thereunder. For purposes hereof, “Hazardous Substances” shall mean and include, without limitation: (a) any hazardous materials, hazardous wastes, hazardous substances and toxic substances as those or similar terms are defined under any Environmental Laws; (b) any asbestos or any material that contains any hydrated mineral silicate, including chrysolite, amosite, crocidolite, tremolite, anthophyllite and/or actinolite, whether friable or non-friable; (c) any polychlorinated biphenyls or polychlorinated biphenyl-containing materials or fluids; (d) radon; (e) any other hazardous, radioactive, toxic or noxious substance, material, pollutant, contaminant or solid, liquid or gaseous waste; (f) any petroleum, petroleum hydrocarbons, petroleum products, crude oil or any fractions thereof, natural gas or synthetic gas; and (g) any substance that, whether by its nature or its use, is or becomes subject to regulation under any Environmental Laws or with respect to which any Environmental Laws or governmental entity requires or will require environmental investigation, monitoring or remediation.
6.1.10 Except for the Permitted Encumbrances, Seller, to its knowledge, has good and marketable title to its Premises together with all improvements and fixtures thereon that are owned by Seller, and all appurtenances and rights thereto, if any, that run to the benefit of its Parcel.
6.1.11 Seller is not a “foreign person” within the meaning of Section 1445 of the United States Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
6.2 Borrower represents and warrants to Buyer that the statements contained in this Section 6.2 are correct and complete as of the date of this Agreement and, subject to Section 6.5 below, will be correct and complete as of the Closing:
6.2.1 Borrower is a duly formed and validly existing Colorado limited liability company, organized under the laws of the jurisdiction of its formation and is qualified under the laws of the jurisdiction of its formation to conduct business therein. Borrower has the full legal right, power and authority to enter into this Agreement and all documents now or hereafter to be executed by Borrower pursuant to this Agreement (collectively referred to as the “Borrower’s Documents”), to perform all of the obligations of Borrower contained herein and under the Borrower’s Documents and to consummate the transactions applicable to Borrower contemplated hereby.
6.2.2 No action, suit or other proceeding (including, but not limited to, condemnation actions) is pending or, to Borrower’s knowledge, has been threatened that concerns or involves its Premises or Borrower’s interest in its Premises.
6.2.3 To Borrower’s knowledge, there are no outstanding violations of any Laws affecting its Premises, or any portion thereof (including, without limitation, Environmental Laws, the Americans with Disabilities Act, federal and state laws regulating the operation of as hemp farm), and Borrower has not received any written notices of violation thereof that remains outstanding.
6.2.4 No work has been performed at its Premises by, or on behalf of, Borrower, and no materials have been furnished to its Premises by, or on behalf of, Borrower, which though not presently the subject of a lien might give rise, prior to Closing, to mechanics’, materialmen or other liens against Borrower’s interest in its Premises, or any portion thereof.
6.2.5 To Borrower’s knowledge, its Premises is zoned to permit Borrower’s current (as of the Effective Date) use of same, and to the best of Borrower’s knowledge, there is no threatened change in the zoning classification of its Premises, or any portion thereof.
6.2.6 To Seller’s knowledge, all permits necessary for Borrower’ current (as of the Effective Date) operation of its Premises, if any, have been obtained and are in full force and effect.
6.2.7 Except for the Permitted Encumbrances, Borrower, to its knowledge, has good and marketable title to its Premises, together with all improvements and fixtures thereon that are owned by Borrower, and all appurtenances and rights thereto, if any, that run to the benefit of its Premises.
6.2.8 Borrower is not a “foreign person” within the meaning of Section 1445 of the United States Internal Revenue Code of 1986, as amended, and the regulations issued thereunder.
6.2.9 Borrower represents and warrants to Buyer that, to its actual knowledge and except as otherwise disclosed to the Buyer, it has not received any written notice or report claiming or alleging: (1) that its Premises is not currently, as of the Effective Date, in compliance with all applicable Environmental Laws; (2) that any Hazardous Substances have been released or are otherwise present, at, on, in, upon, beneath or about the Premises in violation of Environmental Laws; (3) that its Premises contains underground tanks of any type; (4) that Borrower may be a potentially responsible party under any Environmental Laws for any currently, as of the Effective Date, ongoing investigation or remediation of Hazardous Substances on or in the vicinity of its Premises.
6.3 Buyer represents and warrants to Seller and Borrower that the statements contained in this Section 6.3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing:
6.3.1 each Buyer is a duly formed and validly existing entity, organized under the laws of the jurisdiction of its formation and is qualified under the laws of the jurisdiction of its formation to conduct business therein. Buyer has the full legal right, power and authority to enter into this Agreement and all documents now or hereafter to be executed by Buyer pursuant to this Agreement (collectively referred to as the “Buyer’s Documents”), to perform all of the obligations of Buyer contained herein and under the Buyer’s Documents and to consummate the transactions applicable to Buyer contemplated hereby.
6.3.2 This Agreement has been duly executed and delivered by Buyer and is the valid and binding obligation of Buyer, enforceable in accordance with its terms. Performance under this Agreement will not result in any breach of or default (or an event which would, with the passage of time or the giving of notice or both, constitute a default) under any material agreement or other instrument which is either binding upon or enforceable against Buyer.
6.3.3 No bankruptcy, insolvency, reorganization or similar action or proceeding, whether voluntary or involuntary, is pending or threatened against Buyer.
6.3.4 As to 22CG, 22CG is the sole owner of (a) all right, title and interest in and to the Existing Note, free and clear of any liens, encumbrances, pledges, security interests and/or claims of, or by, any third-party and (b) all interest in Holdings.
6.4 Subject to the terms and conditions of Section 6.5, the representations, warranties and covenants of Seller, Borrower and Buyer set forth in this Section 6 and elsewhere in this Agreement shall be true, accurate and correct, in all material respects, upon the execution of this Agreement and as of the Closing. The representations, warranties and covenants of Seller, Borrower and Buyer set forth in this Section 6 and elsewhere in this Agreement will not survive the Closing.
6.5 Neither Seller nor Borrower shall have any liability with respect to any of its respective representations, warranties and covenants hereunder if, prior to Closing, Buyer has knowledge of any breach of a representation, warranty or covenant of Seller or Borrower, respectively and as applicable, hereunder, or Buyer obtains knowledge that contradicts any of Seller’s or Borrower’s, respectively and as applicable, representations, warranties or covenants hereunder (and the representations, warranties or covenants of Seller and Borrower, respectively and as applicable, shall be deemed to be modified thereby to be accurate), and Buyer nevertheless consummates the transaction contemplated by this Agreement (in which event any such breach or contradiction shall be deemed waived by Buyer). Terms such as “knowledge,” “to the best of [a party’s] knowledge” or like phrases mean the actual present and conscious awareness or knowledge of such party, without any duty of inquiry or investigation, and otherwise said terms do not include constructive knowledge, imputed knowledge, or knowledge such party does not have but could have obtained through further investigation or inquiry.
7. Conditions to Closing
7.1 Buyer’s obligations to close hereunder, in addition to any and all other applicable conditions set forth in this Agreement, shall be subject to the satisfaction of each of the following conditions, any one or more of which may be waived by Buyer in writing:
7.1.1 Seller and Borrower shall have complied in all material respects with all obligations and covenants required by this Agreement to be complied with by Seller and Borrower as of the Closing Date.
7.1.2 The representations and warranties of Seller and Borrower contained in this Agreement shall have been true in all material respects when made and shall be true in all material respects on the Closing Date.
8. Provisions with Respect to Closing.
8.1 At Closing, Seller shall deliver to Holdings the following documents, duly executed and acknowledged:
8.1.1 a limited warranty deed to the Farm Parcel in a form reasonably acceptable to Seller and Holdings, duly executed by Seller and acknowledged and in proper form for recording with state transfer taxes paid by Holdings (the “Deed”);
8.1.2 a bill of sale in a form reasonably acceptable to Seller and Holdings, duly executed by Seller, transferring to Holdings, without warranty or representation, any right, title and interest in the personal property and all crops included within the Farm Parcel;
8.1.3 reasonably appropriate documents, duly executed by Seller, in order to transfer title to any vehicles (including without limitation that truck located at the Farm Parcel) and/or equipment titled in Seller’s name that is otherwise included within the Farm Parcel to Holdings; provided, however, Seller and Holdings acknowledge and agree that, to the extent the parties are unable to consummate the transfer of title to such vehicles with the applicable governing authority as of the Closing Date, the parties will, instead, fully cooperate post-Closing to effectuate such transfer of title.
8.1.4 all keys in Seller’s actual possession to all locks on the Farm Parcel;
8.1.5 such evidence or affidavits as may be reasonably required by Holdings or the Title Company regarding the status of title and the authority of the persons executing the various documents on behalf of Seller in connection with the transactions contemplated hereby, provided such evidence and affidavits, and the terms and conditions thereof, are consistent with the terms and conditions of this Agreement and do not impose a greater liability upon Seller;
8.1.6 all other documents Seller is required to deliver pursuant to the provisions of this Agreement and any additional documents reasonably required in connection with this Agreement, provided such documents, and the terms and conditions thereof, are consistent with the terms and conditions of this Agreement and do not impose a greater liability upon Seller.
8.2 At Closing, Borrower shall deliver to 22CG the following documents, duly executed and acknowledged:
8.2.1 The New Note, duly executed by Borrower;
8.2.2 The Deed of Trust, duly executed by Borrower and acknowledged and in proper form for recording;
8.2.3 A certificate of property, casualty and liability insurance benefitting Holdings and complying with the terms and provisions set forth in the Deed of Trust; and
8.2.4 Intentionally Omitted;
8.2.5 Intentionally Omitted; and
8.2.6 All other documents Borrower is required to deliver pursuant to the provisions of this Agreement and any additional documents reasonably required in connection with this Agreement, provided such documents, and the terms and conditions thereof, are consistent with the terms and conditions of this Agreement and do not impose a greater liability upon Borrower.
8.3 At Closing, 22CG and/or Holdings, as applicable, shall deliver to Seller and/or Borrower, as applicable, the following documents, duly executed and acknowledged: (i) the Allonge to Existing Note, together with the original of the Existing Note; (ii) to the extent there are any existing UCC-1 financing statements securing the Existing Note, form UCC-3s reflecting assignment of 22CG’s lien thereunder on all of Seller’s assets to Borrower, all in proper form for recording; (iii) such evidence or affidavits as may be reasonably required by Seller, Borrower or the Title Company regarding the authority of the persons executing the various documents on behalf of Buyer in connection with the transactions contemplated hereby, provided such evidence and affidavits, and the terms and conditions thereof, are consistent with the terms and conditions of this Agreement and do not impose an greater liability upon Seller; and (iv) all other documents Buyer is required to deliver pursuant to the provisions of this Agreement and any additional documents reasonably required in connection with this Agreement, provided such documents, and the terms and conditions thereof, are consistent with the terms and conditions of this Agreement and do not impose an greater liability upon Buyer.
8.4 Buyer, Borrower and Seller shall each execute and deliver at Closing applicable state and local conveyance tax forms and Buyer, Borrower and Seller shall mutually execute and deliver to each other a closing statement in customary form, acceptable to all parties.
9. Prorations and Expenses. The following items shall be apportioned as of 11:59 P.M. of the day immediately preceding the Closing Date:
9.1 At the Closing, the real property taxes and assessments on the Farm Parcel shall be prorated as of the Closing Date.
9.2 As a result of Buyer’s obligations under the Crop Lease, there will be no proration for, and Buyer will be solely responsible for, the costs, expenses and fees for services for electricity, gas, water, refuse collection and other utilities or services for the Farm Parcel.
9.3 Seller and Borrower shall pay all costs of discharging any existing deeds of trust related to its respective Premises. Buyer will be responsible for the full cost of all tax and recording fees on any documents relating to the transfer of Seller’s right, title and interest in and to the Farm Parcel (including, without limitation, any transfer tax) and relating to the Deed of Trust (including, without limitation, any deed of trust tax), and all sales taxes. Buyer shall pay the cost of the Title Commitment and title insurance premiums. Buyer shall be responsible for all costs related to its due diligence investigations. Each party shall pay fifty percent (50%) of the escrow charges of the Title Company in connection with the Closing of this transaction. Each party shall pay their respective attorneys’ fees. All other Closing costs shall be paid for in accordance with local custom in Delta County, Colorado, for commercial properties.
10. Brokerage. Seller, Borrower and Buyer each represent and warrant to the other that they have not dealt with any broker or other intermediary to whom a fee or commission is payable in connection with or relating to the sale and purchase of the Premises. Seller, Borrower and Buyer hereby agree to defend, indemnify and hold the other harmless from and against any and all liability, claim, charge or damages, including without limitation, counsel fees and court costs, incurred by the other as a result of any breach of the foregoing representations and obligations. The provisions of this Section 10 shall survive the Closing.
11. Risk of Loss. The risk of loss or damage to any of the improvements or property on the Premises by fire, vandalism or other casualty or hazards (each a “Casualty Event”) from the date hereof to and including the date of the Closing shall be on Seller and Borrower, respectively and as applicable. In the event of any such loss, Seller and Borrower shall notify Buyer of such fact and Buyer may elect, by the delivery of written notice to Seller and Borrower prior to the Closing Date, to either terminate this Agreement, or Buyer may proceed to Closing notwithstanding the loss or damage, the Purchase Price shall be as set forth herein and, as to the Farm Parcel only, Buyer shall accept an assignment of the proceeds of the insurance payable by reason of the loss or damage.
12. Default by Buyer, Borrower or Seller; Termination of Agreement.
12.1 Buyer’s Default.
Should Buyer default on its obligations provided herein then Seller and Borrower shall so notify Buyer in writing specifying the nature of the default. Buyer shall have ten (10) days from the date of such notice to cure the default. If Buyer fails to cure said breach within said ten (10) day period or otherwise resolve the matter to Seller’s and Borrower’s reasonable satisfaction, Seller and Borrower shall have the option (a) to terminate this Agreement upon notice to Buyer. (b) pursue an action for specific performance against the applicable defaulting party, or (c) waive such default and proceed to Closing. In the event of a valid termination by Seller and Borrower pursuant to this Section 12.1, this Agreement shall terminate and the parties hereto shall be released from any further obligations hereunder each to the other except for those matters which, by their terms, survive the termination of this Agreement.
12.2 Seller’s or Borrower’s Default.
In the event Seller or Borrower, as applicable, fails to perform or observe any of the covenants or obligations to be performed or observed by Seller or Borrower under this Agreement at or prior to Closing, then Buyer shall so notify Seller and Borrower in writing specifying the nature of the default. Seller and Borrower shall have ten (10) days from the date of such notice to cure the default. If Seller and/or Borrower fails to cure said breach within said ten (10) day period or otherwise resolve the matter to Buyer’s reasonable satisfaction, Buyer shall be entitled, as its sole and exclusive remedies, to either (a) terminate this Agreement by delivery of written notice to Seller and Borrower, (b) pursue an action for specific performance against the applicable defaulting party, or (c) waive such default and proceed to Closing without any reduction in the Purchase Price. In the event of a valid termination by Buyer pursuant to this Section 12.2, this Agreement shall terminate and the parties hereto shall be released from any further obligations hereunder each to the other except for those matters which, by their terms, survive the termination of this Agreement.
Notwithstanding anything contained in this Article 12 to the contrary, there shall be no notice requirement and/or correlating cure or grace period in the event a party fails to timely consummate the Closing on the Closing Date in accordance with this Agreement
13. Notices. All notices, requests and other communications under this Agreement shall be in writing and shall be delivered personally, or shall be sent by overnight delivery service, next Business Day delivery, to the addresses of each party first set forth above, or to such other address of which Seller or Buyer shall have given notice as herein provided. Notices hereunder shall be sufficient if given by counsel to the parties as set forth above. All such notices, requests and other communications shall be deemed to have been sufficiently given for all purposes hereof on the first Business Day after delivery to an overnight delivery service.
14. Miscellaneous.
14.1 This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives and assigns.
14.2 Buyer may at any time assign its interests in this Agreement, without Seller’s consent, only to an affiliated entity to be formed for the purpose of consummating the acquisition of the Farm Parcel contemplated by this Agreement.
14.3 This Agreement may be executed in counterparts, each of which shall be deemed an original, and all of such counterparts together shall constitute one and the same Agreement. This Agreement may be executed by facsimile, portable document format or other electronic means, and any counterpart executed and delivered by such electronic means shall be binding as an original.
14.4 No delay or omission by either party hereto in exercising any right shall impair any such right or be construed to be a waiver of such right.
14.5 This Agreement shall be governed by the laws of the State of Colorado.
14.6 Time is of the essence for the purposes of this Agreement.
14.7 If the time period by which any right, option or election provided under this Agreement must be exercised, or by which any act required hereunder must be performed, or by which the Closing must be held, expires on a Saturday, Sunday or legal or bank holiday, then such time period will be automatically extended through the close of business on the next regularly scheduled Business Day. For purposes of this Agreement, a “Business Day” shall mean any day which is not a Saturday, Sunday or legal or bank holiday.
14.8 The parties each agree to do, execute, acknowledge and deliver all such further reasonable acts, instruments and assurances and to take all such further reasonable action before or after the Closing as shall be necessary or desirable to fully carry out this Agreement and to fully consummate and effect the transactions contemplated hereby, provided such acts, instruments, assurances and actions, and the terms and conditions thereof (as applicable), are consistent with the terms and conditions of this Agreement and do not impose an greater liability upon a party. The provisions of this Section 14.8 shall survive the Closing for a period not to exceed one hundred eighty (180) days.
14.9 In the event any provision or portion of this Agreement is held by any court of competent jurisdiction to be invalid or unenforceable, such holding will not affect the remainder hereof, and the remaining provisions shall continue in full force and effect to the same extent as would have been the case had such invalid or unenforceable provision or portion never been a part hereof.
14.10 This Agreement (including the documents, instruments and agreements referred to in this Agreement) constitutes the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof and is not intended to confer upon any other person any rights or remedies hereunder. Any agreement hereafter made shall be ineffective to change, modify or discharge this Agreement in whole or in part unless such agreement is in writing and signed by the party against whom enforcement of the change, modification or discharge is sought.
14.11 All exhibits mentioned in this Agreement shall be attached to this Agreement and shall form an integral part hereof.
14.12 Notwithstanding anything contained in this Agreement to the contrary, (i) all Seller warranties, representations, obligations, duties, liabilities, undertakings, agreements and covenants provided for under this Agreement are provided only with respect to Seller, the Farm Parcel and its respective ownership interest in the Farm Parcel, (ii) all Borrower’s warranties, representations, obligations, duties, liabilities, undertakings, agreements and covenants provided for under this Agreement are provided only with respect to Borrower, the Golden Parcel and its respective ownership interest in the Golden Parcel, (iii) Seller shall not be deemed to make, agree to, provide, incur, guaranty or otherwise undertake (as and where applicable) any warranty, representation, obligation, duty, liability, undertaking, agreement and/or covenant of Borrower and/or with respect to the Golden Parcel and (iv) Borrower shall not be deemed to make, agree to, provide, incur, guaranty or otherwise undertake (as and where applicable) any warranty, representation, obligation, duty, liability, undertaking, agreement and/or covenant of Seller and/or with respect to the Seller Parcel (or any portion thereof).
14.13 BUYER ACKNOWLEDGES and agrees THAT, EXCEPT AS expressly set forth in this agreement, the seller’s documents (as to seller only) and the borrower’s documents (as to borrower only) (COLLECTIVELY, “EXPRESS REPRESENTATIONS”), it is understood and agreed that neither SELLER, borrower nor any of their RESPECTIVE principals, partners, members, managers, directors, officers, employees, agents, affiliates or REPRESENTATIVES have at any time made, and are not now making, and they specifically disclaim, any AND ALL warranties, representations or guaranties of any kind or character, express or implied, with respect to the premises, including, but not limited to, warranties, representations or guaranties as to (1) matters of title, (2) environmental matters relating to the premises, or any portion thereof, including, without limitation, the presence of Hazardous Materials in, on, under or in the vicinity of the premises, (3) geological conditions, including, without limitation, subsidence, subsurface conditions, water table, underground water reservoirs, limitations regarding the withdrawal of water, and geologic faults and the resulting damage of past and/or future faulting, (4) whether, and to the extent to which the premises, or any portion thereof, is affected by any stream (surface or underground), body of water, wetlands, flood prone area, flood plain, floodway or special flood hazard, (5) drainage, (6) soil conditions, including the existence of instability, past soil repairs, soil additions or conditions of soil fill, or susceptibility to landslides, or the sufficiency of any undershoring, (7) the presence of endangered species or any wetlands or other environmentally sensitive or protected areas, (8) zoning or building entitlements to which the premises, or any portion thereof, may be subject, (9) the availability of any utilities to the premises, or any portion thereof, including, without limitation, water, sewage, gas and electric, (10) usages of adjoining land or other land in the vicinity of the premises, or any portion thereof, (11) access to the premises, or any portion thereof, (12) the value, compliance with the plans and specifications, size, location, age, use, design, quality, description, suitability, structural integrity, operation, title to, or physical or financial condition of the premises or any portion thereof, or any income, expenses, charges, liens, encumbrances, rights or claims on or affecting or pertaining to the premises or any part thereof, (13) the condition or use of the premises or compliance of the Property with any or all past, present or future federal, state or local ordinances, rules, regulations or laws, building, fire or zoning ordinances, codes or other similar laws, (14) the existence or non-existence of underground storage tanks, surface impoundments, or landfills, (15) any other matter affecting the stability and integrity of the premises, (16) the potential for further development of the premises, or any portion thereof, (17) the merchantability of the premises or fitness of the premises for any particular purpose, (18) the truth, accuracy or completeness of the property documents, (19) real estate taxes, ASSESSMENTS or other matters of taxation or financing with respect to the premises, or any portion thereof, (20) the quiet title action or (21) any other matter or thing with respect to the premises. EXCEPT WITH RESPECT TO THE EXPRESS REPRESENTATIONS, Buyer acknowledges and agrees that upon the consummation of the closing, Buyer shall have unconditionally accepted the condition of the premises in its “AS-IS, WHERE-IS, WITH ALL FAULTS AND DEFECTS” CONDITION. Buyer represents that it is a knowledgeable, experienced and sophisticated purchaser and financer of real estate and that it is relying solely on its own expertise and that of Buyer’s consultants in purchasing the farm parcel and taking a Deed of Trust on the Golden parcel Property and has made an independent verification of the accuracy of any documents and information provided by Seller and/or borrower.
15. Post-Closing Agreements. Following the Closing, the parties covenant to complete the following transactions, at all times using continuous diligent, good faith efforts:
(a) Obtain municipal approval for the subdivision from the Farm Parcel of a new parcel containing approximately, but no more than, 10 acres (the “10 Acre Parcel”, with the obligations under this subsection (a) being the “10-Acre Parcel Conveyance Obligations”) in the approximate location set forth on Exhibit E attached hereto. No later than 30 days after such subdivision approval has been obtained, (1) Holdings will convey the 10 Acre Parcel to Seller by limited warranty deed, which will otherwise be in similar form and content as the Deed and (2) Holdings and Seller will enter into any necessary cross-easement agreement to facilitate commercially reasonable ingress, egress and access to and from each of the 10 Acre Parcel and remainder of the Farm Parcel. From and after the Closing Date until the conveyance of the 10 Acre Parcel to Seller, Holdings will maintain the 10 Acre Parcel in substantially similar condition as existing as of the Closing Date, and otherwise will not transfer, lease, license, pledge and/or otherwise encumber such 10 Acre Parcel. Holdings’ conveyance of the 10 Acre Parcel will include all right, title and interest of Holdings (solely as the owner of the 10 Acre Parcel), if any, in and to those items and interests described in Section 1.2 (excepting 1.2.2). Seller and Holdings will equally share the costs and expenses associated with obtaining such subdivision approval and effecting such subsequent conveyance, with any such subdivision to be reasonably approved and acceptable to Seller and Holdings.
(b) 22CG and Seller shall enter into a supply agreement commencing for the [*] growing season under which 22CG will supply hemp biomass to Seller on a [*] for a term of [*] (the “Supply Agreement”). The Supply Agreement will also provide for 22CG’s supply of hemp biomass for the [*]. The pounds of hemp delivered shall be [*]. For example, [*]. If the [*]. In addition to the foregoing, 22CG and Seller will, as part of the Supply Agreement, mutually agree upon a common trade name/branding of, and reference to, the Farm Parcel and the farming and harvesting operations thereof, such as “[*]”, or such other commercially reasonable tradename.
Notwithstanding the foregoing, the agreements contained in this Section 15 do not constitute consideration, conditions or contingencies for the parties’ other obligations set forth in this Agreement and the failure of parties to complete the items identified in this Section 15 shall in no way void or invalidate the Deed, New Note, Deed of Trust, or other transactions consummated at the Closing. In the event a party fails to comply with any of its obligations under this Section 15, however, the non-defaulting party will have the right to exercise any and all rights and remedies available to such non-defaulting party at law and/or in equity (including, without limitation, an action for specific performance and/or injunctive relief).
16. Right of First Refusal.
(i) In the event that, at any time prior to the Termination Date, Holdings decides to sell all or any portion of the Farm Parcel (such then applicable all or portion of the Farm Parcel being the “ROFR Parcel”), Seller will have the right of first refusal (“ROFR”) to acquire such ROFR Parcel in accordance with the terms and conditions of this Section 16. In the event that Holdings receives an offer from an offeree (“Offeree”) (which, for purposes of this ROFR, such offer must be in the form of purchase and sale agreement duly executed by said Offeree) to purchase the ROFR Parcel that Holdings, but for the ROFR, would otherwise accept without modification or amendment thereto (“Offer”), Holdings shall not accept such Offer or otherwise consummate the purchase and sale under such Offer unless Holdings first delivers to Seller a written notice (“ROFR Notice”), which ROFR Notice must set forth and otherwise contain (a) a certification by Holdings that Holdings is ready, willing and able to, and otherwise, but for the ROFR, would, accept the Offer, all without modification or amendment thereto and (b) a true, correct and complete copy of the Offer.
(ii) Seller will, for a thirty (30) day period commencing upon receipt of the ROFR Notice (the “ROFR Review Period”), have the sole and exclusive right to purchase the ROFR Parcel on the terms and conditions set forth in the Offer. In the event Seller desires to accept the Offer, Seller will deliver written notice to Holdings, prior to expiration of the ROFR Review Period, of its election to exercise the Offer, whereupon (a) Holdings will be bound to sell the ROFR Parcel to Seller, and Seller will be bound to buy the ROFR Parcel from Holdings, all in accordance with and subject to the terms and conditions of the Offer and (b) within five (5) business days after Seller’s delivery of the ROFR Acceptance Notice, Seller and Holdings will each duly execute and deliver the same purchase and sale agreement of which the Offer was based on, as modified for the sole purpose of reflecting Seller as the “Holdings” under such Offer.
(iii) In the event that Seller, upon receipt of an ROFR Notice, either (a) delivers written notice to Holdings during the ROFR Review Period of its rejection of the Offer, or (b) fails to deliver written notice to Holdings during the ROFR Review Period of its acceptance of the Offer (the earlier of the events described in subsections (a) and (b) herein being the “ROFR Rejection Date”), Seller’s ROFR shall conclusively be deemed waived, but only with respect to the purchase and sale of the ROFR Parcel as disclosed in the Offer that was the basis for the then applicable ROFR Notice, and Holdings shall be free, for a period of one hundred eighty (180) days from the ROFR Rejection Date, to complete the sale to the Offeree in accordance with such Offer, and the Offeree, upon consummation of the closing of the purchase and sale of the ROFR Parcel in accordance with such Offer, shall acquire the ROFR Parcel free and clear of the Seller’s ROFR set forth in this Section 16 (which ROFR shall be extinguished, null, void, and of no further force or effect upon consummation of the closing of the purchase and sale of the ROFR Parcel in accordance with such Offer, but only as to such ROFR Parcel which was the basis of such Offer). If, however, either (A) Holdings does not complete the purchase and sale of the ROFR Parcel to Offeree in accordance with such Offer within one hundred eighty (180) days from the ROFR Rejection Date, or (B) Holdings agrees to any amendment or modification to such Offer resulting in terms and conditions being more favorable to Offeree, then the ROFR provided for in this Section 16 shall once again apply, and Holdings will not complete the purchase and sale of the ROFR Parcel to Offeree without first giving a new ROFR Notice to Seller in compliance with the terms of this Section 16. Furthermore, and notwithstanding anything contained in this Section 16 to the contrary, in the event that any Offer is only for a portion of the ROFR Parcel, this ROFR shall continue to apply to all other portions of the Farm Parcel that was not part of such Offer.
(iv) The ROFR, and all rights of the Seller set forth in this Section 16, shall automatically terminate and be of no further force or effect upon the first to occur of (i) Seller, following the date it becomes the owner of the 10 Acre Parcel as described above, thereafter no longer owning the 10 Acre Parcel (whether by voluntary conveyance, foreclosure or otherwise); or (2) thirty (30) years after the Effective Date.
(iv) The parties acknowledge and agree that, for the purpose of providing record notice of the 10-Acre Parcel Conveyance Obligations and ROFR, at Closing, the parties will duly execute, in proper form for recording, and record a memorandum in a form reasonably acceptable to the parties.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and date first above written.
| BUYER: | ||
| 22ND CENTURY GROUP INC. | ||
| By: | /s/ James Mish | |
| Name: | James Mish | |
| Title: | CEO | |
| 22ND CENTURY HOLDINGS, LLC | ||
| By: | /s/ James Mish | |
| Name: | James Mish | |
| Title: | CEO | |
| SELLER: | ||
| PANACEA LIFE SCIENCES INC. | ||
| By: | /s/ Leslie Buttorff | |
| Name: | Leslie Buttorff | |
| Title: | CEO | |
| BORROWER: | ||
| J & N Real Estate Company, L.L.C. | ||
| By: | /s/ Leslie Buttorff | |
| Name: | Leslie Buttorff | |
| Title: | CEO | |
List of Exhibits
Exhibit A
Description of Farm Parcel
Exhibit B
Description of Golden Parcel
Exhibit C
New Note
Exhibit D
Deed of Trust
Exhibit E
10 Acre Parcel
Exhibit 10.9
Exactus, Inc.
Assignment of LLC Membership Interest
THIS ASSIGNMENT OF LLC MEMBERSHIP INTEREST (this “Assignment”) is made as, of this June 30, 2021 (the “Effective Date”), by and between Paradox Capital Partners, LLC, a New Jersey limited liability company (“Assignee”) and shareholder of Exactus, Inc. a Nevada corporation (“Assignor”) concerning the limited liability membership interests of Exactus One World, LLC, an Oregon limited liability company, formerly known as Burros and Pirates, LLC (the “Company”).
PREAMBLE
WHEREAS, the Assignors are the owner of 50.1% of the outstanding Membership Interests (the “Membership Interests”) in the Company pursuant to that certain Amended and Restated Operating Agreement of the Company dated October 23, 2019;
WHEREAS, the Company is party to (A) that certain Farm Lease dated as of March 1, 2019 by and between Phil Kudlac and the Company and (B) that certain Farm Lease dated as of March 1, 2019 by and between Mike and Gail Murphy (the “Leases”);
WHEREAS, the Assignor desires by this Assignment to assign to the Assignee all of the Membership Interests, and the Assignee desires by this Assignment to accept the same,
NOW, THEREFORE, FOR AND IN CONSIDERATION of the payment by the Assignee to the Assignors of the sum of Ten Dollars ($10.00), and for other good and valuable consideration, the receipt and adequacy of which are acknowledged by each party, the parties agree as follows:
1. ASSIGNMENT.
Effective as of the Effective Date the Assignor assigns to the Assignee and the Assignee accepts and assumes from the Assignor (a) the Membership Interests (so that from and after the Effective Date, and until any other or further assignment made, the Assignor shall have a 0% Membership Interest and the Assignee shall have a 50.1 % Membership Interest), and (b) any and all right, title, and interest which the Assignor have under the provisions of the Oregon Limited Liability Company Act (the “Regulations”), or in and to any of the Company’s assets, with respect to the Membership Interest so assigned. Assignor effective on the Effective Date hereby removes each Manager of the Company and appoints Assignee as the sole Manager of the Company.
2. REPRESENTATIONS.
2.1. By Assignors. To induce the Assignee to accept the delivery of this Assignment, the Assignor hereby represent and warrant the following to the Assignee that, on the date hereof and at the time of such delivery:
2.1.1. The Assignor is the sole legal and beneficial owner of the Membership Interests. The Assignor has not sold or transferred any or all of the Membership Interests. Subject to the provisions of the Regulations, the Assignor has the full and sufficient right at law and in equity to transfer and assign the Membership Interests.
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2.2. By Each Party. Each party represents and warrants to the other that it has been duly authorized to execute and deliver this Assignment, and to perform its obligations under this Assignment.
3. INDEMNIFICATION. The Assignee shall defend, indemnify, and hold harmless the Assignor from any and all liability, claim of liability, or expense arising out of any and all liability, claim of liability, or expense of the Company arising after the Effective Date for rent or other obligations, in each case, arising under the Leases. The Assignor, on behalf of the Company and Assignor, also hereby releases any and all claims the Company or Assignor has or may have against the Assignee.
4. NOTICES. Any notice, demand, consent, approval, request, or other communication or document to be provided hereunder to a party hereto shall be (a) in writing, and (b) deemed to have been provided (i) forty-eight (48) hours after being sent as certified or registered mail in the United States mail, postage prepaid, return receipt requested, to the address of the party set forth in the first paragraph of this Assignment or to any other address in the United States of America as the party may designate from time to time by notice to the other party, or (ii) upon being given by hand or other actual delivery to the party.
5. MISCELLANEOUS.
5.1. Effectiveness. This Assignment shall become effective on and only on its execution and delivery by each party and shall be effective as of the date first above written.
5.2. Complete understanding. Subject to the provisions of the Regulations, this Assignment represents the complete understanding between the parties as to the subject matter hereof, and supersedes all prior negotiations, representations, guarantees, warranties, promises, statements, or agreements, either written or oral, between the parties hereto as to the same.
5.3. Amendment. This Assignment may be amended by and only by an instrument executed and delivered by each party.
5.4. Waiver. No party shall be deemed to have waived any right which it holds hereunder unless the waiver is made expressly and in writing (and, without limiting the generality of the foregoing, no delay or omission by any party in exercising any such right shall be deemed a waiver of its future exercise). No waiver shall be deemed a waiver as to any other instance or any other right.
5.5. Applicable law. All questions concerning the construction, validity, and interpretation of this Assignment and the performance of the obligations imposed hereby shall be governed by the internal law, not the law of conflicts, of the State of Nevada.
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5.6. Headings. The headings of the Sections, subsections, paragraphs, and subparagraphs hereof are provided herein for and only for convenience of reference and shall not be considered in construing their contents.
5.7. Construction. As used herein, (a) the term “person” means a natural person, a trustee, a corporation, a partnership, and any other form of legal entity; and (b) all reference made (i) in the neuter, masculine, or feminine gender shall be deemed to have been made in all genders, (ii) in the singular or plural number shall be deemed to have been made, respectively, in the plural or singular number as well, and (iii) to any Section, subsection, paragraph, or subparagraph shall, unless therein expressly indicated to the contrary, be deemed to have been made to such Section, subsection, paragraph, or subparagraph of this Assignment.
5.8. Assignment. This Assignment shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors, and assigns hereunder.
5.9 Severability. No determination by any court, governmental body or otherwise that any provision of this Assignment or any amendment hereof is invalid or unenforceable in any instance shall affect the validity or enforceability of (a) any other provision thereof, or (b) that provision in any circumstance not controlled by the determination. Each such provision shall be valid and enforceable to the fullest extent allowed by and shall be construed wherever possible as being consistent with, applicable law.
5.10. Further Assurances. The parties shall cooperate with each other and shall execute and deliver, or cause to be delivered, all other instruments and shall take all other actions, as either party hereto may reasonably request from time to time in order to effectuate the provisions hereof.
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IN WITNESS WHEREOF, each party hereto has executed this Assignment or caused it to be executed on its behalf by its duly authorized representatives, the day and year first above written.
| ASSIGNOR: | |
| EXACTUS, INC. | |
| /s/ Larry Wert | |
| Larry Wert, director | |
| /s/ Leslie Buttorff | |
| Leslie Buttorff, director and CEO | |
| ASSIGNEE: | |
| PARADOX CAPITAL PARTNERS, LLC | |
| /s/ Harvey Kesner | |
| Harvey Kesner, Manager |
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Exhibit 31.1
CERTIFICATIONS
I, Leslie Buttorff, certify that;
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2021 of Exactus, Inc. (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 23, 2021
| /s/ Leslie Buttorff | ||
| By: | Leslie Buttorff | |
| Title: | Chief Executive Officer |
Exhibit 31.2
CERTIFICATIONS
I, Nathan Berman, certify that;
| 1. | I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2021 of Exactus, Inc. (the “registrant”); |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: August 23, 2021
| /s/ Nathan Berman | ||
| By: | Nathan Berman | |
| Title: | Principal Accounting Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly Report of Exactus, Inc. (the “Company”) on Form 10-Q for the quarter ended June 30, 2021 filed with the Securities and Exchange Commission (the “Report”), I, Leslie Buttorff, Chief Executive Officer, and I, Nathan Berman, Principal Accounting, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. |
| By: | /s/ Leslie Buttorff | |
| Name: | Leslie Buttorff | |
| Title: | Chief Executive Officer | |
| Date: | Date: August 23, 2021 | |
| By: | /s/ Nathan Berman | |
| Name: | Nathan Berman | |
| Title: | Principal Accounting Officer | |
| Date: | Date: August 23, 2021 |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Principal Financial Officer