Vivakor, Inc S-1, filed Nov 10, 2020
Vivakor, Inc. (VIVK)
As filed with the U.S. Securities and Exchange Commission on November 10, 2020
Registration No.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_________________
VIVAKOR, INC.
(Exact name of registrant as specified in charter)
| Nevada | 8731 | 26-2178141 | ||
| (State or other jurisdiction of incorporation) |
(Primary Standard Classification Code Number) |
(IRS Employer I.D. Number) |
433 Lawndale Drive
South Salt Lake City, UT 84115
(949) 281-2606
(Address and telephone number of principal executive offices)
_________________
(Address of principal place of business or intended principal place of business)
_________________
Matthew Nicosia
Chief Executive Officer
433 Lawndale Drive
South Salt Lake City, UT 84115
(949) 281-2606
(Name, address, including zip code, and telephone number including area code, of agent for service)
_________________
With copies to:
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Joseph M. Lucosky, Esq. Scott E. Linsky, Esq. |
_________________
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 | ☐ | |||||
| Non-Accelerated Filer | ☒ | Smaller Reporting Company | ☒ | |||||
| Emerging Growth Company | ☒ |
CALCULATION OF REGISTRATION FEE
| Title of Each Class of Securities to be Registered | Proposed Maximum Aggregate Offering Price(1)(2) | Amount of Registration Fee | ||||||
| Common Stock, par value $0.001(3) | $ | 13,800,000 | $ | 1,505.58 | ||||
| Representative’s Warrants (4) | – | – | ||||||
| Shares of common stock underlying Representative’s Warrants (5) | $ | 862,500 | $ | 94.10 | ||||
| Total | $ | 14,662,500 | $ | 1,599.68 | ||||
| ____________ |
| (1) | Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended (the “Securities Act”). |
| (2) | Includes initial public offering price of shares that the underwriters have the option to purchase to cover over-allotments, if any. |
| (3) | Pursuant to Rule 416 of the Securities Act, the shares of common stock registered hereby also includes an indeterminable number of additional shares of common stock as may from time to time become issuable by reason of stock splits, stock dividends, recapitalizations or other similar transactions. |
| (4) | No fee required pursuant to Rule 457(g) under the Securities Act. |
| (5) | Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act. The Representative’s Warrants are exercisable for a number of shares equal to 5% of the shares of common stock offered hereby at a per share exercise price equal to 125% of the public offering price per share. As estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(g) under the Securities Act, the proposed maximum aggregate offering price of the Representative’s Warrants is $750,000, which is equal to 125% of $600,000 (5% of $12,000,000). |
The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
| PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED NOVEMBER 10, 2020 |
Shares
Common Stock
Vivakor, Inc.
This is a firm commitment public offering of shares of common stock of Vivakor, Inc.
We intend to apply to list our common stock on under the symbol “VIVK”. If our listing application is not approved, we will not proceed with the offering. Our common stock is currently quoted on the OTCPink Marketplace operated by OTC Markets Group Inc. (the “OTCPink”) under the trading symbol “VIVK”. On November 6, 2020, the last reported sale price for our common stock on the OTCPink was $0.51.
We expect to effect a -for- reverse stock split of our outstanding common stock prior to the completion of this offering. We have assumed a public offering price of $ per share, the last reported sale price of our common stock on the OTCPink on , 2020 (after giving effect to the reverse stock split). The actual public offering price per share will be determined through negotiations between us and the underwriter at the time of pricing and may be at a discount to the current market price. Therefore, the assumed public offering price used throughout this prospectus may not be indicative of the final offering price.
We are an “emerging growth company” under the federal securities laws and have elected to comply with certain reduced public company reporting requirements.
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 10. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Per Share | Total | |||||
| Initial public offering price | $ | $ | ||||
| Underwriting discounts and commissions(1) | $ | $ | ||||
| Proceeds to us, before expenses | $ | $ | ||||
| (1) | Underwriting discounts and commissions do not include a non-accountable expense allowance equal to 1.0% of the initial public offering price payable to the underwriters. We refer you to “Underwriting” beginning on page 57 for additional information regarding underwriters’ compensation. |
We have granted a 45-day option to the representative of the underwriters to purchase up to additional shares of common stock solely to cover over-allotments, if any.
The underwriters expect to deliver the shares to purchasers on or about , 2020.
The date of this prospectus is , 2020
You should rely only on information contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. We have not, and the underwriters have not, authorized anyone to provide you with additional information or information different from that contained in this prospectus or in any free writing prospectus. Neither the delivery of this prospectus nor the sale of our securities means that the information contained in this prospectus or any free writing prospectus is correct after the date of this prospectus or such free writing prospectus. This prospectus is not an offer to sell or the solicitation of an offer to buy our securities in any circumstances under which the offer or solicitation is unlawful or in any state or other jurisdiction where the offer is not permitted.
No person is authorized in connection with this prospectus to give any information or to make any representations about us, the securities offered hereby or any matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.
Neither we nor any of the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than the United States. You are required to inform yourself about, and to observe any restrictions relating to, this offering and the distribution of this prospectus.
We also use certain trademarks, trade names, and logos that have not been registered. We claim common law rights to these unregistered trademarks, trade names and logos.
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This summary highlights selected information appearing elsewhere in this prospectus. Because this is only a summary, it does not contain all of the information you should consider before investing in our securities. You should read this prospectus carefully, especially the risks and other information set forth under the heading “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this prospectus before making an investment decision. Our fiscal year end is December 31 and our fiscal years ended December 31, 2019 and December 31, 2018 are sometimes referred to herein as fiscal years 2019 and 2018, respectively. Some of the statements made in this prospectus discuss future events and developments, including our future strategy and our ability to generate revenue, income and cash flow. These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those contemplated in these forward-looking statements. See “Cautionary Note Regarding Forward-Looking Statements”. Unless otherwise indicated or the context requires otherwise, the words “we,” “us,” “our,” the “Company,” or “our Company,” and “Vivakor” refer to Vivakor, Inc., a Nevada corporation, and its wholly owned subsidiaries.
Overview
Vivakor, Inc. is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation. We specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and other hydrocarbon-based substances. Our process allows us to successfully recover hydrocarbons from the soil, which we believe could then be used to produce asphaltic cement and/or other petroleum-based products. In 2015, we acquired and improved technology aimed at remediating contaminated soil and recovering usable hydrocarbons, which we refer to as Remediation Processing Centers (“RPCs”). We presently have three patent applications pending related to our RPCs and two issued patents related to our other remediation technologies. Our RPCs each have the potential to clean a minimum of 20 tons of contaminated material per hour, depending on the oil contamination percentage in the processed material. Each RPC has the capacity to extract on a 24-hour operation 500 tons or more of contaminated material per day. The amount of extracted hydrocarbon recovered depends on the extent to which the material is contaminated. For example, we estimate that for every 500 tons of contaminated material recovered per day that contains at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons.
We have designed our RPCs to provide an environmentally friendly solution to the remediation of hydrocarbon-contaminated soil, as they do not utilize water. Our RPCs operate by loading contaminated soil onto a feeder and conveyor system that effectively delivers the material into a fully contained, closed-loop system. Physical separation of the hydrocarbons from the contaminated soil does not utilize water or steam and is instead accomplished using a proprietary extraction fluid to dissolve the hydrocarbon components.
The entire extraction process is completed in a series of sealed chambers. The reclaimed extraction fluid is then recycled back into the process, which ensures that no toxic chemicals are released into the soil or the environment. Upon completion of our remediation and separation process, the extracted hydrocarbons are placed into holding tanks to be picked up by our customers, while clean soil is returned to the environment.
We believe our RPCs are significantly more advanced than other oil remediation technologies or offerings presently available on the market. Our RPCs have successfully cleaned contaminated soil containing greater than 7% hydrocarbon content, while, to our knowledge, our competitors are limited to projects containing less than 5% hydrocarbon contamination. We believe our ability to clean soil with more highly concentrated hydrocarbon contamination is a distinctive advantage that will allow us to operate on a global basis in any location that has suffered from oil spills or naturally occurring oil sands deposits. While our primary focus and mandate will be on the manufacture and deployment of our RPCs, we intend to continue to develop, acquire or license additional clean energy technologies and environmental solutions that will directly enhance and expand our current technologies and service offerings.
Our current focus is on the clean-up of greater than 7% hydrocarbon contaminated soil located in Kuwait as a result of the Iraqi invasion and naturally occurring oil sands deposits in Utah. We have deployed two RPC units to date, including one unit to Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently operating). We expect to deploy two additional RPCs to Vernal, Utah with the proceeds from this offering and believe that there may be an opportunity to deploy additional RPCs in Utah, as well as to Kuwait and the Middle East.
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In April 2020, we entered into a project charter agreement with solvAQUA Inc. (“solvAQUA”), a Canadian-based clean water technology company, pursuant to which we may purchase certain wastewater removal equipment from solvAQUA. The solvAQUA Wastewater Management System (“WMS”) is a compact solution that continually processes and separates large volumes of wastewater (4,000+ m3/day for each WMS) with an ability to scale to remove any volume of oil, grease and suspended solids from wastewater, in most cases removing 99.99% of waste. The processed water stream can in some cases be discharged or reused without further treatment. We have placed our first order with solvAQUA for WMS equipment and anticipate receipt and installation of the equipment prior to December 31, 2020, with operations to commence shortly thereafter. On July 15, 2020, solvAQUA granted us an exclusive license to either incorporate solvAQUA’s technology platform into our RPCs or to use it independently. This will allow us to service remediation projects that have a combination of wet and dry opportunities. The exclusive license has an initial term of one year, which may be extended to five years upon our successful installation and deployment of the first two WMSs.
Our proprietary metallic separation technology uses a thermal vapor process to extract and process micro particles of precious metals and rare earth minerals, including gold, silver, platinum, palladium and rhodium from soils. After we complete our soil remediation services, we evaluate the post-remediated soil and, if we find that the soil contains more than 1% concentration of these metals, we process it through this technology to extract and concentrate these micro particles of precious metals and rare earth minerals into a concentrated, unrefined flake form.
We have also acquired and/or licensed two separate technologies described below that will enable us to upgrade the hydrocarbons recovered from our remediation process. These processes have been proven in laboratory tests, but we have not yet performed this upgrading in a commercial setting.
We have been granted a worldwide, exclusive, non-transferable license to the intellectual property embodied in cavitation technology developed by B Green, Inc. (“B Green”) to develop, manufacture, have manufactured, use market, import, have imported, offer for sale and sell cavitation devices built from the licensed intellectual property. Third party, independent testing conducted by the University of Utah has shown that this proprietary technology increases the API gravity of hydrocarbons by elongating the hydrocarbon chains without cutting or cracking these chains. API gravity is the measure of how heavy or light petroleum liquid is compared to water and is used in the industry as the standard measure for viscosity. The API of the recovered crude is increased, allowing such crude to have additional uses and usually at higher unit prices.
We have also been granted an exclusive right to use the nano-sponge technology developed by CSS Nanotech, which essentially serves as a micro-upgrader, transforming hydrocarbon product into a more useful product, such as petroleum or gasoline, as an addition to our hydrocarbon extraction technology. The inventor of this technology subsequently joined us as our Chief Scientific Officer. This patented technology allows for hydrocarbon material to be absorbed by a specialized sponge. Low energy microwaves are then introduced into the process and the sponge, which is made of a highly thermally conductive material, absorbs this energy causing an instant thermal effect, which essentially refines the crude by cutting or cracking the carbon chains. We intend to add this system to our process of upgrading the heavy crude recovered by our RPCs.
Revenue
Our RPC situated in Vernal, Utah has the capacity to process up to 500 tons or more of naturally occurring oil sands deposits per day. We estimate that if the extracted material is composed of at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons each day, which could then be sold for energy or converted to asphaltic cement and sold for use in roads at higher prices.
In Kuwait, where we do not have ownership of the recovered oil, we generate revenues by charging per cubic meter of soil remediated. For our current project we will generate revenues of $72 per cubic meter of contaminated material processed.
We market and sell the precious metals we extract from our remediated and waste soils. As we continue our efforts, we anticipate increased opportunities to monetize our precious metals end product. We believe that we may be able to generate proceeds of approximately $6 million from the sale of precious metals, based on indications from potential buyers.
Market Opportunity
We believe that the market for remediating oil from both soil and water is significant. According to Grandview Research, the market for environmental clean-up of oil spills will reach $177 billion by 2025. We believe that a large portion of that market will originate from contamination of more than 7% hydrocarbon content and that our technology is currently the only one that can economically remediate these environmental disasters, while allowing for the capture and reuse of the crude.
In addition, we believe that the heavy crude that we have been recovering in Utah is ideal for producing asphaltic cement. The demand for asphaltic cement in the United States is presently estimated to be $116 billion this year according to Global Market Insights. We have provided our material to asphalt companies for testing to determine what modifications, if any, would be needed to be meet their specifications. Provided we are able to produce asphaltic cement that meets our customers’ specifications, we believe that we will be able to offer our product at very competitive prices and in an environmentally friendly manner.
Competitive Strengths and Growth Strategy
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
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Competitive Strengths
We believe the following strengths provide us with a distinct competitive advantage and will enable us to effectively compete on a global basis:
| · | Proprietary patent-pending technology; |
| · | Strong relationships with customers and regulatory agencies; and |
| · | Experienced and highly-skilled management, Board of Directors and Advisory Board. |
Proprietary Patent Pending Technology
We presently have three patent applications pending related to our RPCs and two issued patents related to our other remediation technologies.
We believe, based on direct and ongoing conversations with our customers and third-party independent test results, that our technology is the only commercially available technology that can not only clean soil that contains greater than 7% hydrocarbon, but also preserve the hydrocarbons extracted from such soil for future use. We believe that this provides us with a true competitive advantage.
We believe our technology and service offerings will position us well to conduct our business in any geographical region in which soil or water has been contaminated by hydrocarbons.
Strong Relationships with Customers and Regulatory Agencies
We have developed close relationships with customers and government agencies, including the Utah School and Institutional Trust Lands Administration (“SITLA”) and the Kuwait Oil Company (“KOC”). We anticipate receiving access to additional oil sands deposits located in Utah from SITLA, based on our existing relationship with SITLA and our conversations with them. We also anticipate receiving additional contracts from KOC to remediate contaminated properties in Kuwait, based on our existing relationship with KOC and conversations with them.
Experienced and Highly Skilled Management, Board of Directors and Advisory Board
Our management team has started and successfully grown numerous technology-based companies and has utilized this experience to develop a strategic vision for the Company. The implementation of this plan has resulted in the acquisition and in-house development of numerous technologies, which are currently in operation. We have demonstrated the effectiveness of our technologies in both Vernal, Utah and Kuwait, accomplishing the clean-up of contaminated areas while also recovering precious metals through our metallic separation technology.
Our Board of Directors is comprised of accomplished professionals who bring decades of experience to the Company. Our Board of Directors includes a director who has served as a member of the Executive Committee of one of the largest global accounting firms and has served on the Board of Directors of two multi-billion dollar publicly traded companies, a former director of technology investment banking at Goldman Sachs, a successful investor and entrepreneur who has founded and provided initial financing for numerous life science companies, several of which have grown to become multi-billion dollar publicly traded companies, and the mayor of a city in Utah.
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In addition, we have an Advisory Board comprised of former senior members of oil and gas companies, both in the United States and in the Middle East. Our Advisory Board is led by one member who is an accomplished business professional and a member of a royal family based in the Middle East and another member who is an experienced health and safety expert operating in the oil and gas industries.
We rely on our Board of Directors and Advisory Board to provide it both high level advice and guidance along with using their contacts to help open various markets. We believe the combination of our management team, Board of Directors and Advisory Board provides us with a significant competitive advantage over our competitors due to their breadth of experiences and relationships.
Growth Strategies
We will strive to grow our business by pursuing the following strategies:
| · | Expansion of our oil recovery projects in Utah; |
| · | Expansion of our remediation projects in Kuwait; |
| · | Expansion into new and complementary markets; |
| · | Increase of revenue via new service and product offerings; |
| · | Strategic acquisitions and licenses targeting complementary technologies; and |
| · | Redeployment of our metallic separation technologies. |
Expansion of our Oil Recovery Projects in Utah
The State of Utah has, according to the U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion barrels of oil contained in contaminated oil sands that are deposited near the ground surface. The majority of these oil sands deposits are located on land owned by SITLA. While our current project in Vernal, Utah is not located on SITLA land, SITLA has expressed an interest in providing us leased access to these lands in exchange for a royalty to be paid by us in an amount equal to 8% of all revenue generated from any hydrocarbon-based products produced by us from hydrocarbons extracted from these lands. All royalty payments to SITLA would result in direct funding to the State’s school system. We believe, based on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property, that there may be an opportunity to deploy as many as 100 RPCs to properties containing oil sands deposits owned by the State of Utah. We will seek to acquire additional properties and mineral rights in the vicinity of Vernal, Utah from individual land owners and the State of Utah with a goal of increasing our hydrocarbon holdings to as much as one billion barrels of contingent resources containing a minimum of 10% hydrocarbon saturation.
Expansion of our Remediation Projects in Kuwait
Our RPC technology was successfully used in our initial project for KOC in Kuwait, where we removed hydrocarbons from soil with more than 7% contamination and, following the process, the hydrocarbon contamination level of the soil was reduced to less than 0.5%, which was lower than the level needed to meet the project specifications. There is still approximately 26 million cubic meters of soil contaminated by oil as a result of the Iraqi invasion of Kuwait. We intend to seek additional contracts directly from KOC to deploy our RPCs for the remediation of this contaminated soil. Under our current contract, we will charge $72 per cubic meter of soil remediated. We are currently working with KOC and other government-controlled entities to expand our remediation projects in Kuwait. We are in active negotiations to provide the technology and operations as a subcontractor to large, multinational remediation companies within the region where our technology could be used on all of the sands with contamination levels greater than 7%. Other technologies may also be used for the less contaminated soils.
Expansion into New and Complementary Markets
We intend to explore expansion opportunities on a global basis, including in places with extreme contamination such as the Ogoni Lands region of Nigeria, oil spill lakes located in Saudi Arabia and Turkmenistan, and naturally occurring oil sands deposits in Kazakhstan, where we believe our technology and service offerings may provide a distinct competitive advantage. We are currently in discussions with several groups for deploying our RPCs for remediation projects (primarily for oil spills, tank bottom sludge and drill cuttings) in Saudi Arabia, Qatar and Texas. Saudi Arabia has the objective to create a circular carbon economy that will ultimately have zero wasted hydrocarbons. Our technology is able to process tank bottom sludge, drill cuttings, and soils from hydrocarbon spills, returning the sand to less than 0.5% contamination while reclaiming the oil for waste energy use.
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Increase of Revenue via New Service and Product Offerings.
To date, we have focused on the remediation of soil contaminated by oil. We are in the process of expanding our services to include the remediation of water and the recovery of hydrocarbons from water through our exclusive license with solvAQUA. We also intend to target other hydrocarbon remediation businesses that focus on, among other things, the cleaning of tank bottom sludge and the cleaning of the water used from drilling oil wells. Oil producers generally pay to dispose of sludge at the bottom of storage tanks and contaminated water produced from the drilling of oil wells. We believe that our technologies could be used to clean these contaminated products, while simultaneously recovering the heavy crude. We believe we will be able to offer these services at a cost that is very competitive with current methods and that our ability to recover the heavy crude for resale will give us a competitive advantage. The patent pending RPC technology, in conjunction with the enzymatic water remediation technology that we have licensed from solvAQUA, have the potential to eradicate all oil evaporation ponds and landfills in the United States presently utilized for disposal of tank bottom sludge and drill cutting waste. We are currently in early stage discussions relating to some of these remediation projects.
Strategic Acquisitions and Licenses Targeting Complementary Technologies
We intend to seek out opportunities to acquire or license only specific technologies that are either complementary to our existing product offerings or that will allow us to expand into the environmental infrastructure markets. We are currently negotiating a license for smart sensor technologies for autonomous vehicles that we believe could be embedded directly into the asphaltic cement we intend to produce from the hydrocarbons we extract, providing the basis for smart roads and infrastructure. We believe that these sensors, which are self-powered, could be used to provide information about traffic, road conditions and repair needs as well as allowing the roads to communicate directly with autonomous vehicles enabling these vehicles to sense the road in all weather conditions. By complementing the asphaltic cement we expect to produce with integrated sensors for automated vehicles, we believe that we will be able to offer a smart road technology – moving this company from one of “Waste to Road” to one of “Waste to Smart Road”.
Redeployment of our Metallic Separation Technology
Our licensed metallic separation technology has successfully recovered precious metals including, but not limited to, gold, palladium, platinum, rodium and silver. We intend to modify our existing metallic separation equipment to allow us to capture a greater amount of the precious metals, which are typically wasted. We intend to redeploy our metallic separation technology machines in conjunction with our RPC machines to locations where precious metals have been detected in the soil and to standalone locations to process mine tailings and other soils.
Risks Associated with Our Business
Our business is subject to a number of risks of which you should be aware before making a decision to invest in our common shares. The following, and other risks, are discussed more fully in the “Risk Factors” section of this prospectus:
| · | We are an early stage operating company and we are subject to substantial risks inherent in the establishment of a new business venture; | |
| · | We have historically suffered net losses and we may not be able to achieve or sustain future profitability; | |
| · | We will require additional funding beyond this contemplated offering to fund our operations generally and such funding may not be available on acceptable terms or at all; | |
| · | The COVID-19 pandemic has had and may continue to have a negative impact on our business and operations; | |
| · | We rely on the experience and knowledge of our management team, Board of Directors and Advisory Board, and the loss of one or more members of our management team, Board of Directors and/or Advisory Board would adversely impact our business; |
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| · | Our business is subject to extensive legal regulation and unexpected changes to law or increases to fees could have a significant adverse impact on our business; | |
| · | Our primary business is impacted by the oil industry and manufacturing industry, which are subject to uncertain economic conditions; | |
| · | We currently depend and are likely to continue to depend on a limited number of customers for a significant portion of our revenues; and | |
| · | We may not be able to adequately protect our proprietary rights. |
Implications of Being an Emerging Growth Company and a Smaller Reporting Company
We qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. See “Risk Factors — Risks Relating to Our Common Stock and the Offering — We are an ‘emerging growth company’ and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.” These provisions include:
| · | being permitted to provide only two years of audited financial statements in addition to any required unaudited interim financial statements with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; |
| · | reduced disclosure obligations regarding executive compensation arrangements; |
| · | not being required to hold a non-binding advisory vote on executive compensation or golden parachute arrangements; and |
| · | exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting. |
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. This election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeded $700.0 million as of the prior June 30th, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. We may choose to take advantage of some but not all of these exemptions. We have taken advantage of reduced reporting requirements in this prospectus. Accordingly, the information contained herein may be different than the information you receive from other public companies in which you hold stock.
Notwithstanding the above, we are also currently qualified as a “smaller reporting company” under SEC rules. In the event that we are still considered a smaller reporting company at such time as we cease to be an emerging growth company, the disclosure we will be required to provide in our filings with the SEC will increase, but will still be less than it would be if we were not considered either an emerging growth company or a smaller reporting company. Specifically, similar to emerging growth companies, smaller reporting companies are able to provide simplified executive compensation disclosures in their filings; are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requiring that independent registered public accounting firms provide an attestation report on the effectiveness of their internal control over financial reporting; and have certain other decreased disclosure obligations in their SEC filings, including, among other things, only being required to provide two years of audited financial statements in their annual reports.
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Corporate History and Information
The Company was originally organized on November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. The Company’s name was changed to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, the Company was converted to a corporation and changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
We have the following direct and indirect wholly-owned active subsidiaries: VivaVentures Management Company, Inc., a Nevada corporation, VivaSphere, Inc., a Nevada corporation, VivaVentures Oil Sands, Inc., a Utah corporation, and RPC Design and Manufacturing LLC, a Utah company. We have a 99.95% interest in VivaVentures Energy Group, Inc., a Nevada Corporation; the 0.05% minority interest in VivaVentures Energy Group, Inc. is held by a private investor unaffiliated with the Company. We also have an approximate 49% interest in Vivakor Middle East Limited Liability Company, a Qatar limited liability company.
The Company’s address is 433 Lawndale Drive South Salt Lake City, UT 84115. Our phone number is (949) 281-2606. Our website is: www.vivakor.com. The information on, or that can be accessed through, this website is not part of this prospectus, and you should not rely on any such information in making the decision whether to purchase the Company’s common stock.
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| Common stock offered by us | shares of common stock, par value $0.001 | |
| Assumed public offering price | $ per share, which was the last reported sale price of our common stock on the OTCPink on , 2020 | |
| Common stock to be outstanding after the offering: | shares. If the underwriter’s over-allotment option is exercised in full, the total number of shares of our common stock outstanding immediately after this offering will be . | |
| Overallotment option: | We have granted the underwriters a 45-day option to purchase up to an additional shares of common stock to cover over-allotments, if any, at the public offering price less underwriting discounts and commissions. | |
| Use of proceeds: | We expect to use the net proceeds from this offering to purchase two RPC units, together with related equipment and enhancements, for the continued development of our hydrocarbon upgrading technologies and for working capital and other general corporate purposes including the potential repayment of outstanding bridge notes. See “Use of Proceeds.” | |
| Risk factors: | Investing in our securities is highly speculative and involves a high degree of risk. You should carefully consider the information set forth in the “Risk Factors” section of this prospectus beginning on page 10 before deciding to invest in our securities. | |
| OTCPink Trading symbol: | Our common stock is currently quoted on the OTCPink under the trading symbol “VIVK”. | |
| Proposed trading symbol: | We intend to apply to to list our common stock under the symbol “VIVK.” No assurance can be given that our application will be approved. |
| ____________ |
The number of shares of common stock shown above to be outstanding after this offering is based on 323,919,665 shares outstanding as of October 30, 2020, and excludes the following:
| · | 1,060,000 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.40 per share; | |
| · | 164,645 shares of common stock issuable upon the conversion of $81,201 of various convertible notes payable that convert at a range between $0.10 and $0.25 per share; | |
| · | shares of common stock issuable upon the conversion of $311,383 of certain convertible bridge notes that may, at the option of the Company, be converted into common stock at a discount of 20% to the offering price or repaid with the proceeds from this offering; | |
| · | 60,000,000 shares of common stock reserved for future issuance under the new Vivakor Inc. 2020 Equity Incentive Plan (the “Vivakor 2020 Plan”) we intend to adopt immediately prior to this offering (including 500,000 shares to be issued to a former employee, options to purchase 30,000,000 shares to be issued to LBL Professional Consulting, Inc. for consulting services and options to purchase 5,000,000 shares to be issued to Matthew Nicosia, our Chief Executive Officer, pursuant to his employment agreement, all in the form of stock options that will be issued under the Vivakor 2020 Plan); | |
| · | Any shares that may be issuable in exchange for LLC units of Vivaventures Royalty II LLC and/or Vivaventures Opportunity Fund pursuant to the respective operating agreements of such entities, as described in this prospectus. |
Prior to the consummation of this offering, we expect to effect a -for- reverse stock split of our issued and outstanding common stock (the “Reverse Stock Split”). No fractional shares of the Company’s common stock will be issued as a result of the Reverse Stock Split. Any fractional shares resulting from the Reverse Stock Split will be rounded up to the nearest whole share.
Unless otherwise stated, all information in this prospectus assumes:
| · | the automatic conversion of all outstanding shares of our Series A, Series B, Series B-1 and Series C-1 convertible preferred stock into an aggregate of 74,059,410 shares of common stock, the conversion of which will occur immediately prior to the consummation of this offering. |
| · | no exercise of the underwriters’ over-allotment option to purchase additional shares; |
| · | no exercise of the warrants to be issued to the representative of the underwriters in connection with this offering as described in the “Underwriting — Representative’s Warrants” section of this prospectus; and |
| · | the completion of the Reverse Stock Split. |
| 8 |
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
The following summary consolidated statements of operations data for the periods ended June 30, 2020 (unaudited) and June 30, 2019 (unaudited) and the years ended December 31, 2019 and 2018 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The historical financial data presented below is not necessarily indicative of our financial results in future periods. You should read the summary consolidated financial data in conjunction with those financial statements and the accompanying notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Our consolidated financial statements are prepared and presented in accordance with United States generally accepted accounting principles, or U.S. GAAP. Our unaudited condensed interim consolidated financial statements have been prepared on a basis consistent with our audited financial statements and include all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations as of and for such periods.
| Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||
| 2020 | 2019 | 2019 | 2018 | |||||||||||||
| (unaudited) | (audited) | |||||||||||||||
| Consolidated Statements of Operations Data: | ||||||||||||||||
| Revenue | $ | 1,023,344 | $ | – | $ | – | $ | 10,179 | ||||||||
| Cost of revenues | 984,941 | – | – | 3,550 | ||||||||||||
| Gross profit | 38,403 | – | – | 6,629 | ||||||||||||
| Total operating expenses | 1,693,277 | 1,127,562 | 2,303,181 | 1,880,347 | ||||||||||||
| Operating loss | (1,654,874 | ) | (1,127,562 | ) | (2,303,181 | ) | (1,873,718 | ) | ||||||||
| Total other income (expense) | 2,117,545 | 651,852 | 618,177 | (362,282 | ) | |||||||||||
| Income (loss) before provision for income taxes | 462,671 | (475,710 | ) | (1,685,004 | ) | (2,236,000 | ) | |||||||||
| Benefit (provision) for income taxes | 8,171 | (52,831 | ) | (589,203 | ) | 36,645 | ||||||||||
| Consolidated net income (loss) | $ | 470,842 | $ | (528,541 | ) | $ | (2,274,207 | ) | $ | (2,199,355 | ) | |||||
| Net income (loss) attributable to Vivakor, Inc. | $ | 897,958 | $ | (499,365 | ) | $ | (2,159,242 | ) | $ | (2,178,345 | ) | |||||
| Basic income (loss) per common share | $ | 0.00 | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |||||
| As of June 30, 2020 | ||||||||||||
| Actual | Pro Forma | Pro Forma As Adjusted(1) | ||||||||||
| Selected Balance Sheet Data (end of period): | (unaudited) | |||||||||||
| Cash and marketable securities | $ | 3,406,132 | $ | 3,406,132 | $ | |||||||
| Total assets | 42,255,722 | 42,255,722 | ||||||||||
| Total debt | 6,053,722 | 6,053,722 | ||||||||||
| Total liabilities | 14,029,768 | 14,029,768 | ||||||||||
| Total temporary equity | 15,072,298 | – | ||||||||||
| Total shareholders’ equity | 13,153,656 | 28,225,954 | ||||||||||
(1) Each $0.10 increase (decrease) in the public offering price per share would increase (decrease) each of cash and marketable securities, total assets and total shareholders’ equity by approximately $ , assuming that the number of shares we are offering, as set forth on the cover page of this prospectus, remains the same and that the underwriters do not exercise their over-allotment option. Depending on market conditions and other considerations at the time we price this offering, we may sell a greater or lesser number of shares than the number set forth on the cover page of this prospectus. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of cash and marketable securities, total assets and total shareholders’ equity by approximately $ , assuming the public offering price per share remains the same.
| 9 |
Investing in our common stock involves a great deal of risk. Careful consideration should be made of the following factors as well as other information included in this prospectus before deciding to purchase our common stock. There are many risks that affect our business and results of operations, some of which are beyond our control. Our business, financial condition or operating results could be materially harmed by any of these risks. This could cause the trading price of our common stock to decline, and you may lose all or part of your investment. Additional risks that we do not yet know of or that we currently think are immaterial may also affect our business and results of operations.
Risks Relating to our Business
We are at an early operational stage, and our success is subject to the substantial risks inherent in the establishment of a new business venture.
Our business and operations are in an early stage and subject to all of the risks inherent with new business ventures. Our initial operations have been focused on the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and hydrocarbon-based substances. We intend to, but have not yet completed the second stage of our operational strategy, selling the asphaltic cement and/or other petroleum-based products we are able to produce from the hydrocarbons we recover.
Our business and operations may not prove to be successful. We have deployed only two RPC units to date, including one unit to Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently operating). We will need to scale our business beyond these two RPCs and demonstrate that our scaled-up recovery and remediation business can be profitable Any future success that we may enjoy will depend on many factors, some of which may be beyond our control, and others which cannot be predicted at this time. Although we began operations in 2008 as a technology acquisition company primarily focused on medical technologies, we have only been operating under our current business plan focused on soil remediation since 2011, and we have not yet proven to be profitable. We have not yet sold any substantial amount of products or services commercially and have not proven that our business model will allow us to identify and develop commercially feasible products or technologies.
We have historically suffered net losses, and we may not be able to sustain profitability.
We had an accumulated deficit of $27,015,290 as of June 30, 2020, and we expect to continue to incur significant development expenses in the foreseeable future related to the completion of the development and commercialization of our products. As a result, we are incurring operating and net losses, and it is possible that we may never be able to sustain the revenue levels necessary to achieve and sustain profitability. If we fail to generate sufficient revenues to operate profitably on a consistent basis, or if we are unable to fund our continuing losses, you could lose all or part of your investment.
We have substantial doubt in our ability to continue as a going concern.
The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. Our independent registered public accounting firm has issued a report that includes an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available.
We believe that the successful completion of this offering will eliminate this doubt and enable us to continue as a going concern; however, if we are unable to raise sufficient capital in this offering, we may need to obtain alternative financing or significantly modify our operational plans in order to continue operations.
We will need additional financing to continue to fund our operations. We may raise capital through loans from current stockholders, public or private equity or debt offerings, grants, or strategic arrangements with third parties. There can be no assurance that additional capital will be available to us on acceptable terms, or at all.
| 10 |
We rely upon a few, select key employees who are instrumental in our ability to conduct and grow our business. In the event any of those key employees would no longer be affiliated with the Company, it may have a material detrimental impact as to our ability to successfully operate our business.
Our future success will depend in large part on our ability to attract and retain high-quality management, operations, and other personnel who are in high demand, are often subject to competing employment offers, and are attractive recruiting targets for our competitors. The loss of qualified executives and key employees, or our inability to attract, retain, and motivate high-quality executives and employees required for the planned expansion of our business, may harm our operating results and impair our ability to grow.
We depend on the continued services of our key personnel, including Matthew Nicosia, our Chief Executive Officer, Tyler Nelson, our Chief Financial Officer, and Daniel Hashim, our Chief Scientific Officer. Our work with each of these key personnel are subject to changes and/or termination, and our inability to effectively retain the services of our key management personnel, could materially and adversely affect our operating results and future prospects.
We may have difficulty raising additional capital, which could deprive us of necessary resources, and you may experience dilution or subordinate stockholder rights, preferences and privileges as a result of our financing efforts.
We expect to continue to devote significant capital resources to fund the continued development of our RPCs and related technologies. In order to support the initiatives envisioned in our business plan, we will need to raise additional funds through the sale of public or private debt or equity financing or other arrangements. Our ability to raise additional financing depends on many factors beyond our control, including the state of capital markets, the market price of our common stock and the development or prospects for development of competitive technologies by others. Sufficient additional financing may not be available to us or may be available only on terms that would result in further dilution to the current owners of our common stock.
We expect to obtain additional capital during 2020 through financing lease structures for our RPCs or other financing structures related to our RPCs. We also expect that the net proceeds from this offering, along with our current cash position, will enable us to fund our operating expenses and capital expenditure requirements for the next twelve months. Thereafter, unless we can achieve and sustain profitability, we anticipate that we will need to raise additional capital to fund our operations while we implement and execute our business plan.
Any future equity financing may involve substantial dilution to our then existing shareholders. Any future debt financing could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities. There can be no assurance that such additional capital will be available, on a timely basis, or on terms acceptable to us. If we are unsuccessful in raising additional capital or the terms of raising such capital are unacceptable, then we may have to modify our business plan and/or curtail our planned activities and other operations.
If we raise additional funds through government or other third-party funding, collaborations, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue stream or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market products that we would otherwise prefer to develop and market ourselves.
The COVID-19 pandemic has had and may continue to have a negative impact on our business and operations.
Our Kuwait operations have been suspended to comply with the social distancing measures implemented in Kuwait. Our Utah operations were temporarily suspended from March through May 2020, but have since resumed in full. These suspensions have had a negative impact on our business and there can be no guaranty that we will not need to suspend operations again in the future as a result of the pandemic. We are closely monitoring the COVID-19 pandemic and the directives from federal and local authorities in the United States and in Kuwait affecting not only our workforce, but those of companies with whom we work.
Economic conditions in the current period of disruption and instability could adversely affect our ability to access the capital markets, in both the near and long term, and thus adversely affect our business and liquidity.
The current economic conditions related to the COVID-19 pandemic have had, and likely will continue to have for the foreseeable future a negative impact on the capital markets. Even if we are able to raise capital, it may not be at a price or on terms that are favorable to us. We cannot predict the occurrence of future disruptions or how long the current conditions may continue.
| 11 |
Failure to effectively manage our expected growth could place strains on our managerial, operational and financial resources and could adversely affect our business and operating results.
Our expected growth could place a strain on our managerial, operational and financial resources. Further, if our subsidiaries’ businesses grow, then we will be required to manage multiple relationships. Any further growth by us or our subsidiaries, or any increase in the number of our strategic relationships, will increase the strain on our managerial, operational and financial resources. This strain may inhibit our ability to achieve the rapid execution necessary to implement our business plan and could have a material adverse effect on our financial condition, business prospects and operations and the value of an investment in our company.
We will need to achieve commercial acceptance of our products to continue to generate revenues and sustain profitability.
Our goal is to ultimately produce asphaltic cement and/or other petroleum-based products from the hydrocarbons we recover and sell these products to customers; however, we may not be able to successfully commercialize our products, and even if we do, we may not be able to do so on a timely basis. Superior competitive technologies may be introduced, or customer needs may change, which will diminish or extinguish the commercial uses for our applications. We cannot predict when significant commercial market acceptance for our products will develop, if at all, and we cannot reliably estimate the projected size of any such potential market. If the markets fail to accept our products, then we may not be able to generate revenues from the commercial application of our technologies. Our revenue growth and profitability will depend substantially on our ability to manufacture and deploy additional RPCs and produce asphaltic cement to the specifications required by each of our potential customers.
We have identified certain material weakness in our internal control over financial reporting. Failure to maintain effective internal controls could cause our investors to lose confidence in us and adversely affect the market price of our common stock. If our internal controls are not effective, we may not be able to accurately report our financial results or prevent fraud.
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), requires that we maintain internal control over financial reporting that meets applicable standards. We may err in the design or operation of our controls, and all internal control systems, no matter how well designed and operated, can provide only reasonable assurance that the objectives of the control system are met. Because there are inherent limitations in all control systems, there can be no assurance that all control issues have been or will be detected. If we are unable, or are perceived as unable, to produce reliable financial reports due to internal control deficiencies, investors could lose confidence in our reported financial information and operating results, which could result in a negative market reaction and a decrease in our stock price.
We have identified certain material weaknesses in our internal controls related to revenue recognition and lack of staffing in the accounting and finance organization. In connection with these material weaknesses, in 2020, we implemented remediation measures including training of accounting personnel as well as hiring additional personnel with experience in the ongoing identification, including the implementation of an audit committee, design and implementation of internal control over financial reporting. We believe that we have substantially resolved our previously identified material weaknesses in our internal controls as a result of implementation of new policies and procedures, the completion of an audit of our financial statements and the addition of experienced, independent directors and committees. There can be no assurances that weakness in our internal controls will not occur in the future.
If we identify new material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting (if and when required), we may be late with the filing of our periodic reports, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. As a result of such failures, we could also become subject to investigations by the stock exchange on which our securities are listed, the SEC, or other regulatory authorities, and become subject to litigation from investors and stockholders, which could harm our reputation, financial condition or divert financial and management resources from our core business, and would have a material adverse effect on our business, financial condition and results of operations.
| 12 |
A major portion of our business is dependent on the oil industry, which is subject to numerous worldwide variables.
Our prospective customers are concentrated in the oil industry. As a result, we will be subject to the success of the oil industry, which is subject to substantial volatility based on numerous worldwide factors. A decline in the oil industry may have a material adverse effect on our business, financial condition, results of operations and cash flows. The oil and gas industry is competitive in all its phases. Competition in the oil and gas industry is intense. We will compete with other participants in the search for oil sand properties and in the marketing of oil and other hydrocarbon products. Our customers could include competitors such as oil and gas companies that have substantially greater financial resources, staff and facilities than those of our customers and lessees. Competitive factors in the distribution and marketing of oil and other hydrocarbon products include price and methods and reliability of delivery.
Within the oil remediation market, demand for our services will be limited to a specific customer base and highly correlated to the oil industry. The oil industry’s demand for equipment is affected by a number of factors including the volatile nature of the oil industry’s business, increased use of alternative types of energy and technological developments in the oil extraction process. A significant reduction in the target market’s demand for oil would reduce the demand for the equipment, which would have a material adverse effect upon our business, financial condition, results of operations and cash flows.
Low oil prices may substantially impact our ability to generate revenues.
Low oil prices may negatively impact our ability to operate. The demand for our products and services depend, in part, on the price of oil and the margins oil producers receive on the sale of oil. Oil prices are volatile and can fluctuate widely based upon a number of factors beyond our control. Any decline in the prices of and demand for oil could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We require a variety of permits to operate our business. If we are not successful in obtaining and/or maintaining those permits it will adversely impact our operations.
Our business requires permits to operate. Our inability to obtain permits in a timely manner could result in substantial delays to our business. In addition, our customers may not receive permitting for our equipment’s specific use and we may be unable to adjust our equipment to meet our customer’s permitting needs. The issuance of permits is dependent on the applicable government agencies and is beyond our control and that of our customers. There can be no assurance that we and/or our customers will receive the permits necessary to operate, which could substantially and adversely affect our operations and financial condition.
We are required to pay permit and approval fees to operate in certain business segments and locations. If we are not able to pay those fees it would adversely impact our business.
We are required to pay various types of permit and approval fees to the applicable governmental and quasi-governmental agencies to operate our business. These fees are subject to change at the discretion of the various agencies. Our inability to pay these permit and approval fees could substantially and adversely affect our operations and financial condition.
We, and our customers and prospective customers, are subject to numerous governmental regulations, both domestically and internationally. In order to operate successfully we must be able comply with these regulations.
Current and future government laws, regulations and other legal requirements may increase the costs of doing business or restrict business operations. Laws, regulations and other legal requirements, such as those relating to the protection of the environment and natural resources, health, business and tax have an effect on our cost of operation or those of our customers. Such governmental regulation may result in delays, cause us to incur substantial compliance and other costs and prohibit or severely restrict our business or that of our customers, which could have an adverse effect on our business, financial condition, results of operations and cash flows.
| 13 |
Based on the nature of our business we currently depend and are likely to continue to depend on a limited number of customers for a significant portion of our revenues.
We currently have two customers in Utah and a single customer in Kuwait. The failure to obtain additional customers or the loss of all or a portion of the revenues attributable to any current or future customer as a result of competition, creditworthiness, inability to negotiate extensions or replacement of contracts or otherwise could have a material adverse effect on our business, financial condition, results of operations and cash flows.
If our customers do not enter into, extend or honor their contracts with us, our profitability could be adversely affected. Our ability to receive payment for production depends on the continued solvency and creditworthiness of our customers and prospective customers. If any of our customers’ creditworthiness suffers, we may bear an increased risk with respect to payment defaults. If customers refuse to accept our equipment or make payments for which they have a contractual obligation, our revenues could be adversely affected. In addition, if a substantial portion of our contracts are modified or terminated and we are unable to replace the contracts (or if new contracts are priced at lower levels), our results of operations will be adversely affected.
Our primary business is impacted by the oil industry and the manufacturing industry, which are subject to uncertain economic conditions.
The global economy is subject to fluctuation and it is unclear how stable the oil industry and the manufacturing industry will be in the future. As a result, there can be no assurance that the business will achieve anticipated cash flow levels. Further, recent world events evolving out of trade disputes, increased terrorist activities and political and military action, and the COVID-19 pandemic, among other events, have created an air of uncertainty concerning the stability of the global economy. Historically, such events have resulted in disturbances in financial markets, and it is impossible to determine the likelihood of future events. Any negative change in the general economic conditions in the United States and globally could adversely affect the financial condition and operating results of the business. We plan to expand our level of operations. Slower economic activity, concerns about inflation or deflation, decreased consumer confidence, reduced corporate profits and capital spending, adverse business conditions and liquidity concerns in the general economy and recent international conflicts and terrorist and military activity have resulted in a downturn in worldwide economic conditions, especially in the United States. Political and social turmoil related to international conflicts and terrorist acts may place further pressure on economic conditions in the United States and worldwide. These political, social and economic conditions make it extremely difficult for us to accurately forecast and plan future business activities. If such conditions continue or worsen, then our business, financial condition and results of operations could be materially and adversely affected.
We will continue to be subject to competition in our business.
Our oil remediation equipment utilizes specific technology to extract oil from sand. Oil producers are continually investigating alternative oil production technologies with a view to reduce production costs. In addition, industries that compete with the oil industry, such as the electric power industry, also continue to innovate and create products that compete with the oil industry. There can be no assurance that superior alternative technologies will emerge, which could reduce the demand for and price of our product and services.
The market for our products and services is highly competitive and is becoming more so, which could hinder our ability to successfully market our products and services. We may not have the resources, expertise or other competitive factors to compete successfully in the future. We expect to face additional competition from existing competitors and new market entrants in the future. Many of our competitors have greater name recognition and more established relationships in the industry than we do. As a result, these competitors may be able to:
| · | develop and expand their product offerings more rapidly; |
| · | adapt to new or emerging changes in customer requirements more quickly; |
| · | take advantage of acquisition and other opportunities more readily; and |
| · | devote greater resources to the marketing and sale of their products and adopt more aggressive pricing policies than we can. |
| 14 |
We carry insurance coverage against liabilities for personal injury, death and property damage, but there is no guarantee this coverage will be sufficient to cover us against all claims.
Although, we maintain insurance coverage against liability for personal injury, death and property damage. There can be no assurance that this insurance will be sufficient to cover any such liabilities. We may not be insured or fully insured against the losses or liabilities that could arise from a casualty in the business operations. In addition, there can be no assurance that particular risks that are currently insurable will continue to be insurable on an economical basis or that the current levels of coverage will continue to be available. If a loss occurs that is partially or completely uninsured, we may incur a significant liability.
We may be unable to adequately protect our proprietary rights.
Our ability to compete partly depends on the superiority, uniqueness and value of our intellectual property. To protect our proprietary rights, we will rely on a combination of patents, copyrights and trade secrets, confidentiality agreements with our employees and third parties, and protective contractual provisions. Despite these efforts, any of the following occurrences may reduce the value of our intellectual property:
| · | Our applications for patents relating to our business may not be granted and, if granted, may be challenged or invalidated; |
| · | Issued patents may not provide us with any competitive advantages; |
| · | Our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology; |
| · | Our efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those we develop; or |
| · | Another party may obtain a blocking patent and we would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in our products. |
We may become involved in lawsuits to protect or enforce our patents that would be expensive and time consuming.
In order to protect or enforce our patent rights, we may initiate patent litigation against third parties. In addition, we may become subject to interference or opposition proceedings conducted in patent and trademark offices to determine the priority and patentability of inventions. The defense of intellectual property rights, including patent rights through lawsuits, interference or opposition proceedings, and other legal and administrative proceedings, would be costly and divert our technical and management personnel from their normal responsibilities. An adverse determination of any litigation or defense proceedings could put our pending patent applications at risk of not being issued.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. For example, during the course of this type of litigation, confidential information may be inadvertently disclosed in the form of documents or testimony in connection with discovery requests, depositions or trial testimony. This disclosure could have a material adverse effect on our business and our financial results.
Our primary business operations rely on our ability to transport our equipment to different locations. Any impact on the cost, availability and reliability of transportation could adversely affect our business.
The availability and reliability of transportation and fluctuation in transportation costs could negatively impact the business. Transportation logistics play an important role in the sale of our products and services and in the oil industry generally. Delays and interruptions of transportation services because of accidents, failure to complete construction of infrastructure, infrastructure damage, lack of capacity, weather-related problems, governmental regulation, terrorism, strikes, lock-outs, third-party actions or other events could impair the operations of our customers and may also directly impair our ability to commence or complete production or services, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
| 15 |
The lands on which we conduct our business operations must be properly zoned for our services. If they aren’t then it could impact our business.
The lands on which we conduct our business operates must comply with applicable zoning regulations. Any unknown or future violations could limit or require us to cease operations.
Data security breaches are increasing worldwide. If we are the victim of such a breach it will materially impact our business.
We will collect and retain certain personal information provided by our employees and investors. We intend to implement certain protocols designed to protect the confidentiality of this information and periodically review and improve our security measures; however, these protocols may not prevent unauthorized access to this information. Technology and safeguards in this area are consistently changing and there is no assurance that we will be able to maintain sufficient protocols to protect confidential information. Any breach of our data security measures and disbursement of this information may result in legal liability and costs (including damages and penalties), as well as damage to our reputation, that could materially and adversely affect our business and financial performance.
We may indemnify our directors and officers against liability to us and holders of our securities, and such indemnification could increase our operating costs.
Our bylaws allow us to indemnify our directors and officers against claims associated with carrying out the duties of their offices. Our Bylaws also allow us to reimburse them for the costs of certain legal defenses. Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the “Securities Act”) may be permitted to our directors, officers or control persons, we have been advised by the SEC that such indemnification is against public policy and is therefore unenforceable. If our officers and directors file a claim against us for indemnification, the associated expenses could also increase our operating costs.
We may be subject to liability if our equipment does not perform as expected.
We may be exposed to liability in the event our equipment does not perform as expected. We intend to enter into contracts with customers, which will grant certain rights with respect to the condition and use of our products. Certain contractual and legal claims could arise in the event the equipment does not perform as expected and in the event of personal injury, death or property damage as a result of the use of our equipment. There can be no assurance that particular risks are insured or, if insured, will continue to be insurable on an economical basis or that current levels of coverage will continue to be available. We may be liable for any defects in the equipment or its products and services and uninsured or underinsured personal injury, death or property damage claims.
Our business depends on our ability to manufacture various pieces of equipment, many of which are quite large. Any disruption in our manufacturing ability will adversely affect our business and operations.
Our business involves manufacturing and plant operation risks of delay that may be outside of our control. Production or services may be delayed or prevented by factors such as adverse weather, strikes, energy shortages, shortages or increased costs of materials, inflation, environmental conditions, legal matters and other unknown contingencies. Our business also requires certain manufacturing apparatus to manufacture the equipment. If the manufacturing apparatus were to suffer major damage or are destroyed by fire, abnormal wear, flooding, incorrect operation or otherwise, we may be unable to replace or repair such apparatus in a timely manner or at a reasonable cost, which would impact the our ability to stay in production or service. Any significant downtime of the equipment manufacturing could impair our ability to produce for or serve customers and materially and adversely affect our results of operations. In addition, changes in the equipment plans and specifications, delays due to compliance with governmental requirements or impositions of fees or other delays could increase production costs beyond those budgeted for the business. If any cost overruns exceed the funds budgeted for operations, the business would be negatively impacted.
| 16 |
Any accident at our manufacturing facilities could subject us to substantial liability.
The manufacturing and operation of the equipment involves hazards and risks which could disrupt operations, decrease production and increase costs. The occurrence of a significant accident or other event that is not fully insured could adversely affect our business, financial condition, results of operations and cash flows.
If critical components become unavailable or our suppliers delay their production of our key components, our business will be negatively impacted.
Our ability to get key components to build our equipment is crucial to our ability to manufacture our products. These components are supplied by certain third-party manufacturers, and we may be unable to acquire necessary amounts of key components at competitive prices.
If we are successful in our growth, outsourcing the production of certain parts and components would be one way to reduce manufacturing costs. We plan to select these particular manufacturers based on their ability to consistently produce these products according to our requirements in an effort to obtain the best quality product at the most cost-effective price. However, the loss of all or any one of these suppliers or delays in obtaining shipments would have an adverse effect on our operations until an alternative supplier could be found, if one may be located at all. If we get to that stage of growth, such loss of manufacturers could cause us to breach any contracts we have in place at that time and would likely cause us to lose sales.
Any shortage of skilled labor would have a detrimental impact on our ability to provide our products and services.
The manufacturing and operating of the equipment requires skilled laborers. In the event there is a shortage of labor, including skilled labor, it could have an adverse impact on our productivity and costs and our ability to expand production in the event there is an increase in demand for our product or services.
We rely on third party contractors for some of our operations. If we are unable to find quality contractors, it would severely impact our business.
We outsource certain aspects of our business to third party contractors. We are subject to the risks associated with such contractors’ ability to successfully provide the necessary services to meet the needs of our business. If the contractors are unable to adequately provide the contracted services, and we are unable to find alternative service providers in a timely manner, our ability to operate the business may be disrupted, which may adversely affect our business, financial condition, results of operations and cash flows.
Union activities could adversely impact our business.
While none of our employees are currently members of unions, we may become adversely effected by union activities. We are not subject to any collective bargaining or union agreement; however, it is possible that future employees may join or seek recognition to form a labor union or may be required to become a labor agreement signatory. If some or all of our employees become unionized, it could adversely affect productivity, increase labor costs and increase the risk of work stoppages. If a work stoppage were to occur, it could interfere with the business operations and have a material adverse effect on our business, financial condition, results of operations and cash flows.
Risks Relating to our Common Stock and the Offering
Future sales or potential sales of our common stock in the public market could cause our share price to decline.
If the existing holders of our common stock, particularly our directors and officers, sell a large number of shares, they could adversely affect the market price for our common stock. Sales of substantial amounts of our common stock in the public market, or the perception that these sales could occur, could cause the market price of our common stock to decline.
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Because we will not pay dividends on our common stock in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.
We have never paid cash dividends on our common stock, and we do not intend to do so in the foreseeable future. We intend to retain any future earnings to finance our growth. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock.
Our share price has been, and will likely continue to be, volatile, and you may be unable to resell your shares at or above the price at which you acquired them.
The trading price of our common stock has been, and is likely to continue to be, highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control.
The market price for our securities may be influenced by many factors that are beyond our control, including, but not limited to:
| · | variations in our revenue and operating expenses; |
| · | market conditions in our industry and the economy as a whole; |
| · | actual or expected changes in our growth rates or our competitors’ growth rates; |
| · | developments or disputes concerning patent applications, issued patents or other proprietary rights; |
| · | developments in the financial markets and worldwide or regional economies; |
| · | variations in our financial results or those of companies that are perceived to be similar to us; |
| · | announcements by the government relating to regulations that govern our industry; |
| · | sales of our common stock or other securities by us or in the open market; |
| · | changes in the market valuations of other comparable companies; |
| · | general economic, industry and market conditions; and |
| · | the other factors described in this “Risk Factors” section. |
The trading price of our shares might also decline in reaction to events that affect other companies in our industry, even if these events do not directly affect us. Each of these factors, among others, could harm the value of your investment in our securities. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, operating results and financial condition.
| 18 |
Investors in this offering will experience immediate and substantial dilution in net tangible book value.
The public offering price per share will be substantially higher than the net tangible book value per share of our outstanding shares of common stock. As a result, investors in this offering will incur immediate dilution of $ per share, based on the assumed public offering price of $ per share. Investors in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. See “Dilution” for a more complete description of how the value of your investment will be diluted upon the completion of this offering.
Our failure to meet the continued listing requirements of could result in a delisting of our common stock.
If our common stock is approved for listing on and we subsequently fail to meet any of continued listing requirements, our common stock may be delisted. In addition, our Board of Directors may determine that the cost of maintaining our listing on a national securities exchange outweighs the benefits of such listing. A delisting of our common stock from may materially impair our stockholders’ ability to buy and sell our common stock and could have an adverse effect on the market price of, and the efficiency of the trading market for, our common stock. The delisting of our common stock could significantly impair our ability to raise capital and the value of your investment.
If our shares of common stock become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not retain a listing on or another national securities exchange and if the price of our common stock is less than $5.00, our common stock could be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
The proposed Reverse Stock Split may decrease the liquidity of our common stock.
The liquidity of our common stock may be affected adversely by the proposed Reverse Stock Split given the reduced number of common stock that will be outstanding following the reverse stock split. In addition, the reverse stock split may increase the number of stockholders who own odd lots (less than 100 shares) of our common stock, creating the potential for such stockholders to experience an increase in the cost of selling their common stock and greater difficulty effecting such sales.
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Following the Reverse Stock Split, the resulting market price of our common stock may not attract new investors, including institutional investors, and may not satisfy the investing requirements of those investors. Consequently, the trading liquidity of our common stock may not improve.
Although we believe that a higher market price of our common stock may help generate greater or broader investor interest, there can be no assurance that the reverse stock split will result in a common stock price that will attract new investors, including institutional investors. In addition, there can be no assurance that the market price of our common stock will satisfy the investing requirements of those investors.
We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
Our management will have broad discretion in the application of the net proceeds, including for any of the purposes described in the section of this prospectus entitled “Use of Proceeds.” You will be relying on the judgment of our management with regard to the use of these net proceeds, and you will not have the opportunity, as part of your investment decision, to assess whether the net proceeds are being used appropriately. The failure by our management to apply these funds effectively could result in financial losses that could have a material adverse effect on our business, cause the price of our securities to decline. Pending the application of these funds, we may invest the net proceeds from this offering in a manner that does not produce income or that loses value.
Sales of a substantial number of shares of our common stock following this offering may adversely affect the market price of our common stock and the issuance of additional shares will dilute all other stockholders.
Sales of a substantial number of shares of our common stock in the public market or otherwise following this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock. After completion of this offering at an assumed offering price of $ per share, which is the last reported sale price of our common stock on the OTCPink on , 2020, our existing stockholders will own approximately % of our common stock assuming there is no exercise of the underwriters’ over-allotment option.
After completion of this offering at an assumed offering price of $ per share, which is the last reported sale price of our common stock on the OTCPink on , 2020, there will be shares of our common stock outstanding. In addition, our articles of incorporation, as amended, will permit the issuance of up to approximately additional shares of common stock after the completion of this offering. Thus, we will have the ability to issue substantial amounts of common stock in the future, which would dilute the percentage ownership held by the investors who purchase shares of our common stock in this offering.
We and our officers, directors and certain stockholders have agreed, subject to customary exceptions, not to, without the prior written consent of , the representative of the underwriters, during the period ending 180 days from the date of this offering in the case of us and our directors and officers, and 90 days from the date of this offering in the case of our stockholders who beneficially own more than 5% of our common stock directly or indirectly, offer to sell, sell, pledge or otherwise transfer or dispose of any of shares of our common stock, enter into any swap or other derivatives transaction that transfers to another any of the economic benefits or risks of ownership of shares of our common stock, make any demand for or exercise any right or cause to be filed a registration statement, including any amendments thereto, with respect to the registration of any shares of common stock or securities convertible into or exercisable or exchangeable for common stock or any other securities of the Company or publicly disclose the intention to do any of the foregoing.
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Anti-takeover provisions in our charter documents and Nevada law could discourage, delay or prevent a change in control of our company and may affect the trading price of our common stock.
We are a Nevada corporation and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change in control would be beneficial to our existing stockholders. In addition, our articles of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable. Our articles of incorporation and bylaws:
| · | authorize the issuance of “blank check” preferred stock that could be issued by our Board of Directors to thwart a takeover attempt; |
| · | provide that vacancies on our Board of Directors, including newly created directorships, may be filled by a majority vote of directors then in office; |
| · | place restrictive requirements (including advance notification of stockholder nominations and proposals) on how special meetings of stockholders may be called by our stockholders; |
| · | do not provide stockholders with the ability to cumulate their votes; and |
| · | provide that our Board of Directors or a majority of our stockholders may amend our bylaws. |
We are an “emerging growth company” and will be able to avail ourselves of reduced disclosure requirements applicable to emerging growth companies, which could make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act and we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
We may take advantage of these reporting exemptions until we are no longer an “emerging growth company.” We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended that involve substantial risks and uncertainties. Forward-looking statements present our current expectations or forecasts of future events. You can identify these statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements involve risks and uncertainties and include statements regarding, among other things, our projected revenue growth and profitability, our growth strategies and opportunity, anticipated trends in our market and our anticipated needs for working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plans,” “potential,” “projects,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend” or the negative of these words or other variations on these words or comparable terminology. These statements may be found under the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” as well as in this prospectus generally. In particular, these include statements relating to future actions, prospective products, market acceptance, future performance or results of current and anticipated products, sales efforts, expenses, and the outcome of contingencies such as legal proceedings and financial results.
Examples of forward-looking statements in this prospectus include, but are not limited to, our expectations regarding our business strategy, business prospects, operating results, operating expenses, working capital, liquidity and capital expenditure requirements. Important assumptions relating to the forward-looking statements include, among others, assumptions regarding demand for our products and services, the cost, terms and availability of components, pricing levels, the timing and cost of capital expenditures, competitive conditions and general economic conditions. These statements are based on our management’s expectations, beliefs and assumptions concerning future events affecting us, which in turn are based on currently available information. These assumptions could prove inaccurate. Although we believe that the estimates and projections reflected in the forward-looking statements are reasonable, our expectations may prove to be incorrect.
Important factors that could cause actual results to differ materially from the results and events anticipated or implied by such forward-looking statements include, but are not limited to:
| · | changes in the market acceptance of our products and services; |
| · | increased levels of competition; |
| · | changes in political, economic or regulatory conditions generally and in the markets in which we operate; |
| · | our relationships with our key customers; |
| · | adverse conditions in the industries in which our customers operate; |
| · | our ability to retain and attract senior management and other key employees; |
| · | our ability to quickly and effectively respond to new technological developments; |
| · | our ability to protect our trade secrets or other proprietary rights, operate without infringing upon the proprietary rights of others and prevent others from infringing on the proprietary rights of the Company; and |
| · | other risks, including those described in the “Risk Factors” discussion of this prospectus. |
We operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict all of those risks, nor can we assess the impact of all of those risks on our business or the extent to which any factor may cause actual results to differ materially from those contained in any forward-looking statement. The forward-looking statements in this prospectus are based on assumptions management believes are reasonable. However, due to the uncertainties associated with forward-looking statements, you should not place undue reliance on any forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and unless required by law, we expressly disclaim any obligation or undertaking to publicly update any of them in light of new information, future events, or otherwise.
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We estimate that the net proceeds from the sale of the shares that we are offering will be approximately $ (or approximately $ if the underwriter exercises its option to purchase additional shares of common stock from us in full), based on an assumed public offering price of $ per share, which is the last reported sale price of our common stock on the OTCPink as of , 2020, and after deducting the underwriting discounts and commissions and estimated offering expenses.
We currently expect to use the net proceeds of this offering primarily for the following purposes:
| · | approximately $ for the purchase of two RPC units, together with related equipment and enhancements; | |
| · | approximately $ towards the continued development of our hydrocarbon upgrading technologies; and | |
| · | the remaining $ for working capital and other general corporate purposes, including potential repayment of outstanding bridge notes. |
Each $0.10 increase or decrease in the assumed public offering price of $ per share would increase or decrease our net proceeds from this offering by approximately $ million, assuming that the number of shares offered by us remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. An increase or decrease of 1,000,000 in the number of shares offered by us would increase or decrease our net proceeds from this offering by approximately $ million, assuming no change in the assumed public offering price per share, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. We do not expect that a change in the offering price or the number of shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may impact the amount of time prior to which we may need to seek additional capital.
We believe that the net proceeds from this offering together, along with our current cash position, will be sufficient to fund our operations for at least the next 12 months, although we cannot assure you that this will occur.
Our expected use of net proceeds from this offering represents our current intentions based upon our present plans and business condition. The amount and timing of our actual expenditures will depend on numerous factors, including the status of our development efforts, sales and marketing activities and the amount of cash generated or used by our operations. We may find it necessary or advisable to use portions of the proceeds for other purposes, and we will have broad discretion and flexibility in the application of the net proceeds. Pending these uses, the proceeds will be invested in short-term bank deposits.
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MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Market and Other Information
Our common stock is quoted on the OTCPink Marketplace operated by OTC Markets Group Inc. (the “OTCPink”) under the trading symbol “VIVK”. We intend to apply to to list our common stock under the symbol “VIVK”.
Immediately following the offering, we expect to have one class of common stock outstanding. As of October 30, 2020, there were approximately 444 registered holders of record of our common stock, and the last reported sale price of our common stock on the OTCPink was $0.52 per share on November 6, 2020.
Dividend Policy
To date, we have not paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable future. The declaration and payment of dividends on the common stock is at the discretion of our Board of Directors and will depend on, among other things, our operating results, financial condition, capital requirements, contractual restrictions or such other factors as our Board of Directors may deem relevant. We currently expect to use all available funds to finance the future development and expansion of our business and do not anticipate paying dividends on our common stock in the foreseeable future.
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The following table sets forth our consolidated cash and capitalization as of June 30, 2020. Such information is set forth on the following basis:
| · | actual basis; and |
| · | on a pro forma basis after giving effect to the conversion of all of our preferred stock outstanding immediately prior to this offering into 74,059,410 shares of common stock; and |
| · | on a pro forma as adjusted basis, giving further effect to the sale by us of shares of common stock in this offering at an assumed public offering price of $ per share, the last reported sale price of our common stock on the OTCPink on , 2020, after deducting underwriting discounts and commissions and estimated offering expenses. |
The information below is illustrative only and our capitalization following the completion of this offering will be adjusted based on the actual public offering price and other terms of this offering determined at pricing. You should read this table together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited and unaudited consolidated financial statements and the related notes appearing elsewhere in this prospectus.
| Actual
(unaudited) | Pro Forma As Adjusted (unaudited) | As Adjusted (unaudited) | ||||||||||
| Cash and marketable securities | $ | 3,406,132 | 3,406,132 | $ | ||||||||
| Total liabilities | 14,029,768 | 14,029,768 | ||||||||||
| Temporary equity: | ||||||||||||
| Redeemable, convertible preferred stock, $0.01 par value; 348,000,000 shares authorized; | ||||||||||||
| Series B – 12.5% cumulative, 13,446,990 shares issued and outstanding as of June 30, 2020; | 2,689,400 | 0 | ||||||||||
| Series B-1, 22,330,660 shares issued and outstanding as of June 30, 2020; | 5,582,689 | 0 | ||||||||||
| Series C-1 – 13,281,760 shares issued and outstanding as of June 30, 2020 | 6,800,209 | 0 | ||||||||||
| Total temporary equity | 15,072,298 | 0 | ||||||||||
| Stockholders’ Equity | ||||||||||||
| Preferred stock, $0.001 par value; 2,000,000 shares authorized: | ||||||||||||
| Series A, 2,000,000 shares issued and outstanding as of June 30, 2020; | 2,000 | 0 | ||||||||||
| Common stock, $0.001 par value; 1,250,000,000 shares authorized; 315,463,190 shares and 389,522,600 shares outstanding as of June 30, 2020 on an actual and pro-forma adjusted basis, respectively | 315,463 | 389,523 | ||||||||||
| Additional paid in capital | 38,401,838 | 53,402,076 | ||||||||||
| Treasury Stock, at cost | (20,000 | ) | (20,000 | ) | ||||||||
| Accumulated deficit | (27,015,290 | ) | (27,015,290 | ) | ||||||||
| Total Vivakor, Inc. stockholders’ equity | 11,684,011 | 26,756,309 | ||||||||||
| Equity attributed to noncontrolling interests | $ | 1,469,645 | 1,469,645 | |||||||||
| Total
Stockholders’ equity (deficit) Total Capitalization | $ | 13,153,656 | $ | 28,225,954 | ||||||||
Each $0.10 increase or decrease in the assumed public offering price of $ per share would increase or decrease, as applicable, our cash, additional paid-in capital, total stockholders’ equity and total capitalization by approximately $ million, assuming that the number of shares offered by us remains the same, and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. Each increase or decrease of 1,000,000 shares to the shares offered by us in the offering would increase or decrease the amount of our cash and total stockholders’ equity by approximately $ million, assuming a public offering price of $ per share, after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.
The above discussion and table is based on 389,522,600 outstanding shares of common stock as of June 30, 2020 after taking into account the conversion of all of our preferred stock outstanding immediately prior to this offering into 74,059,410 shares of common stock, and excludes:
| · | 1,060,000 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.40 per share; | |
| · | 164,645 shares of common stock issuable upon the conversion of $81,201 of various convertible notes payable that convert at a range between $0.10 and $0.25; | |
| · | shares of common stock issuable upon the conversion of $311,383 of certain convertible bridge notes that may, at the option of the Company, be converted into common stock at a discount of 20% to the offering price or repaid with the proceeds from this offering; | |
| · | 60,000,000 shares of common stock reserved for future issuance under the new Vivakor Inc. 2020 Equity Incentive Plan (the “Vivakor 2020 Plan”) we intend to adopt immediately prior to this offering (including 500,000 shares to be issued to a former employee, options to purchase 30,000,000 shares to be issued to LBL Professional Consulting, Inc. for consulting services and options to purchase 5,000,000 shares to be issued to Matthew Nicosia, our Chief Executive Officer, pursuant to his employment agreement, all in the form of stock options that will be issued under the Vivakor 2020 Plan); | |
| · | Any shares that may be issuable in exchange for LLC units of Vivaventures Royalty II LLC and/or Vivaventures Opportunity Fund pursuant to the respective operating agreements of such entities, as described in this prospectus. |
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If you invest in our securities, your ownership interest will be diluted immediately to the extent of the difference between the public offering price per share you pay in this offering and the as adjusted net tangible book value per share of common stock immediately following this offering.
Net tangible book value per common share represents the amount of our total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. Our net tangible book value as of June 30, 2020 was approximately $10,550,000 or $0.033 per share of common stock, based upon 315,463,190 shares of common stock outstanding.
Our pro forma net tangible book value as of June 30, 2020 was approximately $10,550,000, or $0.029 per share of common stock. Pro forma net tangible book value per share represents the amount of our total tangible assets less our total liabilities, divided by the number of shares of our common stock outstanding, as of June 30, 2020, after giving effect to the conversion of all of our preferred stock outstanding immediately prior to this offering into 74,059,410 shares of common stock.
After giving effect to the sale of shares of common stock in this offering, at the assumed public offering price of $ per share, the last reported price of our common stock on the OTCPink on , 2020, and after deducting the underwriting discount and commission and our estimated offering expenses, our as adjusted net tangible book value as of June 30, 2020 would have been $ or $ per share. This represents an immediate increase in net tangible book value (deficit) of $ per share to existing stockholders and an immediate dilution of $ per share to new investors purchasing shares in the offering. If the public offering price is higher or lower than the assumed public offering price, the dilution to new investors will be greater or lower, respectively.
The following table illustrates this per share dilution:
| Assumed public offering price per share | $ | |||||||
| Net tangible book value per share | $ | 0.033 | ||||||
| Decrease per share due to the conversion of all shares of preferred stock | 0.004 | |||||||
| Pro forma net tangible book value per share as of June 30, 2020 | 0.029 | |||||||
| Increase in net tangible book value per share attributable to new investors | ||||||||
| Pro forma as adjusted net tangible book value per share after this offering | ||||||||
| Dilution in net tangible book value per share to new investors | $ |
If the underwriter’s overallotment option is exercised in full, the pro forma as adjusted net tangible book value following the offering will be $ per share, and the dilution to new investors in the offering will be $ per share.
A $0.10 increase (decrease) in the assumed public offering price of $ per share would result in an incremental increase (decrease) in our pro forma as adjusted net tangible book value of approximately $ million or approximately $ per share, and would result in an incremental increase (decrease) in the dilution to new investors of approximately $ per share, assuming that the number of shares of our common stock sold by us in this offering remains the same, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us.
We may also increase or decrease the number of shares of common stock we are offering in this offering. An increase (decrease) of 1,000,000 shares in the assumed number of shares of common stock sold by us in this offering would result in an incremental increase (decrease) in our as adjusted net tangible book value of approximately $ million, or approximately $ per share, and would result in an incremental increase (decrease) in the dilution to new investors of $ per share, assuming that the assumed public offering price of the common stock remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us.
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The information above is based on 315,463,190 outstanding shares of common stock as of June 30, 2020 after taking into account the conversion of all of our preferred stock outstanding immediately prior to this offering into 74,059,410 shares of common stock, and excludes:
| · | 1,060,000 shares of common stock issuable upon the exercise of outstanding warrants at a weighted average exercise price of $0.40 per share; | |
| · | 164,645 shares of common stock issuable upon the conversion of $81,201 of various convertible notes payable that convert at a range between $0.10 and $0.25; | |
| · | shares of common stock issuable upon the conversion of $311,383 of certain convertible bridge notes that may, at the option of the Company, be converted into common stock at a discount of 20% to the offering price or repaid with the proceeds from this offering; | |
| · | 60,000,000 shares of common stock reserved for future issuance under the new Vivakor Inc. 2020 Equity Incentive Plan (the “Vivakor 2020 Plan”) we intend to adopt immediately prior to this offering (including 500,000 shares to be issued to a former employee, options to purchase 30,000,000 shares to be issued to LBL Professional Consulting, Inc. for consulting services, and options to purchase 5,000,000 shares to be issued to Matthew Nicosia, our Chief Executive Officer, pursuant to his employment agreement, all in the form of stock options that will be issued under the Vivakor 2020 Plan); | |
| · | Any shares that may be issuable in exchange for LLC units of Vivaventures Royalty II LLC and/or Vivaventures Opportunity Fund pursuant to the respective operating agreements of such entities, as described in this prospectus. |
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of our operations should be read in conjunction with the “Summary Statements of Operations Data” and our consolidated financial statements and the notes to those statements appearing elsewhere in this prospectus. This discussion and analysis contains forward-looking statements reflecting our management’s current expectations that involve risks, uncertainties and assumptions. Our actual results and the timing of events may differ materially from those described in or implied by these forward-looking statements due to a number of factors, including those discussed below and elsewhere in this prospectus particularly on page 10 entitled “Risk Factors”.
Overview
Vivakor, Inc. is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation. We specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and other hydrocarbon-based substances.
Plan of Operation
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
We have historically suffered net losses, including net losses of approximately $2,159,242 million and $2,178,345 million for the years ended December 31, 2019 and 2018, respectively. We had an accumulated deficit of $27,015,290 as of June 30, 2020. We expect to experience continuing operating losses and negative cash flows from operations for the foreseeable future as our management executes our current business plan.
We will need to raise additional capital in order to scale up production and deployment of our RPCs. We may continue to sell our equity investments that are traded in an active market to raise capital, as well as our precious metal concentrate, assuming there is demand and we are able to negotiate acceptable contract terms. We may need to raise additional capital through loans from current stockholders, public or private equity or debt offerings, grants, or strategic arrangements with third parties. There can be no assurance that additional capital will be available to us on acceptable terms, or at all. If we are not able to obtain additional financing on a timely basis, we may be required to scale down or perhaps even cease the operation of our business. The issuance of additional equity securities could result in a significant dilution in the equity interests of our stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. If we are unable to raise additional capital, we will need to adjust our current business plan.
We have no material commitments or contractual purchase obligations for the next twelve months.
Working Interest Agreements
To assist in the funding for the manufacture of our first two RPCs, between 2015 and 2017, we entered into working interest agreements with Vivaventures UTSI LLC (“VV UTSI”) and Vivaventures Royalty II LLC (“VV RII”), respectively, pursuant to which VV UTSI and VV Royalty II purchased revenue participation rights in exchange for payments to us of $5 million and $8 million, respectively. VV UTSI and VV RII are investment limited liability companies that are pass through entities to individual investors that have purchased Class B Units in these entities. The working interest agreements require us to make quarterly payments to VV UTSI and VV RII equal to 25% of the gross revenues that we generate from our RPCs for such quarter for 20 years after operations commence. The investors in these entities are entitled to receive their pro rata portion of these payments. These agreements also require us to make working interest budget payments to VV UTSI and VV RII, which are accounted for as a working interest payable. The working interest payable is paid down through pass-through expenses or cash according to the contract. The agreements give each of VV UTSI and VV RII a security interest in all of our collateral, including a security interest in 20 million shares of our common stock; the security interest in VV UTS1 has been released. Holders of VV RII Class B Units have the right to exchange their Class B Units for our common stock any time after the one year anniversary of their date of purchase and before the date that is 10 years and six months after the date they purchased their Class B Units. The number of shares of our common stock to be issued upon exchange will be determined by the fair market value of the LLC units and the discount to market ranging from between 5% and 20% depending on the year of exchange. The working interest agreements with VV UTSI and VV RII are accounted for as debt. For further information on these working interest agreements, see Note 16 in the Notes to the Audited Consolidated Financial Statements. In 2016 and 2017, the VV UTSI investors were issued an aggregate of 3,390,000 shares of our Series B-1 Preferred Stock, with a relative fair value of $0.25 per share at the time of issuance as additional consideration for their original investment. The Company also issued 3,185,000 common stock purchase warrants to these investors. The relative fair value of the warrants and the Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized to interest expense over the term of the working interest agreements using the effective interest method. The Company issued an additional 768,160 shares of Series C-1 Preferred Stock to these investors in order to compensate them for our first RPC unit having been taken offline in May 2018 to be shipped to Kuwait for remediation services. We anticipate making estimated annual payments of $1,960,000 during 2021 under the terms of these agreements based on revenue projections for the RPCs.
In 2018 we formed RPC Design and Manufacturing LLC (“RDM”) which assisted in the manufacture of our second RPC and will continue to assist in the manufacture of our RPCs going forward. A majority of the LLC units of RDM are owned by Vivaopportunity Fund LLC (“VOF”). VOF is an investment limited liability company that is a pass through entity to individual investors that have purchased Class B Units in this entity. VOF is allocated its portion of cash distributions, net income, and net loss based on its ownership percentage in RDM, which it then passes on to its investors. Holders of Class B Units of VOF have the right to exchange their Class B Units for our common stock following the 10 year anniversary of the date they purchased their Class B Units. The number of shares of our common stock to be issued upon exchange will be determined by the fair market value of the LLC units, and a 20% discount to market. RDM is considered a variable interest entity and is consolidated in our Consolidated Financial Statements.
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Going Concern
As of June 30, 2020, we had $477,155 of cash on hand and an accumulated deficit of $27,015,290. There is substantial doubt as to our ability to continue as a going concern based on the understanding that we do not have adequate working capital to finance our day-to-day operations for at least twelve months through October 2021. We will require additional funding to meet our obligations as they come due and to fund the development of our existing technologies. We may raise capital through loans from current stockholders, public or private equity or debt offerings, grants, or strategic arrangements with third parties, and we intend to and are in the process of seeking out possible international capital raising opportunities. There can be no assurance that additional capital will be available to us on favorable terms, or at all.
We believe that the successful completion of this offering will eliminate this doubt and enable us to continue as a going concern; however, if we are unable to raise sufficient capital in this offering, we may need to obtain alternative financing or significantly modify our operational plans in order to continue operations. We currently have no agreements, arrangements, or understandings with any person to obtain additional funds through bank loans, lines of credit or any other sources. If we are not able to obtain the additional financing on a timely basis, we may be required to further scale down or perhaps even cease the operation of our business. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
We have no material commitments or contractual purchase obligations for the next twelve months.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
Our Kuwait operations have been suspended to comply with the social distancing measures implemented in Kuwait. Our Utah operations were temporarily suspended from March through May 2020, but have since resumed in full. These suspensions have had a negative impact on our business and there can be no guaranty that we will not need to suspend operations again in the future as a result of the pandemic.
COVID-19 and the U.S. response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have in the long-term, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.
Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes included elsewhere in this prospectus. Material changes in our Statement of Operations for the six months ended June 30, 2020 and 2019, and the years ended December 31, 2019 and 2018 are discussed below.
Revenue
For the six months ended June 30, 2020 and 2019 we realized revenues of $1,023,344 and none, respectively. We realized precious metal sales of $1,017,344 for the six months ended June 30, 2020 and received a payment of $6,000 pursuant to our Kuwait contract for remediation services as described above. For the six months ended June 30, 2019 we had not yet implemented our business plan to buy and sell precious metals on the open market and as such there were no precious metal sales during this period.
For the years ended December 31, 2019 and 2018, we realized revenues of none and $10,179 from the sale of crude oil from the test production from our first RPC unit in Vernal, Utah. The decline in sales from 2018 to 2019 is due to our first RPC unit being taken offline in May 2018 to be shipped to Kuwait for remediation services. The unit did not operate in Kuwait during 2019 due to shipping and international clearance delays, including delays with the vendors and infrastructure clearances at the site where the machine was to commence remediation operations.
Cost of Revenue
Our cost of revenues consisted primarily of costs associated with selling our precious metals on the open market and precious metal commodity broker fees.
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Our costs of revenue increased from none for the six months ended June 30, 2019 to $984,941 for the six months ended June 30, 2020. The increase in the cost of revenue directly relates to costs associated with selling our precious metals on the open market and precious metal commodity broker fees.
Our costs of revenue decreased from $3,550 for the year December 31, 2018 to none for the year ended December 31, 2019. Cost of revenue for the year ended December 31, 2018 consisted of operating and selling expenses associated with the sale of crude oil from the test production from our first RPC unit in Vernal, Utah. The decrease in our cost of revenue from 2018 to 2019 is due to our first RPC being taken offline in May 2018 to be shipped to Kuwait for remediation services. The unit did not operate in Kuwait during 2019 due to shipping and international clearance delays, including delays with the vendors and infrastructure clearances at the site where the machine was to commence remediation operations.
Gross Profit and Gross Margin
For the six months ended June 30, 2020 and 2019 we realized gross profit of $38,403 and none, respectively. The gross profit increased in proportion to the revenue and costs of revenue related to the purchase and sale of precious metals as described above.
For the years ended December 31, 2019 and 2018 we realized gross profit of none and $6,629. The gross profit decreased in proportion to the revenue and costs of revenue as described above.
Our gross margin will continue to be affected by a variety of factors that include the market prices of precious metals, the volume hydrocarbons produced by our RPC units, the number of RPC units placed into production, and our ability to raise capital to continue to fund our operations and RPC unit manufacturing.
Operating Expenses
Our operating expenses consist primarily of marketing, general and administrative expenses, bad debt expense, and amortization and depreciation expense. Marketing expenses include marketing fees of company representatives for marketing the business and is products and services as well as investor customer service. General and administrative expenses include professional services and legal fees associated with the costs for services in finance, accounting, administrative activities and the formation and compliance of a public company. Bad debt expense includes the expense associated with assets that management analyses and estimates may be uncollectible. Amortization and depreciation expense uses the useful life of the asset to calculate the amortization or depreciation expense in accordance with accounting principles generally accepted in the United States of America ("GAAP") and management’s judgment.
Overall operating expenses increased by $565,715, or 50.17%, from the six months ended June 30, 2019 to the six months ended June 30, 2020. Our operating expenses increased in 2020 due to the fact that we were no longer receiving any contribution to our expenses from VV USTI under the terms of our Working Interest Agreement as we did in the prior period. For the six months ended June 30, 2020 and 2019, our amortization expense also increased $104,954, which was mainly due to the amortization of other assets purchased in July 2019, including our rights to operate on certain land in Vernal, Utah.
Overall operating expenses increased by $422,834, or 22.49%, from the year ended December 31, 2018 to the year ended December 31, 2019. Our operating expenses increased in 2019 due to the fact that we were no longer receiving any contribution to our expenses from VV USTI under the terms of our Working Interest Agreement as we did in the prior period.
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Loss from Operations
Our loss from operations increased from a loss of $1,127,562 for the six months ended June 30, 2019 to a loss of $1,654,874 for the six months ended June 30, 2020, an increase in loss of $527,312, or 46.77%. The increase in loss is attributed to the increase in operating expenses discussed above.
Loss from operations increased from a loss of $1,873,718 for the year ended December 31, 2018 to a loss of $2,303,181 for the year ended December 31, 2019, an increase in loss of $429,463, or 22.92%. The increase in loss is attributed to the increase in operating expenses discussed above.
Interest income and expense
Interest income was $35,865 for the six months ended June 30, 2019 and of $32,859 for the six months ended June 30, 2020, a decrease of $3,006, or 8.4%. The decrease in interest income is mainly attributed to the conversion of the Odyssey note as described below.
Interest income was $83,219 for the year ended December 31, 2018 compared to interest income of $73,761 for the year ended December 31, 2019, a decrease of $9,458, or 11.4%. The decrease in interest income is mainly attributable to our conversion of the Odyssey note as described below.
Interest expense was $3,938 for the six months ended June 30, 2019 and $11,295 for the six months ended June 30, 2020, an increase of $7,357, or 186.82%. The increase in interest expense is mainly attributable to the settlement of approximately $37,887 of notes payable since June 30, 2019 and our entering into loans and notes payable to cover operating expenses during the COVID-19 pandemic, which temporarily suspended our operations in Utah and continues to suspend our operations in Kuwait.
Interest expense was $395,311 for the year ended December 31, 2018 compared to interest expense of $9,288 for the year ended December 31, 2019, a decrease of $386,023, or 97.65%. The decrease in interest expense is mainly attributable to our settlement of approximately $686,350 of notes payable in exchange for 209,414 shares of our common stock and paying down our interest-bearing notes payable in the amount of $632,852.
Gain (loss) on extinguished debt
For the six months ended June 30, 2019, we recorded a gain on extinguishment of debt in the amount of $607,536. In March 2019 we settled outstanding debt with an aggregate principal and accrued interest balance of $632,850 in exchange for 2,531,400 shares of Odyssey common stock that we owned, and which were accounted for on a cost basis of approximately $25,000.
For the year ended December 31, 2019, we recorded a gain on extinguishment of debt in the amount of $607,536. In March 2019 we settled outstanding debt with an aggregate principal and accrued interest balance of $632,850 in exchange for 2,531,400 shares of Odyssey common stock that we owned, and which were accounted for on a cost basis of approximately $25,000.
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For the year ended December 31, 2018 we recorded a loss on the extinguishment of debt in the amount of $126,000. In 2018 we settled the debt with an investor, which included the remaining amount of the debt discount attributed to the debt of $126,000.
Unrealized gain (loss) on marketable securities
For the six months ended June 30, 2020, we recorded an unrealized gain on marketable securities in the amount of $2,215,827. We hold an equity investment in the common stock of Odyssey Group International, Inc. (Ticker: ODYY, OTC Markets), which was accounted for at cost minus impairment for the six months ended June 30, 2019 due to the securities not being traded in an active market. In January 2020, the securities were considered to be traded on an active market and were accounted for at a fair value based on the quoted prices in the active markets resulting in the unrealized gain of $2,215,827 for the six months ended June 30, 2020.
Loss on conversion of note receivable
For the six months ended June 30, 2020, we recorded a loss on a conversion of note receivable in the amount of $121,428. In June 2020 we converted $809,578 of our note receivable with Odyssey into 809,578 shares of Odyssey common stock pursuant to the terms of the note at $1.00 per share. On the date of the conversion, the Odyssey price per share on OTC Markets was $0.85 per share, which resulted in a $121,428 loss on the disposition of the note receivable.
Cash flows
The following table sets forth the primary sources and uses of cash and cash equivalents for the six months ended June 30, 2020 and 2019 as presented below:
| June 30, | June 30, | |||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | $ | (431,688 | ) | $ | (356,556 | ) | ||
| Net cash used in investing activities | (887,155 | ) | (564,861 | ) | ||||
| Net cash provided by financing activities | 1,191,095 | 1,052,306 | ||||||
Liquidity and Capital Resources
We have historically suffered net losses and cumulative negative cash flows from operations and, as of June 30, 2020, we had an accumulated deficit of approximately $27 million.
As of June 30, 2020 and 2019, we had cash and cash equivalents of $477,155 and $1,047,369, respectively. As of December 31, 2019 and 2018, we had cash and cash equivalents of $604,903 and $916,480, respectively.
To date we have financed our operations primarily through debt financing, private equity offerings and our working interest agreements.
For the six months ended June 30, 2020 and 2019, we issued $554,907 and $290,000 noncontrolling units of RDM. For the six months ended June 30, 2020 and 2019 we received proceeds of none and $1,620,244 from our working interest agreements with VV UTSI and VV RII. For the six months ended June 30, 2020 and 2019 we also received proceeds of $694,508 and $28,040 related to the issuance of convertible bridge notes and other loans. For the six months ended June 30, 2020, as included in the proceeds above, we obtained a Paycheck Protection Program loan for $205,100 that may be forgiven under the CARES Act, if we can demonstrate that the proceeds from the loan were used for eligible expenses. We also obtained a loan from the Small Business Administration in the amount of $150,000 in May 2020, as included in the proceeds above. For the six months ended June 30, 2019, investors exercised stock warrants in the amount of $84,000.
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For the years ended December 31, 2019 and 2018, we received proceeds in the amount of $2,418,142 and $3,206,372, respectively, from our working interest agreements with VV UTSI and VV RII. For the years ended December 31, 2019 and 2018 we also issued convertible debt in the amount of $89,960 and $737,034, respectively. For the years ended December 31, 2019 and 2018, investors also exercised stock warrants in the amount of $91,982 and $51,999, respectively.
Our ability to continue to access capital could be affected adversely by various factors, including general market and other economic conditions, interest rates, the perception of our potential future earnings and cash distributions, any unwillingness on the part of lenders to make loans to us and any deterioration in the financial position of lenders that might make them unable to meet their obligations to us. If we cannot raise capital through public or private debt financings, equity offerings, or other means, our ability to grow our business may be negatively affected. In such case, we may need to suspend machine construction or further acquisitions until market conditions improve.
Contractual Obligations
Our contractual obligations as of December 31, 2019 are for operating lease liabilities for office and warehouse space. Operating lease obligations as of December 31, 2019 are as follows:
| 2020 | $ | 323,515 | ||
| 2021 | $ | 276,699 | ||
| 2022 | $ | 287,769 | ||
| 2023 | $ | 299,466 | ||
| 2024 | $ | 231,174 | ||
| Total | $ | 1,418,623 |
Interest Rate and Market Risk
Our financing arrangements are not subject to variable interest rates of the prime rate or LIBOR.
Inflation
Inflation generally will cause suppliers to increase their rates. In connection with such rate increases, we may or may not be able to increase our pricing to consumers. Inflation could cause both our investment and cost of revenue to increase, thereby lowering our return on investment and depressing our gross margins.
Off Balance Sheet Arrangements
None.
Critical Accounting Policies & Use of Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements included in this Annual Report on Form 10-K, which have been prepared in accordance with GAAP. For further information on the critical accounting policies see Note 3 of the Notes to the Consolidated Financial Statements. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. Estimates by their nature are based on judgments and available information. Our estimates are made based upon historical factors, current circumstances and the experience and judgment of management. Assumptions and estimates are evaluated on an ongoing basis, and we may employ outside experts to assist in evaluations. Therefore, actual results could materially differ from those estimates under different assumptions and conditions. We believe our critical accounting estimates relate to the following: Recoverability of current and noncurrent assets, revenue recognition, stock-based compensation, income taxes, effective interest rates related to long-term debt, marketable securities, lease assets and liabilities, equity method investments, valuation of stock used to acquire assets, and derivatives.
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Vivakor, Inc. is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, primarily focused on soil remediation. We specialize in the remediation of soil and the extraction of hydrocarbons, such as oil, from properties contaminated by or laden with heavy crude oil and other hydrocarbon-based substances. Our process allows us to successfully recover the hydrocarbons which we believe could then be used to produce asphaltic cement and/or other petroleum-based products.
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
Our current focus is on the clean-up of greater than 7% hydrocarbon contaminated soil located in Kuwait as a result of the Iraqi invasion, and naturally occurring oil sands deposits in Utah. We have deployed two RPC units to date including one unit to Kuwait (for which operations have been temporarily suspended due to COVID-19) and another to Vernal, Utah (which is presently operating). We expect to deploy two additional RCPs to Vernal, Utah with the proceeds from this offering and believe that there may be an opportunity to deploy additional RPCs in Utah as well as to Kuwait and the Middle East.
Our Technologies
We own and/or license a number of technologies that allow us to effectively operate our remediation and recovery business along with other technologies that provide synergies with our core business. The description of these various technologies follows.
Hydrocarbon Extraction Technology
In 2015, we acquired and improved technology aimed at remediating contaminated soil and recovering usable hydrocarbons, which we refer to as RPCs. We presently have three patent applications pending related to our RPCs. Our RPCs each have the potential to clean a minimum of 20 tons of contaminated material per hour, depending on the oil contamination percentage in the processed material. Each RPC has the capacity to extract on a 24-hour operation 500 tons or more of contaminated material per day. The amount of extracted hydrocarbon recovered depends on the extent to which the material is contaminated. For example, we estimate that for every 500 tons of contaminated material processed per day that contains at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons.
We believe our RPCs are significantly more advanced than other oil remediation technologies or offerings presently available on the market. Our RPCs have successfully cleaned contaminated soil containing greater than 7% hydrocarbon content, while, to our knowledge, our competitors are limited to projects containing less than 5% hydrocarbon contamination. We believe our ability to clean soil with higher percentages of hydrocarbon contamination is a distinctive advantage that will allow us to operate on a global basis in any location that has suffered from oil spills or naturally occurring oil sands deposits. While our primary focus and mandate will be on the manufacture and deployment of our RPCs, we intend to continue to develop, acquire or license additional clean energy technologies and environmental solutions that will directly enhance and expand our current technologies and service offerings.
We have designed our RPCs to provide an environmentally friendly solution to the remediation of hydrocarbon-contaminated soil, as they do not utilize water. Our RPCs operate by loading contaminated soil onto a feeder and conveyor system that effectively delivers the material prepares the material into a fully contained, closed-loop system. Physical separation of the hydrocarbons from the contaminated soil does not utilize water or steam and is instead accomplished using a proprietary extraction fluid to dissolve the hydrocarbon components.
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In the first stage of the process, hydrocarbon contaminated soil is mixed with our proprietary solvent which forms a slurry of sand, hydrocarbon and extraction fluid. This slurry moves from the mixing chamber into a separation chamber where the sand is separated from the hydrocarbon/extraction fluid mix by gravity. The soil is then dried and transported via a conveyer to a lined pit where extensive testing is performed to ensure the hydrocarbons have been properly removed. Meanwhile, the extracted hydrocarbon and solvent travels to a separate chamber where the hydrocarbons are separated from the extraction solvent. The solvent is then reclaimed.
The entire extraction process is completed in a series of sealed chambers. The reclaimed extraction fluid is then recycled back into the process, which ensures that no toxic chemicals are released into the soil or the environment. Upon completion of our remediation and separation process, the extracted hydrocarbons are placed into holding tanks to be picked up by our customers, while clean soil is returned to the environment.
Our RPCs are manufactured in Salt Lake City, Utah. In the future, we expect to finance our RPCs through special purpose vehicles pursuant to 20-year sale/leaseback arrangements. In each instance, the special purpose vehicle will finance the RPC through third party investors, and we will act as the manager of such special purpose vehicle and hold a 1% ownership interest. Management believes that utilizing this structure provides significant benefits to our shareholders, as these financings are less dilutive in nature.
Our next group of three RPCs will be financed by Viva Energy Fund III, LLC through a 20-year sale/leaseback arrangement. It is expected that Viva Energy Fund III, LLC will finance the RPC through third-party investors and has engaged Axxcess Capital Partners, LLC, an investment bank active in the oil, gas and alternative energy industries, to assist Viva Energy Fund III, LLC in identifying investors to finance the construction of these RPCs. We are looking to raise an aggregate of up to $100 million for the financing of additional RPCs, with an initial $25 million to be raised over the next 12 to 16 months. Under this arrangement, we will be the sole manager of Viva Energy Fund III, LLC and we will hold a 1% ownership interest in Viva Energy Fund III, LLC.
Wastewater Management System
In April 2020, we entered into a project charter agreement with solvAQUA, a Canadian-based clean water technology company, pursuant to which we may purchase certain wastewater removal equipment from solvAQUA. The solvAQUA WMS is a compact solution that continually processes and separates large volumes of wastewater (4,000+ m3/day for each WMS) with an ability to scale to remove any volume of oil, grease and suspended solids from wastewater, in most cases removing 99.99% of waste. The processed water stream can in some cases be discharged or reused without further treatment. We have placed our first order with solvAQUA for WMS equipment and anticipate receipt and installation of the equipment prior to December 31, 2020, with operations to commence shortly thereafter. On July 15, 2020, solvAQUA granted us an exclusive license to either incorporate solvAQUA’s technology platform into our RPCs or to use independently. This will allow us to service remediation projects that have a combination of wet and dry opportunities. The exclusive license has an initial term of one year, which may be extended to five years upon our successful installation and deployment of the first two WMSs.
We believe that the combination of being able to remediate both dry and wet locations could more than double our market opportunity in the future, given the prevalence of remediation locations where oil is mixed with water. Although wastewater remediation is not required for any of our current projects, we believe that this capability will prove valuable to us in the future.
Automation and Machine Learning
The RPC systems we build are automated and controlled by software enabling us to maximize efficiencies. We believe that these automations may ultimately allow us to operate the RPCs twenty-four hours a day, resulting in continuous feed capabilities that will allow us to manage our systems remotely world-wide. Each RPC unit is designed with a focus on automation to achieve our Key Performance Indicators (KPIs). We have deployed data analytics and machine learning, to enable operations to be predictive, reduce risk, improve safety, and reduce costs.
Metallic Separation Technology
In 2015, we obtained two metal extraction systems and a perpetual license to use the proprietary technology and machinery for extracting precious metals from sand-based ore materials for $7.6 million from Vivaventures Precious Metals, LLC (“VV Precious Metals”), pursuant to our loan outstanding to VV Precious Metals being extinguished. We also received a 75% ownership interest in the concentrated unrefined flakes of precious metals and rare earth minerals that had already been recovered from soils by VV Precious Metals through a royalty agreement with the LLC. We divested our 39% interest in VV Precious Metals in July 2020.
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Our proprietary metallic separation technology uses a thermal vapor process to extract and process micro particles of precious metals and rare earth minerals, including gold, silver, platinum, palladium and rhodium from soils. After we complete our soil remediation services, we evaluate the post-remediated soil and, if we find that the soil contains more than 1% concentration of these metals, we process it through this technology to extract and concentrate these micro particles of precious metals and rare earth minerals into a concentrated, unrefined flake form.
We market and sell the precious metals we extract from contaminated soil. As we continue our efforts, we anticipate increased opportunities to monetize our precious metals end product. We believe that we may be able to generate proceeds of approximately $6 million from the sale of precious metals, based on indications from potential buyers.
Hydrocarbon Upgrading Technologies
We have acquired and/or licensed two separate technologies described below that will enable us to upgrade the hydrocarbons recovered from our remediation process. These processeses have been proven in laboratory tests, but we have not yet performed this upgrading in a commercial setting.
We entered into a letter of intent with B Green, Inc. (“B Green”) in February 2020 providing us with certain rights to use on a trial basis cavitation technology from B Green, Inc. Subsequently, on September 30, 2020, we entered into an Intellectual Property License Agreement with B Green (“B Green License Agreement”), pursuant to which we have been granted a worldwide, exclusive, non-transferable license to the intellectual property embodied in B Green’s cavitation technology to develop, manufacture, have manufactured, use market, import, have imported, offer for sale and sell cavitation devices built from the licensed intellectual property. The B Green License Agreement also grants us the first right of refusal to purchase all devices and all intellectual property associated with the cavitation technology. The B Green License Agreement extends for the lifetime of the Intellectual Property. We will be required to make an initial payment of $5,000 after delivery of the first simple cavitation device, and thereafter we will be obligated to pay $3,000 in monthly services fees and 50% of the net profits. Additionally, under the terms of the B Green License Agreement, at such time as we successfully improve and manufacture a cavitation device with a processing rate equal to, or greater than, 30 barrels per hour, we will be required to issue 1,000,000 shares of our common stock to B Green. Third party, independent testing conducted by the University of Utah has shown that this proprietary technology increases the API gravity of hydrocarbons by elongating the hydrocarbon chains without cutting or cracking these chains. API gravity is the measure of how heavy or light petroleum liquid is compared to water and is used in the industry as the standard measure for viscosity. The API of the recovered crude is increased, allowing such crude to have additional uses and usually at higher unit prices.
In addition, in 2017, we acquired from CSS Nanotech an exclusive right to use their nano-sponge technology, which essentially serves as a micro-upgrader, transforming hydrocarbon product into a more useful product, such as petroleum or gasoline, as an addition to our hydrocarbon extraction technology. The inventor of this technology subsequently joined us as our Chief Scientific Officer. This patented technology allows for hydrocarbon material to be absorbed by a specialized sponge. Low energy microwaves are then introduced into the process and the sponge, which is made of a highly thermally conductive material, absorbs this energy causing an instant thermal effect, which essentially refines the crude by cutting or cracking the carbon chains. We intend to add this system to our process of upgrading the heavy crude recovered by our RPCs.
We believe that each of these technologies has the ability to upgrade the heavy crude that is recovered from our recovery and remediation process based on our needs and demand, and we intend to fully integrate these technologies into our process. For example, if there is a high demand for fuels we would process the extracted crude through the nano-sponge technology to refine and upgrade the product into diesel fuel. If the demand is instead for certain types of asphaltic cement, where the heavy crude is not refined but processed, we would utilize the CHU technology.
Market Opportunity
We believe that the market for remediating oil from both soil and water is significant. According to Grandview Research, the market for environmental clean-up of oil spills will reach $177 billion by 2025. We believe that a large portion of that market will originate from contamination of more than 7% hydrocarbon content and that our technology is currently the only one that can economically remediate these environmental disasters, while allowing for the capture and reuse of the crude.
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In addition, we believe that the heavy crude that we have been recovering in Utah is ideal for producing asphaltic cement. The demand for asphaltic cement in the United States is presently estimated to be $93 billion this year according to Transparency Market Research. We have provided our material to asphalt companies for testing to determine what modifications, if any, would be needed to be meet their specifications. Provided we are able to produce asphaltic cement that meets our customers’ specifications, we believe that we will be able to offer our product at very competitive prices and in an environmentally friendly manner.
Revenue
We presently have two projects utilizing our first two manufactured RPCs - our project in Kuwait (which has been temporarily suspended due to COVID-19) and our project in Vernal, Utah (which is currently operating).
In Kuwait, where we do not have ownership of the recovered oil, we generate revenues by charging per cubic meter of soil remediated. For our current project we generate revenues of $72 per cubic meter of contaminated material processed.
Our RPC situated in Vernal, Utah has the capacity to process 500 tons or more of naturally occurring oil sands deposits per day. We estimate that if the extracted material is composed of at least 10% oil, we will recover approximately 250 barrels of extracted hydrocarbons each day, which could then be sold for energy or converted to asphaltic cement and sold for use in roads at higher prices.
We also market and sell the precious metals we extract from our remediated and waste soils. As we continue our efforts, we anticipate increased opportunities to monetize our precious metals end product. We believe that we may be able to generate proceeds of approximately $6 million from the sale of precious metals, based on indications from potential buyers.
Kuwait Project
The United Nations (UN) had allocated up to $14.7 billion for post-Iraq war reparations in order to clean up Kuwait. Kuwait suffered extensive contamination as a result of the 1991 Persian Gulf War. At the close of the Gulf War, Saddam Hussein ordered Kuwaiti oil wells to be blown up, resulting in the destruction of approximately 600 oil wells. The damage resulting from such fires, which burned for seven months, included a layer of hardened “tarcrete,” caused by the sand and gravel on the land's surface combining with oil and soot, forming over almost 5% of the country's area.
We were engaged as a subcontractor by the KOC for two hydrocarbon remediation projects in the country in January 2018 and July 2019: the Sustainable Economic Environmental Development Project (“SEED”) project and the Kuwait Environmental Remediation Program (“KERP”) project. Both projects are managed by the Soils Remediation team at KOC. Both projects have a range of contaminated soils to be remediated.
Our technology has been successful in reducing the amount of contaminated material in the SEED project from 20% hydrocarbon contamination to just 0.2% hydrocarbon contamination, based on third party independent testing performed by ALS Arabia in March 2020. We believe we possess the only technology that has been successful at remediating such highly contaminated soil (defined as anything above 20% hydrocarbon contamination), while also returning usable hydrocarbons. KOC has advised us that we are the only company to have submitted third-party testing results regarding our technology that has met KOC’s specifications for remediating oil sands in excess of 7% hydrocarbons. For this reason, we believe that our technology will be selected for future KOC projects to clean contaminated soils containing in excess of 7% hydrocarbons. Our initial contract for the SEED projects was to clean 14,000 metric tons of contaminated soil and is expected to significantly grow in size and scope. The project pays us, based on the specific characteristics of the soil, a flat fee of $70 to $100 per ton of contaminated soil we clean. We then return the remediated soil and the recovered oil to the Kuwaiti government. Accordingly, for this project, the Company does not have any short-term risk relating to volatile oil prices.
The KERP project is anticipated to involve approximately 26 million cubic meters of contaminated oil sands requiring remediation. We expect that as much as 20% of the contaminated soil will contain more than 5% hydrocarbon contamination. We also believe that we will have the opportunity to act as a technology provider to the main KERP project contractors on other projects requiring remediation of sands exhibiting greater than 7% contamination, which we believe could have a market potential of up to $500 million for us.
The oil recovered from these projects in Kuwait is considered a sovereign asset, so the ability to reclaim this asset also creates a social value for the country. In order to remediate all of the contaminated sand exhibiting greater than 7% contamination in the timeframe required by the UN, the Company expects to expand its contract and deploy 10 RPC units to Kuwait over the next several years.
Other International Projects
In addition to managing the projects in Kuwait, the UN is overseeing the funds allocated to the remediation and clean-up of the Ogoni Lands in Africa, which is estimated to contain millions of tons of both contaminated soil and water and has allocated significant funding for its cleanup. Taking into consideration this particular environmental disaster, plus other global oil contamination projects involving oversight by the UN, together with our successful performance on the UN-managed SEED Project in Kuwait, we believe we will be a contender for significant additional contracts.
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Vernal, Utah Project
The State of Utah has, according to the U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion barrels of oil contained in contaminated oil sands that are deposited near the ground surface. We believe that the crude from these oil sands can be turned into asphaltic cement for making roads, or upgraded for polymers or fuel. In 2019, we acquired an option to acquire surface rights and the approvals to operate on an oil sands parcel of land located in Vernal, Utah. Upon entering into the option agreement, we paid an initial fee of $200,000 and we later exercised the right to extend the expiration date of the option without any additional required payments. The option currently provides us with the right to acquire this property, prior to January 31, 2021, for a total purchase price of $17.5 million. Vernal is the county seat, and largest city in Uintah County, located in northeastern Utah, approximately 175 miles east of Salt Lake City, and 20 miles west of the Colorado border.
The Vernal property contains approximately 300 million cubic yards of oil sand material available for processing. The property is located on approximately 600 acres. If acquired, we believe that we could ultimately recover as much as 40 million barrels of oil from this property if we are able to economically scale our operations. Each upgraded RPC unit, such as the RPC unit in Vernal, Utah, has the ability to process, at a minimum, 20 tons of contaminated material per hour depending on the oil contamination percentage in the processed material. We believe, based on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property, that there may be an opportunity to deploy as many as 100 RPCs to properties containing oil sands deposits owned by the State of Utah.
Our Vernal, Utah project is initially focused on turning the extracted hydrocarbons into asphaltic cement, which we believe is less affected by daily changes in oil prices. With our one RPC unit, assuming full utilization, we anticipate producing approximately 50 tons of asphaltic cement per day. We anticipate that we will be able to sell our asphaltic cement for, referencing present pricing, approximately $50 per ton.
Competitive Strengths and Growth Strategy
We are focused on the remediation of contaminated soil and water resulting from either man-made spills or naturally occurring deposits of oil. Our primary focus has been the remediation of oil spills resulting from the Iraqi invasion of Kuwait and naturally occurring oil sands deposits in the Uinta basin located in Eastern Utah. We plan to expand into other markets, both in Utah and globally, where we believe our technology and services will provide a distinct competitive advantage over our competition.
Competitive Strengths
We believe the following strengths provide us with a distinct competitive advantage and will enable us to effectively compete on a global basis:
| · | Proprietary patent-pending technology; |
| · | Environmental advantages; |
| · | Strong relationships with customers and regulatory agencies; and |
| · | Experienced and highly-skilled management, Board of Directors and Advisory Board. |
Proprietary Patent-Pending Technology
In total, we, together with our subsidiaries, have intellectual property that is in the form of both proprietary knowledge and patents. Our patent portfolio consists of two issued U.S. patents, two pending U.S. patent applications, one pending international patent application filed through the Paris Cooperation Treaty (PCT), and one pending patent application in Kuwait. In addition, we have licensed from our partners the right to use additional patented technologies.
We presently have three patent applications pending related to our RPCs and two issued patents related to our other remediation technologies.
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We believe, based on direct and ongoing conversations with our customers and third-party independent test results, that our technology is the only commercially available technology that can not only clean soil that contains greater than 7% hydrocarbon, but also preserves the hydrocarbons extracted from such soil for future use. We believe that this provides us with a true competitive advantage.
Our main technology has been tested and validated for all of its claims by multiple separate independent expert firms both in the United States and the Middle East, whose reports confirm that we have reclamation technology, which has been tested and reviewed, that possesses the ability to clean soil with more than 7% hydrocarbon contamination and still leave the recovered hydrocarbons in a usable state.
We are also expanding our remediation services and offerings to include the solvAQUA technology, which will enable us to remove hydrocarbons from water (as opposed to soil), while preserving the hydrocarbons for future usage. We expect delivery of our first solvAQUA WMS machine by the end of the calendar year, with operations to commence shortly thereafter. The solvAQUA WMS machines can operate either in conjunction with, or independently of, the RPCs.
Environmental Advantages
Among our key corporate objectives is to be at the forefront of social responsibility for its technological impact. We strive for all of our systems to ultimately become closed loop systems, to minimize adverse impacts on air quality and reduce the need for use of clean water. Our ability to turn waste into value is in line with this core objective. Our remediation projects in Kuwait are expected to reduce emissions from vaporization of the oil spilled in the soil. The ability to clean produced water from oil production can eliminate the need for evaporation ponds, improving air quality and saving on the use of clean water.
We believe our technology and service offerings will position us well to conduct our business in any geographical region in which soil or water has been contaminated by hydrocarbons.
Strong Relationships with Customers and Regulatory Agencies
We have developed close relationships with customers and government agencies, including SITLA and the KOC. We anticipate receiving access to additional oil sands deposits located in Utah from SITLA, based on our existing relationship with SITLA and our conversations with them. We also anticipate receiving additional contracts from KOC to remediate contaminated properties in Kuwait, based on our existing relationship with KOC and conversations with them.
Experienced and Highly Skilled Management, Board of Directors and Advisory Board
Our management team has started and successfully grown numerous technology-based companies and has utilized this experience to develop a strategic vision for the Company. The implementation of this plan has resulted in the acquisition and in-house development of numerous technologies, which are currently in operation. We have demonstrated the effectiveness of our technologies in both Vernal, Utah and Kuwait, accomplishing the clean-up of contaminated areas while also recovering precious metals through our metallic separation technology.
Our Board of Directors is comprised of accomplished professionals who bring decades of experience to the Company. Our Board of Directors includes a director who has served as a member of the Executive Committee of one of the largest global accounting firms and has served on the Board of Directors of two multi-billion dollar publicly traded companies, a former director of technology investment banking at Goldman Sachs, a successful investor and entrepreneur who has founded and provided initial financing for numerous life science companies, several of which have grown to multi-billion dollar publicly traded companies, and the mayor of a city in Utah.
In addition, we have an Advisory Board comprised of former senior members of oil and gas companies, both in the United States and in the Middle East. Our Advisory Board is led by one member who is an accomplished business professional and a member of a royal family based in the Middle East and another member who is an experienced health and safety expert operating in the oil and gas industries.
We rely on our Board of Directors and Advisory Board to provide it both high level advice and guidance along with using their contacts to help open various markets. We believe the combination of our management team, Board of Directors and Advisory Board provides us with a significant competitive advantage over our competitors due to their breadth of experiences and relationships.
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Growth Strategies
We will strive to grow our business by pursuing the following strategies:
| · | Expansion of our oil recovery projects in Utah; |
| · | Expansion of our remediation projects in Kuwait; |
| · | Expansion into new and complementary markets; |
| · | Increase of revenue via new service and product offerings; |
| · | Strategic acquisitions and licenses targeting complementary technologies; and |
| · | Redeployment of the metallic separation technologies. |
Expansion of our Oil Recovery Projects in Utah
The State of Utah has, according to the U.S. Geological Survey, approximately 14 billion barrels of measured oil in place with an additional estimated 23 to 28 billion barrels of oil contained in contaminated oil sands that are deposited near the ground surface. The majority of these oil sands deposits are located on land owned by SITLA. While our current project in Vernal, Utah is not located on SITLA land, SITLA has expressed an interest in providing us leased access to these lands in exchange for a royalty to be paid by us in an amount equal to 8% of all revenue generated from any hydrocarbon-based products produced by us from hydrocarbons extracted from these lands. All royalty payments to SITLA would result in direct funding to the State’s school system. We believe, based on the number of estimated barrels of oil contained in oil sands deposits located on SITLA property, that there may be an opportunity to deploy as many as 100 RPCs to oil sands deposits located on land owned by the State of Utah. We will seek to acquire additional properties and mineral rights in the vicinity of Vernal, Utah from individual land owners and the State of Utah with a goal of increasing our hydrocarbon holdings to as much as one billion barrels of contingent resources containing a minimum of 10% hydrocarbon saturation.
Expansion of our Remediation Projects in Kuwait
Our RPC technology was successfully used in our initial project for KOC in Kuwait, where we removed hydrocarbons from soil with more than 7% contamination and, following the process, the hydrocarbon contamination level of the soil was reduced to less than 0.5%, which was lower than the level needed to meet the project specifications. There is still approximately 26 million cubic meters of soil contaminated by oil from the Iraqi invasion of Kuwait. Under our current contract, we will charge $72 per cubic meter of soil remediated. We are currently working with KOC and other government-controlled entities to expand our remediation projects in Kuwait. We are in active negotiations to provide the technology and operations as a subcontractor to large, multinational remediation companies within the region where our technology could be used on all of the sands with contamination levels greater than 7%. Other technologies may also be used for the less contaminated soils.
Expansion into New and Complementary Markets
We intend to explore expansion opportunities on a global basis, including in places with extreme contamination such as the Ogoni Lands region of Nigeria, oil spill lakes located in Saudi Arabia and Turkmenistan, and naturally occurring oil sands deposits in Kazakhstan, where we believe our technology and service offerings may provide a distinct competitive advantage. We are currently in discussions with several groups for deploying our RPCs for remediation projects (primarily for oil spills, tank bottom sludge and drill cuttings) in Saudi Arabia, Qatar and Texas. Saudi Arabia has the objective to create a circular carbon economy that will ultimately have zero wasted hydrocarbons. Our technology is able to process tank bottom sludge, drill cuttings, and soils form hydrocarbon spills, returning the sand to less than 0.5% contamination while reclaiming the oil for waste energy use.
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Increase of Revenue via New Service and Product Offerings.
To date, we have focused on the remediation of soil contaminated by oil. We are in the process of expanding our services to include the remediation of water and the recovery of hydrocarbons from water through our exclusive license with solvAQUA. We also intend to target other hydrocarbon remediation businesses that focus on, among other things, the cleaning of tank bottom sludge, and the cleaning of the water used from drilling oil wells. Oil producers generally pay to dispose of sludge at the bottom of storage tanks and contaminated water produced from the drilling of oil wells. We believe that our technologies could be used to clean the contaminated water produced from drilling, while simultaneously recovering the heavy crude. We believe we will be able to offer these services at a cost that is very competitive with current methods and that our ability to recover the heavy crude for resale will give us a competitive advantage. The patent pending RPC technology, in conjunction with the enzymatic water remediation technology that we have licensed from solvAQUA, have the potential to eradicate all oil evaporation ponds and landfills in the United States presently utilized for disposal of tank bottom sludge and drill cutting waste. We are currently in early stage discussions relating to some of these remediation projects.
Strategic Acquisitions and Licenses Targeting Complementary Technologies
We intend to seek out opportunities to acquire or license only specific technologies that are either complementary to our existing product offerings or that will allow us to expand into the environmental infrastructure markets. We are currently negotiating a license for smart sensor technologies for autonomous vehicles that we believe could be embedded directly into the asphaltic cement we intend to produce from the hydrocarbons we extract, providing the basis for smart roads and infrastructure. We believe that these sensors, which are self-powered, could be used to provide information about traffic, road conditions and repair needs as well as allowing the roads to communicate directly with autonomous vehicles enabling these vehicles to sense the road in all weather conditions. By complementing the asphaltic cement we expect to produce with integrated sensors for automated vehicles, we believe that we will be able to offer a smart road – moving this company from one of “Waste to Road” to one of “Waste to Smart Road”.
Redeployment of the Metallic Separation Technology
Our licensed metallic separation technology has successfully recovered precious metals including, but not limited to, gold, palladium, platinum, rodium and silver. We intend to modify our existing metallic separation equipment to allow us to capture more precious metals. We intend to redeploy our metallic separation technology machines in conjunction with our RPC machines to locations where precious metals have been detected in the soil and to standalone locations to process mine tailings and other soils.
Other Holdings
As part of our strategy to find and invest in technologies that might develop synergies with our existing businesses, we have invested, and may continue to invest, in other companies and/or entities. Not all of our investments to date have developed into complementary technologies and/or businesses, but with our management’s assistance, many of them have still become successful and accretive to our Company’s value. The companies in which we invest typically consist of passive investments and we may divest our ownership at any time.
Scepter Holdings
In 2012, we provided secured loan financing and assistance to Vivaceuticals, Inc. (“Vivaceuticals”) for the development and commercialization of two bioactive beverages and one weight loss beverage. In 2018, Scepter Holdings, Inc. (OTCMarkets: BRZL), a company that manages the sales and development of consumer-packaged goods, purchased certain assets of Vivaceuticals, and in 2019, we received 800,000 shares of preferred stock in Scepter Holdings, Inc. in exchange for extinguishing our loan, which had become an obligation of Scepter Holdings, Inc. The Company has since converted such shares of preferred stock into 800,000,000 shares of common stock of Scepter Holdings, Inc., which represents a market value of approximately $5,760,000 as of the date of November 2, 2020.
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Odyssey Group International
In 2014, we acquired a minority interest in Odyssey Group International, Inc. (“Odyssey”) (OTCQB: ODYY), a trans-disciplinary product development enterprise involved in the discovery, development and commercialization of a broad range of products applied to targeted segments of the health care industry. We also have provided a $750,000 secured loan Odyssey, which they used to acquire a license to use and develop a new technology called CardioMap®, which is an advanced technology for early non-invasive testing for heart disease. The loan is secured by Odyssey’s assets, and we are entitled to receive a percentage of Odyssey’s total gross sales until the loan has been repaid in full. During June 2020, we converted the outstanding secured loan into 809,578 shares of Odyssey common stock. We presently own 3,309,578 shares of Odyssey common stock representing a market value of approximately $927,000, as of November 2, 2020.
Future Products; Research and Acquisition
We intend to identify, develop or acquire, and bring to market products primarily in the Clean Tech sector with a primary focus on the petroleum, mining and minerals, and alternative energy industries, as well opportunities that may arise in the natural and formulary products industry. Our general approach is to select products or processes that are at or near commercial viability, or that we believe can be substantially developed for commercialization. We then negotiate agreements to either acquire or to provide secured loan financing to these companies to complete their development, testing and product launches in exchange for control of, or a significant ownership interest in, the products or companies.
History
The Company was originally organized on November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. The Company’s name was changed to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, the Company was converted to a corporation and changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
We have the following direct and indirect wholly-owned active subsidiaries: VivaVentures Management Company, Inc., a Nevada corporation, VivaSphere, Inc., a Nevada corporation, VivaVentures Oil Sands, Inc., a Utah corporation, and RPC Design and Manufacturing LLC, a Utah company. We have a 99.95% interest in VivaVentures Energy Group, Inc., a Nevada Corporation; the 0.05% minority interest in VivaVentures Energy Group, Inc. is held by a private investor unaffiliated with the Company. We also have an approximate 49% interest in Vivakor Middle-East Limited Liability Company, a Qatar limited liability company.
Regulations Affecting our Business
The Company’s business is subject to federal, state and local laws, regulations and policies, including laws regulating the removal of natural resources from the ground and the discharge of materials into the environment. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Exploration and exploitation activities are also subject to federal, state and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of exploration methods and equipment. Environmental and other legal standards imposed by federal, state or local authorities are constantly evolving, and typically in a manner which will require stricter standards and enforcement, and increased fines and penalties for noncompliance. Such changes may prevent us from conducting planned activities or increase our costs of doing so, which would have material adverse effects on our business. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages that we may not be able to or elect not to insure against due to prohibitive premium costs and other reasons. Unknown environmental hazards may exist on our mining claims, or we may acquire properties in the future that have unknown environmental issues caused by previous owners or operators, or that may have occurred naturally.
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Failure to comply with applicable federal, state, local or foreign laws or regulations could subject our company to enforcement action, including product seizures, recalls, withdrawal of marketing clearances and civil and criminal penalties, any one or more of which could have a material adverse effect on our company’s businesses. We believe that our company is in substantial compliance with such governmental regulations. However, federal, state, local and foreign laws and regulations regarding the manufacture and sale of medical devices are subject to future changes. There can be no assurance that such changes would not have a material adverse effect on our company.
Intellectual Property
We own two issued US patents, two pending US applications, and one pending international PCT patent application covering our propriety technology, specifically:
| · | US Patent 7,282,167 for methods for producing nano-scale particles by vaporizing raw material and then cooling the vaporized raw material using a cooling gas, granted October 16, 2007 and expiring July 23, 2025; |
| · | US Patent 9,272,920 for methods for producing ammonia by mixing a first catalyst including a millimeter-sized, granular, ferrous material and a promoter and a second catalyst including discrete nano-sized ferrous catalyst particles that comprise a metallic core with an oxide shell and then reacting hydrogen and nitrogen in the presence of the mixture, granted March 1, 2016 and expiring November 7, 2028; and |
| · | Pending US Patent Series Nos. 16/177,210 and 16/554,158, International PCT Application No. PCT Application No. PCT/US2019/048587, and pending Kuwait application KW/P/2020/000111 relating to systems and processes for extracting bitumen from oil sands material which employ a centrifuge and a flash evaporator. |
Employees
As of the date of this prospectus, we have 25 full-time or contracted employees, consisting of our CEO, CFO, and additional administrative and direct operations personnel. None of these employees are represented by a labor union or subject to a collective bargaining agreement. We have never experienced a work stoppage and our management believes that our relations with employees are satisfactory.
Properties
We do not own real property. We currently lease executive office space in Salt Lake City, Utah, and Irvine, California. The Company also leases warehouses in Salt Lake City, UT and have paid to be on a land site in Vernal, UT. We believe these facilities are in good condition but that we may need to expand our leased space and warehouses as business increases.
Legal Proceedings
From time to time, we may become a defendant or plaintiff in various legal actions that arise in the normal course of business. We are not currently involved in any material disputes and do not have any material litigation matters.
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As of the date of this prospectus, our directors, executive officers and significant employees are as follows:
| Name | Age | Position(s) | ||
| Matthew Nicosia | 46 | Chief Executive Officer (Principal Executive Officer) and Director | ||
| Tyler Nelson | 40 | Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) | ||
| Dr. Daniel Hashim | 37 | Chief Scientific Officer | ||
| Al Ferrara | 69 | Director | ||
| Joseph Spence | 46 | Director | ||
| Matthew Balk | 60 | Director | ||
| Trent Staggs | 46 | Director |
Background of Officers and Directors
Matthew Nicosia joined Vivakor as Chief Executive Officer and Chairman of the Board in 2011. Prior to joining the Company, Mr. Nicosia co-founded Dermacia Inc. in 1999, a dermatology product development Company. From December 2012 through December 2015, concurrent with his time serving as Chairman and Chief Executive Officer of Vivakor, Mr. Nicosia served as the interim Chief Executive Officer of Vivaceuticals, d/b/a Regeneca Worldwide. In February 2019, Mr. Nicosia joined Ridepair Inc., a software development company focused on the transportation market, as Chairman of the Board. Mr. Nicosia joined the Board of Directors of NarcX Solutions Inc., a developer of onsite drug destruction technologies in June 2019. During 2018, Mr. Nicosia co-founded and has since served as co-Chairman of the Board of Prosperity Utah, a non-profit economic think tank focused on the State of Utah. Since April 2018, Mr. Nicosia has served on the Board of Directors of CannapharmaRx Inc., a public company which trades on the OTC Markets. Mr. Nicosia received his Bachelor of Arts degree from Brigham Young University and a MBA from Pepperdine University. Mr. Nicosia is qualified to serve on our Board of Directors based on his in depth knowledge of the Company as Chief Executive Officer and because of his extensive experience with thermal vaporization technologies, business development in the Middle East and U.S. capital markets experience.
On November 16, 2015, the Consumer Protection Branch of the Department of Justice of the United States of America initiated an action, on behalf of the Food and Drug Administration, against Vivaceuticals, d/b/a Regeneca Worldwide, and Mr. Nicosia alleging various violations of the Federal Food, Drug, and Cosmetic Act in relation to the manufacturing, labeling and distribution of adulterated dietary supplements. The complaint sought a permanent injunction against Regeneca Worldwide for unlawfully distributing unapproved new drugs, and adulterated and misbranded dietary supplements. A consent decree of permanent injunction was filed on February 8, 2017. The consent decree prohibits Regeneca from marketing unapproved new drugs, and adulterated and misbranded dietary supplements. The consent decree also provides that before Regeneca can resume operations, it must, among other things, hire good manufacturing practice and labeling experts, implement procedures to comply with good manufacturing practice and labeling requirements and receive written permission from the FDA to resume operations. Regeneca was also required to destroy all remaining products.Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018 and is no longer in operation.
Tyler Nelson joined Vivakor on a part-time basis as Chief Financial Officer in 2015 and has served as full-time Chief Financial Officer since June 30, 2020. Mr. Nelson is a CPA who began his career in Audit and Enterprise Risk Services at Deloitte. He worked with clients with assets of more than $100 billion and annual revenues of more than $15 billion, which are considered some of the most respected financial institutions in the world. Mr. Nelson earned a Master’s Degree in Accountancy from the University of Illinois- Urbana-Champaign, and a Bachelor’s Degree in Economics with a minor in Business Management from Brigham Young University.
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Dr. Daniel Hashim joined Vivakor as Chief Scientific Officer in 2017. Dr. Hashim has extensive experience in the areas of nanoscience research, advanced materials synthesis, characterization, application, innovation and technological entrepreneurship. In addition to leading scientific efforts for Vivakor and its related companies, Dr. Hashim has served as the Founder, Chairman and CEO of CSS Nanotech, Inc. (“CSS”) since 2014. CSS is a nonmaterials research and development company that designs and commercializes useful structural nanomaterials that exhibit “safe-to-handle” nanofunctionality on a macro-scale, to include carbon filtration media, water purification, oil spill remediation, structural composite materials, electrode materials, petrochemical refining and thermal management systems. Mr. Hashim holds a Bachelor’s Degree in Materials Science Engineering from Rensselaer Polytechnic Institute, with a PhD from Rice University in the field of Materials Science and NanoEngineering.
Al Ferrara joined Vivakor as a director on September 21, 2020. Mr. Ferrara retired as the National Director of Retail & Consumer Products at BDO USA, LLP in 2016. Mr. Ferrara is a CPA, who worked at BDO USA, LLP in a variety of positions beginning in 1991, and was a member of its board of directors from 2003 to 2010. Mr. Ferrara served as the Northeast Regional Managing Partner at BDO USA, LLP from 2000 to 2003. Mr. Ferrara was also a director representative at Trenwith Capital, Inc. (now BDO Capital Advisors, LLC) from 2000 to 2015 and a member of the retail advisory board at Hilco Retail Consulting from 2013 to 2015. Mr. Ferrara was previously on the Board of Directors for Barnes & Noble, Inc., from August 2016 until the company was sold in August 2019, where he served on its audit committee and compensation committee, and in July 2019, he joined the Board of Directors of Steven Madden, Ltd., where he serves as Chairman of its audit committee and a member of its governance committee. Mr. Ferrara is qualified to serve on our Board of Directors because of his extensive experience in auditing public companies and serving as a director of large public companies.
Joseph Spence joined Vivakor as a director on September 21, 2020. Mr. Spence previously spent the past two years as an investor, advisor, executive and philanthropist specializing in catalyzing high tech and tech infused real estate to create smart, sustainable cities that work for everyone, with ASPIRE Center for Electrified Transportation, We Are Makers Social Impact Initiative and IconIQ Talks. Previously, from 2014 through 2018, he was an executive director at Goldman Sachs leading teams in the Technology, Media and Telecom; Real Estate, Gaming and Lodging; and Structured Finance sectors for the Americas and EMEA regions. From 2007 to 2014, he was an associate director at Standard & Poor’s covering approximately $144 billion in debt, and, from 2006 to 2007, he was an assistant treasurer at Bank of NY Mellon. He started his career as an engineer at the NASA Academy at Goddard Space Flight Center. Mr. Spence holds an MBA from Columbia University and BS in Electrical Engineering Howard University (Magna Cum Laude). Mr. Spence also holds a Master’s degree in Nano & Biotechnology from Harvard University. Mr. Spence is qualified to serve on our Board of Directors because of his extensive experience in raising capital and financing companies through all stages of growth.
Matthew Balk joined Vivakor as a director on September 21, 2020. Mr. Balk previously spent more than 25 years as an investment banker specializing in technology and biotechnology where he raised billions of dollars for both public and private companies and dozens of mergers and acquisitions. In 2011, he left investment banking to start his family office. He has since co-founded several companies including AzurX (Nasdaq: AZRX) and VerifyH20 and invested in a number of other technology companies. Mr. Balk also works as a consultant to a small number of companies in the areas of Biotech and technology in general. Mr. Balk received his MBA from New York University Stern School of Business. Mr. Balk is qualified to serve on our Board of Directors because of his extensive experience acting as an investment banker supporting large public companies.
Trent Staggs joined Vivakor as a director on September 21, 2020. Mr. Staggs brings a 20-year track record of developing and executing on business strategy, teams and relationships. Prior to advising the Vivakor Team, he was on the corporate leadership team of a global direct sales company that operates in over 35 markets, providing strategic direction and leadership of global integrated systems, software and IT infrastructure. Mr. Staggs has also been directly responsible for financial transactions in excess of 2 billion dollars as a VP at Morgan Stanley and also running his own nationwide financial company. Mr. Staggs served as a consultant for RDM from January 2019 through March 2020, advising with respect to obtaining required permitting from State agencies and other regulatory matters. Mr. Staggs received his Bachelor of Arts degree from the University of Utah and received an MBA from the Marriott School of Management at Brigham Young University. Mr. Staggs is also an elected official in the state of Utah and serves on many boards, providing needed political guidance and consultation to Vivakor and its related companies. Mr. Staggs is qualified to serve on our Board of Directors because of his extensive experience in capital markets and his understanding of Utah regulatory requirements.
Family Relationships
There are no family relationships between any of our directors and executive officers.
Board Composition and Director Independence
Upon the completion of this offering, our common stock is expected to be listed on . Under the rules of , a majority of a listed company’s board of directors must be comprised of “independent” directors, as defined in . In addition, applicable rules require that, subject to specified exceptions, each member of a listed company’s audit and compensation committees must be independent within the meaning of the applicable rules. Audit committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act.
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Our Board of Directors consists of five members. The directors are elected at each annual meeting to hold office until the next annual meeting and until their successors are duly elected and qualified. The Company defines “independent” as that term is defined in .
In making the determination of whether a member of the board is independent, our board considers, in addition to the rules, among other things, and, transactions and relationships between each director and his immediate family and the Company, including those reported under the caption “Related Party Transactions.” The purpose of this review is to determine whether any such relationships or transactions are material and, therefore, inconsistent with a determination that the directors are independent. On the basis of such review and its understanding of such relationships and transactions, our Board of Directors affirmatively determined that Al Ferrara, Joseph Spence, Matthew Balk and Trent Staggs are qualified as independent and do not have any material relationships with us that might interfere with his exercise of independent judgment.
Board Committees
Our Board of Directors has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. Each committee has its own charter, which is available on our website at www.vivakor.com. Each of the board committees has the composition and responsibilities described below.
Members will serve on these committees until their resignation or until otherwise determined by our Board of Directors.
Audit Committee
Our Audit Committee is currently comprised of Al Ferrara, Matthew Balk and Trent Staggs, each of whom qualify as an independent director under applicable and SEC rules, and “financially literate” under applicable rules. Our board has determined that Al Ferrara, Matthew Balk and Trent Staggs each qualify as an “audit committee financial expert”, as such term is defined in Item 407(d)(5) of Regulation S-K. Al Ferrara or serves as chairman of the Audit Committee.
The Audit Committee oversees our accounting and financial reporting processes and oversee the audit of our consolidated financial statements and the effectiveness of our internal control over financial reporting. The responsibilities of this committee include, but are not limited to:
| · | selecting and recommending to our Board of Directors the appointment of an independent registered public accounting firm and overseeing the engagement of such firm; |
| · | approving the fees to be paid to the independent registered public accounting firm; |
| · | helping to ensure the independence of the independent registered public accounting firm; |
| · | overseeing the integrity of our financial statements; |
| · | preparing an audit committee report as required by the SEC to be included in our annual proxy statement; |
| · | resolving any disagreements between management and the auditors regarding financial reporting; |
| · | reviewing with management and the independent auditors any correspondence with regulators and any published reports that raise material issues regarding the Company’s accounting policies; |
| · | reviewing and approving all related-party transactions; and |
| · | overseeing compliance with legal and regulatory requirements. |
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The Audit Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.
Compensation Committee
Our Compensation Committee is currently comprised of Trent Staggs, Al Ferrara and Matthew Balk, each of whom qualify as an independent director under applicable rules. Trent Staggs serves as chairman of the Compensation Committee.
Our Compensation Committee assists the board of directors in the discharge of its responsibilities relating to the compensation of the board of directors and our executive officers.
The responsibilities of this committee include, but are not limited to:
| · | reviewing and approving on an annual basis the corporate goals and objectives with respect to compensation for our Chief Executive Officer; |
| · | reviewing, approving and recommending to our board of directors on an annual basis the evaluation process and compensation structure for our other executive officers; |
| · | determining the need for and the appropriateness of employment agreements and change in control agreements for each of our executive officers and any other officers recommended by the Chief Executive Officer or Board of Directors; |
| · | providing oversight of management’s decisions concerning the performance and compensation of other company officers, employees, consultants and advisors; |
| · | reviewing our incentive compensation and other equity-based plans and recommending changes in such plans to our Board of Directors as needed, and exercising all the authority of our Board of Directors with respect to the administration of such plans; |
| · | reviewing and recommending to our Board of Directors the compensation of independent directors, including incentive and equity-based compensation; and |
| · | selecting, retaining and terminating such compensation consultants, outside counsel or other advisors as it deems necessary or appropriate. |
The Compensation Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Compensation Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.
Nominating and Corporate Governance Committee
Our Nominating and Corporate Governance Committee is currently comprised of Trent Staggs, Matthew Balk and Al Ferrara, each of whom qualify as an independent director under applicable rules. Trent Staggs serves as chairman of the Nominating and Corporate Governance Committee.
The purpose of the Nominating and Corporate Governance Committee is to recommend to the Board of Directors nominees for election as directors and persons to be elected to fill any vacancies on the Board of Directors, develop and recommend a set of corporate governance principles and oversee the performance of the Board of Directors.
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The responsibilities of this committee include, but are not limited to:
| · | recommending to the Board of Directors nominees for election as directors at any meeting of stockholders and nominees to fill vacancies on the board; |
| · | considering candidates proposed by stockholders in accordance with the requirements in the Committee charter; |
| · | overseeing the administration of the Company’s code of business conduct and ethics; |
| · | reviewing with the entire Board of Directors, on an annual basis, the requisite skills and criteria for board candidates and the composition of the board as a whole; |
| · | the authority to retain search firms to assist in identifying board candidates, approve the terms of the search firm’s engagement, and cause the Company to pay the engaged search firm’s engagement fee; |
| · | recommending to the Board of Directors on an annual basis the directors to be appointed to each committee of the Board of Directors; |
| · | overseeing an annual self-evaluation of the Board of Directors and its committees to determine whether it and its committees are functioning effectively; and |
| · | developing and recommending to the board a set of corporate governance guidelines applicable to the Company. |
The Nominating and Corporate Governance Committee may delegate any of its responsibilities to subcommittees as it deems appropriate. The Nominating and Corporate Governance Committee is authorized to retain independent legal and other advisors, and conduct or authorize investigations into any matter within the scope of its duties.
Code of Business Conduct and Ethics
We have adopted a code of business conduct and ethics applicable to our principal executive, financial and accounting officers and all persons performing similar functions. A copy of that code is available on our corporate website at www.vivakor.com. We expect that any amendments to such code, or any waivers of its requirements, will be disclosed on our website.
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The following table summarizes information concerning the compensation awarded to, earned by, or paid to, our principal executive officer. No other executive officer received compensation greater than $100,000 in the last two fiscal years.
| Name and Principal Position | Year | Salary | Total | |||||||
| Matthew Nicosia, | 2019 | $ | 50,000 | $ | 50,000 | |||||
| CEO and Chairman | 2018 | $ | 50,000 | $ | 50,000 | |||||
Employment Agreements
Matthew Nicosia
On September 24, 2020, we entered into an Employment Agreement with Matthew Nicosia to serve as our Chief Executive Officer. The agreement provides for an annual base salary of $50,000 (the “Nicosia Base Salary”). The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nicosia, with three months advance written notice required. The agreement provides for incremental increases upon the Company’s achievement of specific performance metrics. The Employment Agreement provides for a grant of a stock option to Mr. Nicosia to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price equal to 110% of the fair market value of the Company’s common stock on the date of grant. The stock option will vest after five years of continuous employment, subject to acceleration if Mr. Nicosia is terminated without cause or resigns for good reason. The agreement also provides for an annual bonus of up to 100% of Mr. Nicosia’s then base salary based upon the achievement of certain performance goals established and approved by the Board of Directors; provided, that at any time Mr. Nicosia’s base salary is $200,000 or more, the Company will pay Mr. Nicosia a minimum annual bonus of $200,000 within ninety days after the end of each calendar year. The agreement entitles Mr. Nicosia to receive various employee benefits generally made available to other officers and senior managers of the Company.
Upon termination of Mr. Nicosia’s employment by Mr. Nicosia for good reason, by the Company without cause, by the Company because of disability, or upon the Company’s or Mr. Nicosia’s decision not to renew Mr. Nicosia’s employment in accordance with the automatic successive one-year extensions, the Company will pay or provide Mr. Nicosia (i) any unpaid base salary and any accrued vacation through the date of termination; (ii) amounts payable under any Company bonus plans in which Mr. Nicosia is eligible to participate as of the date of the termination of his employment on a pro-rated basis; (iii) for a period of 12 months, Mr. Nicosia’s then current monthly base salary multiplied by 2 (but not to exceed $150,000); (iv) outplacement services for Mr. Nicosia for a period of 12 months with an outplacement firm selected by Mr. Nicosia; (v) at Mr. Nicosia’s election to continue health insurance coverage under COBRA, Mr. Nicosia’s monthly premium until (a) the close of the severance period, as defined therein, (b) the expiration of Mr. Nicosia’s continuation of coverage under COBRA, or (c) the date when Mr. Nicosia becomes eligible for substantially equivalent health insurance coverage in connection with new employment; and (vi) the Company will amend each option agreement then in effect by and between the Company and Mr. Nicosia (a) to make 100% of the then unvested shares subject to each option agreement fully vested and fully exercisable, (b) to terminate any rights the Company may have to repurchase unvested shares and (c) to permit Mr. Nicosia to exercise the options provided by each option agreement for a period of ten (10) years following the termination of Mr. Nicosia’s employment. Upon the termination of Mr. Nicosia’s employment because of death, Mr. Nicosia’s estate will be entitled to receive (i) Mr. Nicosia’s then current base salary through the end of the month in which his death occurs, (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned but unpaid bonus payments. Upon the termination of Mr. Nicosia’s employment by the Company for cause or by Mr. Nicosia without good reason, the Company will pay Mr. Nicosia (i) a pro rata amount of Mr. Nicosia’s then current base salary through the date his employment is terminated and (ii) all unpaid bonuses and accrued and unpaid compensation (including any accrued and unused vacation).
Tyler Nelson
On September 24, 2020, we entered into an Employment Agreement with Tyler Nelson to serve as our Chief Financial Officer. The agreement provides for an annual salary of $50,000. The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nelson, with three months written notice required. The agreement provides for incremental increases upon the Company’s achievement of specific performance metrics. The agreement also provides for an annual bonus of up to 100% of Mr. Nelson’s then base salary upon the achievement of certain performance goals established and approved by the Board of Directors; provided, that at any time Mr. Nelson’s base salary is $200,000 or more, the Company will pay Mr. Nelson a minimum annual bonus of $200,000 within ninety days after the end of each calendar year. The agreement entitles Mr. Nelson to receive various employee benefits generally made available to other officers and senior managers of the Company.
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Upon termination Mr. Nelson’s employment by Mr. Nelson for good reason, by the Company without cause, by the Company because of disability, or upon the Company’s or Mr. Nelson’s decision not to renew Mr. Nelson’s employment in accordance with the automatic successive one-year extensions, the Company will pay or provide Mr. Nelson (i) any unpaid base salary and any accrued vacation through the date of termination; (ii) amounts payable under any Company bonus plans in which Mr. Nelson is eligible to participate as of the date of the termination of his employment on a pro-rated basis; (iii) for a period of 12 months, Mr. Nelson’s then current monthly base salary multiplied by 2 (but not to exceed $150,000); (iv) outplacement services for Mr. Nelson for a period of 12 months with an outplacement firm selected by Mr. Nelson; and (v) at Mr. Nelson’s election to continue health insurance coverage under COBRA, Mr. Nelson’s monthly premium until (a) the close of the severance period, as defined therein, (b) the expiration of Mr. Nelson’s continuation of coverage under COBRA, or (c) the date when Mr. Nelson becomes eligible for substantially equivalent health insurance coverage in connection with new employment. Upon the termination of Mr. Nelson’s employment because of death, Mr. Nelson’s estate will be entitled to receive (i) Mr. Nelson’s then current base salary through the end of the month in which his death occurs, (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned but unpaid bonus payments. Upon the termination Mr. Nelson’s employment by the Company for cause or by Mr. Nelson without good reason,, the Company will pay Mr. Nelson (i) a pro rata amount of Mr. Nelson’s then current base salary through the date his employment is terminated and (ii) all unpaid bonuses and accrued and unpaid compensations (including any accrued and unused vacation).
Stock Incentive Plan
2020 Equity Incentive Plan
We intend to adopt a new equity incentive plan prior to the offering, which will authorize the issuance of up to 60,000,000 shares of common stock through the grant of stock options (including incentive stock options qualifying under section 422 of the Code and nonstatutory stock options), restricted stock awards, stock appreciation rights, restricted stock units, performance awards, other stock-based awards or any combination of the foregoing.
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Outstanding Equity Awards at December 31, 2019
At December 31, 2019 there were no outstanding equity awards held by our executive officers.
Employee Pension, Profit Sharing or other Retirement Plan
We do not have a defined benefit, pension plan, profit sharing or other retirement plan, although we may adopt one or more of such plans in the future.
Director Compensation
The table below shows the compensation paid to our directors during the years ended December 31, 2019. Matthew Nicosia was not compensated for acting as a director during fiscal 2019. Each of Al Ferrarra, Matthew Balk and Joseph Spence were appointed to the Board of Directors after January 1, 2020.
| Name | Year | Fees Earned or Paid in Cash | Total | |||||||
| Pablo Peneloza(1) | 2019 | $ | 16,615 | $ | 16,615 | |||||
| Trent Staggs(2) | 2019 | $ | 84,704 | $ | 84,704 | |||||
_________________
| (1) | Pablo Peneloza resigned from the Company’s Board of Directors on September 21, 2020. |
| (2) | Trent Staggs received $84,704 from the Company as payment for consulting services rendered in 2019. |
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The following table sets forth certain information regarding our voting shares beneficially owned as of October 28, 2020 by (i) each stockholder known to be the beneficial owner of 5% or more of the outstanding shares of the particular class of voting stock, (ii) each executive officer, (iii) each director, and (iv) all executive officers and directors as a group. A person is considered to beneficially own any shares: (i) over which such person, directly or indirectly, exercises sole or shared voting or investment power, or (ii) of which such person has the right to acquire beneficial ownership at any time within 60 days through an exercise of stock options, warrants and/or other convertible securities. Unless otherwise indicated, voting and investment power relating to the shares shown in the tables for each beneficial owner is exercised solely by the beneficial owner.
For purposes of computing the percentage of outstanding shares of our common stock held by each person or group of persons, any shares that such person or persons has the right to acquire within 60 days of October, 2020 is deemed to be outstanding, but is not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
The percentage of beneficial ownership of our common stock before this offering is based on an aggregate of 393,482,266 shares outstanding, consisting of (i) 323,919,665 shares of common stock outstanding as of the date of this prospectus and (ii) 69,562,601 shares of common stock into which all of our preferred stock outstanding as of the date of this prospectus will be converted immediately prior to this offering. The percentage of beneficial ownership of our common stock after the offering is based on shares of common stock outstanding after the offering, which includes the common stock to be sold by us in the offering, assuming no exercise of the over-allotment option by the underwriter.
Except as indicated in footnotes to this table, we believe that the stockholders named in this table have sole voting and investment power with respect to all shares of common stock shown to be beneficially owned by them, based on information provided to us by such stockholders. Unless otherwise indicated, the address for each director and executive officer listed is: c/o Vivakor, Inc., 433 Lawndale Drive, South Salt Lake City, UT 84115.
| Name and Address of Beneficial Owner | Shares of Common Stock Beneficially Owned Before the Offering | Percentage of Common Stock Beneficially Owned Before the Offering | Shares of Series A Preferred Stock Beneficially Owned Before the Offering | Percentage of Series A Preferred Stock Beneficially Owned Before the Offering | Shares of Series C-1 Preferred Stock Beneficially Owned Before the Offering | Percentage of Series C-1 Preferred Stock Beneficially Owned Before the Offering | Shares of Common Stock Beneficially Owned After the Offering | Percentage of Common Stock Beneficially Owned After the Offering | |||||||||||||||||||||||
| Officers and Directors (1) | |||||||||||||||||||||||||||||||
| Matthew Nicosia (2) | 118,689,999 | 38.13% | 2,000,000 | 100.00% | 143,689,999 | ||||||||||||||||||||||||||
Tyler Nelson |
0 | * | |||||||||||||||||||||||||||||
| Daniel Hashim (3) | 5,000,000 | 38.5% | 5,000,000 | ||||||||||||||||||||||||||||
| Al Ferrara | |||||||||||||||||||||||||||||||
| Trent Staggs (4) | 10,000,000 | 3.21% | 10,000,000 | ||||||||||||||||||||||||||||
| Matthew Balk, Director | 0 | * | |||||||||||||||||||||||||||||
| Joseph Spence, Director | 0 | * | |||||||||||||||||||||||||||||
| All Officers and Directors as a group (seven persons) | 128,689,999 | 41.32% | 2,000,000 | 100.00% | 5,000,000 | 38.5% | 158,689,999 | ||||||||||||||||||||||||
| 5% Beneficial Stockholders | |||||||||||||||||||||||||||||||
| AKMN Irrecoverable Trust | 118,682,850 | 38.10% | |||||||||||||||||||||||||||||
| Sustainable Fuels, Inc.(5) | 20,000,000 | 6.42% | |||||||||||||||||||||||||||||
| Regal Growth Inc.(6) | 20,000,000 | 6.42% | |||||||||||||||||||||||||||||
| Manta Pointe Holdings, Ltd. (7) | 1,234,677 | 9.5% | 1,234,677 | ||||||||||||||||||||||||||||
| Srinivasa Rao Kothapalli (8) | 804,088 | 6.2% | 804,088 | ||||||||||||||||||||||||||||
| Quba Holdings, LLC (9) | 772,988 | 5.94% | 772,988 | ||||||||||||||||||||||||||||
________________________
| * | Less than 1% | |
| (1) | The address for these stockholders is: c/o Vivakor, Inc., 433 Lawndale Drive, South Salt Lake City, Utah 84115. |
| (2) | The shares of common stock beneficially owned by Matthew Nicosia includes 118,682,850 shares of common stock held by AKMN Irrevocable Trust. Matthew Nicosia is the trustee of the AKMN Irrevocable Trust, of which Jonathan Nicosia, Matthew Nicosia’s son, a minor, is the beneficiary. AKMN Irrevocable Trust also holds 2,000,000 shares of Series A preferred stock and has agreed to convert these shares into 25,000,000 shares of our common stock immediately prior to the closing of this offering. | |
| (3) | The 5,000,000 shares of Series C-1 Preferred Stock beneficially owned by Dr. Hashim are directly held by CSS Nanotech Ltd. Dr. Hashim is the Chief Executive Officer of CSS Nanotech Ltd. |
| (4) | The 10,000,000 shares of common stock beneficially owned by Trent Staggs are held by TABBS Irrevocable Trust. Trent Staggs is the trustee of TABBS Irrevocable Trust, of which Brennan Trent Staggs and Brecklyn Staggs, Trent Staggs’s children, are the beneficiaries. | |
| (5) | Sustainable Fuels, Inc. is owned by Debbie Carpenter, who may be deemed the beneficial owner of these shares. The address for Sustainable Fuels, Inc. is 10124 Marchant Avenue Tustin, CA 92872. |
| (6) | Regal Growth, Inc. is owned by William Reininger, who may be deemed the beneficial owner of these shares. The address for Regal Growth is 2309 Balleyfield Avenue Thousand Oaks, CA 91360. | |
| (7) | Manta Point Holdings, Ltd. is owned by Rakan Al-Ghanim, who may be deemed the beneficial owner of these shares. The address for Manta Point Holdings, Ltd. is Whiteley Chambers Don Street, St. Helier, Jersey JE2 4TR. | |
| (8) | Srinivasa Rao Kothapali’s address is 2501 Jimmy Johnson Suite 500 Port Arthur, TX 77640. | |
| (9) | Quba Holdings, LLC is owned by Benjamin Bequer, who may be deemed the beneficial owner of these shares. The address for Quba Holdings, LLC is 5405 Seashore Drive Newport Beach, CA 92663. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Party Transactions
The following is a description of each transaction since December 31, 2017 and each currently proposed transaction in which:
| · | we have been or are to be a participant; |
| · | the amount involved exceeded the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years; and |
| · | any of our directors, executive officers or holders of more than 5% of our outstanding capital stock, or any immediate family member of, or person sharing the household with, any of these individuals or entities, had or will have a direct or indirect material interest. |
Our current policy with regard to related party transactions is for the Board as a whole to approve any material transactions involving our directors, executive officers or holders of more than 5% of our outstanding capital stock.
We provided secured loan financing and assistance to Vivaceuticals for the development and commercialization of two bioactive beverages and one weight loss beverage. Our Chief Executive Officer, at the time we made the loan, Matthew Nicosia was an officer and director of Vivaceuticals. Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018. In 2019, we received 800,000 shares of preferred stock in Scepter Holdings, Inc. to extinguish the loan encumbering the assets. We have converted these preferred shares into 800,000,000 shares of Common Stock of Scepter Holdings, Inc., which is traded on the OTC Markets (ticker: BRZL).
In September 2012, we entered into a consulting contract with LBL Professional Consulting, Inc. (“LBL”), of which Tyler Nelson is a common officer, which remains in effect. For the years ended December 31, 2019 and 2018 we paid LBL $231,199 and $180,544, respectively, for a team of consultants serving us. For the six months ended June 30, 2020 and 2019 the Company paid LBL $120,228 and $108,194. In September 2020, the Company granted non-statutory stock options to LBL for 30,000,000 shares of common stock. The stock options vest over four years. The stock option is exercisable up to ten years from the grant date. Mr. Nelson is not the beneficiary of the Company and is not be permitted to participate in any discussion, including LBL’s board meetings, regarding any Company stock that LBL may own at any time.
We have an existing note payable issued to TriValley and Triple T, which is owned by Dr. Khalid Bin Jabor Al Thani, the 51% majority-owner of Vivakor Middle East LLC The note is interest free, has no fixed maturity date and will be repaid from revenues generated by Vivakor Middle East LLC. As of December 31, 2019 and 2018 the balance owed was $247,192 and $169,345, respectively. As of June 30, 2020 and June 30, 2019 the balance owed was $278,701 and $185,270.
Policy on Future Related-Party Transactions
Following this offering, all future transactions between us and our officers, directors, principal stockholders and their affiliates will be approved by the audit committee, or a similar committee consisting of entirely independent directors, according to the terms of our Code of Business Conduct and Ethics and our Related-Party Transaction Policies and Procedures.
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Introduction
In the discussion that follows, we have summarized selected provisions of our articles of incorporation (including the amended and restated articles of incorporation we intend to adopt in connection with this offering), bylaws and the Nevada Revised Statutes relating to our capital stock. This summary is not complete. This discussion is subject to the relevant provisions of Nevada law and is qualified by reference to our articles of incorporation and our bylaws. You should read the provisions of our articles of incorporation and our bylaws as currently in effect for provisions that may be important to you.
Current Amended and Restated Articles of Incorporation
Authorized Capital Stock
We are currently authorized to issue up to 1,700,000,000 shares of capital stock consisting of: 1,250,000,000 shares of common stock, par value $0.001 per share, and 450,000,000 shares of preferred stock, par value of $0.001 per share. As of June 30, 2020, there were 315,463,190 shares of common stock that were issued and outstanding and held of record by 429 stockholders. As of June 30, 2020, there were 51,059,410 shares of preferred stock outstanding.
Common Stock
Holders of our common stock are each entitled to cast one vote for each share held of record on all matters presented to the shareholders. Cumulative voting is not allowed.
Holders of our common stock are entitled to receive such dividends as may be declared by our Board of Directors out of funds legally available (subject to the rights of holders of all classes of stock at the time outstanding having prior rights as to dividends) and, in the event of liquidation, to share pro rata in any distribution of our assets after payment of liabilities (subject to the rights of holders of all classes of stock at the time outstanding having prior rights as to distributions). Our Board of Directors is not obligated to declare a dividend. It is not anticipated that dividends will be paid in the foreseeable future.
Holders of our common stock do not have preemptive rights to subscribe to additional shares if issued. There is no conversion, redemption, sinking fund or similar provisions regarding the common stock. All outstanding shares of common stock are fully paid and non-assessable.
We expect to effect a -for- reverse stock split of our outstanding common stock prior to the completion of this offering.
Preferred Stock
We are authorized to issue 450,000,000 shares of preferred stock, of which 300,000,000 shares have been designated as follows: (i) 2,000,000 shares of Series A preferred stock, of which all 2,000,000 are outstanding as of June 30, 2020; (ii) 98,000,000 shares of Series B preferred stock, of which 13,446,990 are outstanding as of June 30, 2020; (iii) 50,000,000 shares of Series B-1 preferred stock, of which 22,330,660 are outstanding as of June 30, 2020; (iv) 100,000,000 shares of Series C preferred stock, of which zero are outstanding as of June 30, 2020; and (v) 100,000,000 shares of Series C-1 preferred stock, of which 13,281,760 shares are outstanding as of June 30, 2020.
An additional 150,000,000 shares may be designated from time to time in one or more series as may be determined by our Board of Directors, subject to the protective rights of any classes of preferred stock then outstanding, with the voting powers and preferences, the relative rights of each such series and the qualifications, limitations and restrictions of each such series of undesignated shares to be established by the Board of Directors. Our directors may issue preferred stock with multiple votes per share and dividend rights which would have priority over any dividends paid with respect to the holders of our common stock. The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in transactions such as mergers or tender offers if these transactions are not favored by our management.
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The Series A Preferred Stock provides holders the right to convert each share into shares of common stock at a conversion price of $0.02 per share, subject to adjustment. Holders of the Series A preferred stock are not entitled to receive dividends. Holders of Series A preferred stock have the right to 25 votes for each share of common stock into which such shares of Series A Preferred Stock may then be converted. Holders of Series A preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, or any other series of preferred stock. Immediately prior to the closing of this offering, the outstanding shares of Series A preferred stock will be converted into 25,000,000 shares of common stock.
The Series B Preferred Stock provides holders the right to convert each share into shares of common stock at a conversion price of the lesser of (i) $0.20 per share and (ii) ninety percent (90%) of the market price on the conversion date, subject to adjustment. Holders of Series B preferred stock are entitled to receive dividends at the rate of $0.025 per share per annum. Each Holder of Series B is entitled to vote upon matters presented to the Company’s shareholders on an as converted basis. Holders of Series B preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, Series A preferred stock or any other series of preferred stock. Immediately prior to the closing of this offering, the outstanding shares of Series B preferred stock will be converted into 13,446,990 shares of common stock.
The Series B-1 Preferred Stock provides holders the right to convert each share into shares of common stock at a conversion price of the lesser of (i) $0.25 per share and (ii) ninety percent (90%) of the market price on the conversion date, subject to adjustment. Holders of Series B-1 preferred stock are not entitled to receive dividends. Holders of Series B-1 preferred stock are not entitled to vote on matters presented to the shareholders of the Company. Holders of Series B-1 preferred stock are entitled to receive liquidation preference, pari passu with the holders of Series B preferred stock and prior to and in preference to any distribution of any of the assets of the Company to holders of common stock, Series A preferred stock, Series C preferred stock, Series C-1 preferred stock, or any other class of preferred stock. Immediately prior to the closing of this offering, the outstanding shares of Series B-1 preferred stock will be converted into 22,330,660 shares of common stock.
There are currently no shares of Series C preferred stock outstanding. Holders of the Series C preferred stock would have the right to convert each share into common stock in the number of fully paid and nonassessable shares of common stock at a conversion price of the lesser of (i) $0.35 per share and (ii) ninety percent (90%) of the market price on the conversion date, subject to adjustment. Holders of Series C preferred stock would be entitled to receive dividends at the rate of $0.04375 per share per annum. Holders of Series C preferred stock would be entitled to vote upon matter presented to the Company’s shareholders on an as converted basis. Holders of Series C preferred stock are entitled to receive liquidation preference, prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, Series A Preferred Stock or any other series of preferred stock.
The Series C-1 Preferred Stock provides holders the right to convert each share into shares of common stock at a conversion price of the lesser of (i) $0.40 per share and (ii) ninety percent (90%) of the market price on the conversion date, subject to adjustment. Holders of Series C-1 preferred stock are not entitled to receive dividends. Holders of Series C-1 preferred stock shall be entitled to vote on all matters submitted to the shareholders of the Company on an as-converted basis. Holders of Series C-1 Preferred Stock are entitled to receive liquidation preference, pari passu with the holders of Series C Preferred Stock and prior to and in preference to any distribution of any of the assets of the Company to the holders of common stock, Series A preferred stock or any other series of preferred stock. Immediately prior to the closing of this offering, the outstanding shares of Series C-1 convertible preferred stock will be converted into 13,281,760 shares of common stock.
Amended and Restated Articles to be Adopted in Connection with the Offering
Prior to the closing of this offering, we intend to amend and restate our amended and restated articles of incorporation, to, among other things, effect a -for- reverse stock split and to eliminate the current provisions related to our preferred stock.
The following is a summary of our capital stock and provisions of our amended and restated articles of incorporation, as it will be in effect upon the closing of this offering. For more detailed information, please see the form of amended and restated articles of incorporation and the form of amended and restated bylaws, which are filed as exhibits to the registration statement of which this prospectus forms a part. The descriptions of our common stock and preferred stock reflect changes to our capital structure that will occur upon the closing of this offering.
Upon completion of this offering, we will be authorized to issue shares of common stock, $0.001 par value per share, and shares of preferred stock, $0.001 par value per share, and there will be shares of common stock and no shares of preferred stock outstanding.
Common Stock
Pursuant to the terms of the amended and restated articles of incorporation we intend to adopt in connection with this offering, the holders of common stock will be entitled to one vote per share on all matters to be voted upon by the shareholders, except on matters relating solely to terms of preferred stock. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of common stock will be entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. See “Dividend Policy.” In the event of our liquidation, dissolution or winding up, the holders of our common stock will be entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock, if any, then outstanding. The holders of our common stock will have no preemptive or conversion rights or other subscription rights. There will be no redemption or sinking fund provisions applicable to our common stock.
Preferred Stock
Pursuant to the terms of the amended and restated articles of incorporation we intend to adopt in connection with this offering, our board of directors will have the authority to issue preferred stock in one or more classes or series and to fix the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, including dividend rights, conversion right, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any class or series, without further vote or action by the stockholders. Although we have no present plans to issue any shares of preferred stock, the issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could decrease the amount of earnings and assets available for distribution to the holders of common stock, could adversely affect the rights and powers, including voting rights, of the common stock, and could have the effect of delaying, deterring or preventing a change of control of us or an unsolicited acquisition proposal.
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Limitation on Directors’ Liability
The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our Amended and Restated Bylaws include provisions that require the company to indemnify our directors or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our Amended and Restated Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions under the Nevada Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Nevada Anti-Takeover Statute
We may be subject to Nevada’s Combination with Interested Stockholders Statute (Nevada Corporation Law Sections 78.411-78.444) which prohibits an “interested stockholder” from entering into a “combination” with the corporation, unless certain conditions are met. An “interested stockholder” is a person who, together with affiliates and associates, beneficially owns (or within the prior two years, did beneficially own) 10% or more of the corporation’s capital stock entitled to vote.
The transfer agent and registrar for our common stock is Empire Stock Transfer with an address at 1859 Whitney Mesa Drive, Henderson, Nevada 89014.
Listing
We intend to apply to list our common stock on under the symbol “VIVK.”
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, is acting as representative for the underwriters of this offering (the “Representative”). Subject to the terms and conditions of an underwriting agreement between us and the Representative, we have agreed to sell to the underwriters named below, and each underwriter has agreed, severally and not jointly, to purchase at the public offering price less the underwriting discounts and commissions set forth on the cover page of this prospectus, the number of shares of common stock listed next to its name in the following table:
| Underwriters | Number of Shares | |
| Total |
The underwriters are committed to purchase all shares offered by us other than those covered by the over-allotment option described below, if any are purchased. The obligations of the underwriters may be terminated upon the occurrence of certain events specified in the underwriting agreement. Furthermore, the underwriting agreement provides that the obligations of the underwriters to pay for and accept delivery of the shares offered by us in this prospectus are subject to various representations and warranties and other customary conditions specified in the underwriting agreement, such as receipt by the Representative of officers’ certificates and legal opinions.
We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, and to contribute to payments the underwriters may be required to make in respect thereof.
The underwriters are offering the shares of common stock subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by its counsel and other conditions specified in the underwriting agreement. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.
We have granted the underwriters an over-allotment option. This option, which is exercisable for up to 45 days after the date of this prospectus, permits the underwriters to purchase up to an aggregate of additional shares of common stock (equal to 15% of the common stock sold in this offering) at the public offering price per share, less underwriting discounts and commissions, solely to cover over-allotments, if any. If the underwriters exercise this option in whole or in part, then the underwriters will be committed, subject to the conditions described in the underwriting agreement, to purchase the additional shares of common stock.
Discounts, Commissions and Reimbursement
The underwriters have advised us that the underwriters propose to offer the shares of common stock to the public at the initial public offering price per share set forth on the cover page of this prospectus. The underwriters may offer shares to securities dealers at that price less a concession of not more than $ per share of which up to $ per share may be reallowed to other dealers. After the initial offering to the public, the public offering price and other selling terms may be changed by the underwriters.
The following table summarizes the underwriting discounts and commissions, non-accountable underwriters’ expense allowance and proceeds, before expenses, to us assuming both no exercise and full exercise by the underwriters of their over-allotment option:
| Total | |||||||||
| Per Share | Offering without |
Offering with Over-Allotment Option | |||||||
| Public offering price | $ | $ | $ | ||||||
| Underwriting discounts and commissions (7.5%) | $ | $ | $ | ||||||
| Non-accountable expense allowance (1%)(1) | $ | $ | $ | ||||||
| Proceeds, before expenses, to us | $ | $ | $ | ||||||
| ____________ |
| (1) | The non-accountable expense allowance of 1% is not payable with respect to shares sold upon exercise of the underwriters’ over-allotment option. |
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We have also agreed to pay certain of the Representative’s expenses relating to the offering, including (a) all fees, expenses and disbursements relating to background checks of the Company’s officers and directors in an amount not to exceed $15,000 in the aggregate; (b) the costs associated with bound volumes of the public offering materials as well as commemorative mementos and lucite tombstones, each of which the Company or its designee shall provide within a reasonable time after the Closing Date in such quantities as the Representative may reasonably request, not to exceed $3,000; (c) fees and expenses of the Representative’s legal counsel not to exceed $100,000; (d) a $29,500 cost associated with the underwriter’s use of Ipreo’s book-building, prospectus tracking and compliance software for the offering; (e) $10,000 for data services and communications expenses; and (f) up to $15,000 of the underwriters’ actual accountable “road show” expenses for the offering.
We have paid an expense deposit of $25,000 to the Representative, with another $25,000 paid upon the filing of the registration statement of which this prospectus forms a part, which will be applied against the out-of-pocket accountable expenses that will be paid by us to the underwriters in connection with this offering, and will be returned to us to the extent not incurred.
We estimate that the total expenses of this offering payable by us, not including underwriting discounts, commissions and expenses, will be approximately $ .
Representative’s Warrants
Upon the closing of this offering, we have agreed to issue to the Representative warrants to purchase a number of shares of common stock equal in the aggregate to 5% of the total shares sold in this public offering. The warrants will be exercisable at a per share exercise price equal to 125% of the public offering price per share of common stock sold in this offering. The warrants are exercisable at any time and from time to time, in whole or in part, during the four-and-½-year period commencing six months after the effective date of the registration statement related to this offering.
The warrants and the shares of common stock underlying the warrants have been deemed compensation by the Financial Industry Regulatory Authority (“FINRA”), and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA. The Representative, or permitted assignees under such rule, may not sell, transfer, assign, pledge, or hypothecate the warrants or the securities underlying the warrants, nor will the Representative engage in any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the warrants or the underlying shares for a period of 180 days from the effective date of the registration statement. Additionally, the warrants may not be sold transferred, assigned, pledged or hypothecated for a 180-day period following the effective date of the registration statement except to any underwriter and selected dealer participating in this offering and their bona fide officers or partners. The warrants will provide for adjustment in the number and price of the warrants and the shares of common stock underlying such warrants in the event of recapitalization, merger, stock split or other structural transaction, or a future financing undertaken by us.
Right of First Refusal
Until twenty-four (24) months from the closing of this offering, the Representative shall have an irrevocable right of first refusal to act as sole investment banker, sole book-runner, sole financial advisor, sole underwriter and/or sole placement agent, at the Representative’s sole discretion, for each and every future public and private equity and debt offerings for our company, or any successor to or any subsidiary of our company, including all equity linked financings, on terms customary to the Representative. The Representative will have the sole right to determine whether or not any other broker-dealer will have the right to participate in any such offering and the economic terms of any such participation. The Representative will not have more than one opportunity to waive or terminate the right of first refusal in consideration of any such transaction.
Discretionary Accounts
The underwriters do not intend to confirm sales of the securities offered hereby to any accounts over which they have discretionary authority.
Determination of Public Offering Price
The offering price has been negotiated among us and the Representative. Among the factors considered in determining the offering price of the shares of common stock, in addition to prevailing market conditions, were the information set forth in this prospectus and otherwise available to the Representative; our history and prospects and the history and prospects for the industry in which we compete; estimates of our business potential and earnings prospects; an assessment of our management; our recent market prices and recent market prices of, and demand for, publicly traded common stock of generally comparable companies; and other factors deemed relevant by the underwriters and us.
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Listing
Our common stock is presently quoted on the OTCPink under the symbol “VIVK”. We have applied to list our common stock on under the symbol “VIVK”. No assurance can be given that such listing will be approved; however, it is a condition of the underwriters’ obligation that our shares of common stock have been approved for listing on .
Lock-Up Agreements
We agreed that for a period of 90 days after the closing of this offering we will not, without the prior written consent of the Representative and subject to certain exceptions, directly or indirectly:
| • | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; | |
| • | file or caused to be filed any registration statement with SEC relating to the offering of any shares of our capital stock or any securities convertible into or exercisable or exchangeable for shares of our capital stock; | |
| • | complete any offering of our debt securities, other than entering into a line of credit with a traditional bank; or | |
| • | enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our capital stock, whether any such transaction is to be settled by delivery of shares of capital stock or such other securities, in cash or otherwise. |
In addition, each of our directors, officers and 5% or greater stockholders have agreed that for a period of (i) 180 days after the date of this prospectus in the case of our directors and officers and (ii) 90 days after the date of this prospectus in the case of our stockholders, without the prior written consent of the Representative and subject to certain exceptions, they will not directly or indirectly:
| • | offer, pledge, sell, contract to sell, grant, lend, or otherwise transfer or dispose of, directly or indirectly, any of our common stock or any securities convertible into or exercisable or exchangeable for common stock; | |
| • | enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of our common stock or any securities convertible into or exercisable or exchangeable for common stock, whether any such transaction is to be settled by delivery of shares of common stock or such other securities, in cash or otherwise; | |
| • | make any demand for or exercise any right with respect to the registration of any common stock or any securities convertible into or exercisable or exchangeable for common stock; or | |
| • | publicly disclose the intention to make any offer, sale, pledge or disposition, or to enter into any transaction, swap, hedge or other arrangement relating to any common stock or any securities convertible into or exercisable or exchangeable for common stock. |
Electronic Offer, Sale and Distribution of Securities
A prospectus in electronic format may be made available on the websites maintained by the underwriters or selling group members. The underwriters may agree to allocate a number of securities to selling group members for sale to its online brokerage account holders. Internet distributions will be allocated by the underwriters and selling group members that will make internet distributions on the same basis as other allocations. Other than the prospectus in electronic format, the information on these websites is not part of, nor incorporated by reference into, this prospectus or the registration statement of which this prospectus forms a part, has not been approved or endorsed by us, and should not be relied upon by investors.
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Stabilization
In connection with this offering, the underwriters may engage in stabilizing transactions, over-allotment transactions, syndicate-covering transactions, penalty bids and purchases to cover positions created by short sales.
Stabilizing transactions permit bids to purchase shares so long as the stabilizing bids do not exceed a specified maximum, and are engaged in for the purpose of preventing or retarding a decline in the market price of the shares while this offering is in progress.
Over-allotment transactions involve sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase. This creates a syndicate short position which may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters are not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any short position by exercising their over-allotment option and/or purchasing shares in the open market.
Syndicate covering transactions involve purchases of shares in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared with the price at which it may purchase shares through exercise of the over-allotment option. If the underwriters sell more shares than could be covered by exercise of the over-allotment option and, therefore, have a naked short position, the position can be closed out only by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that after pricing there could be downward pressure on the price of the shares in the open market that could adversely affect investors who purchase in this offering.
Penalty bids permit an underwriter to reclaim a selling concession from a syndicate member when the shares originally sold by that syndicate member are purchased in stabilizing or syndicate covering transactions to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our shares of common stock or preventing or retarding a decline in the market price of our shares of common stock. As a result, the price of our common stock in the open market may be higher than it would otherwise be in the absence of these transactions. Neither we nor the underwriters make any representation or prediction as to the effect that the transactions described above may have on the price of our common stock. These transactions may be effected in the over-the-counter market or otherwise and, if commenced, may be discontinued at any time.
Passive Market Making
In connection with this offering, underwriters and selling group members may engage in passive market making transactions in our common stock on NYSE American in accordance with Rule 103 of Regulation M under the Exchange Act, during a period before the commencement of offers or sales of the securities and extending through the completion of the distribution. A passive market maker must display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are lowered below the passive market maker’s bid, then that bid must then be lowered when specified purchase limits are exceeded
Other Relationships
The underwriters and their affiliates may in the future provide various investment banking, commercial banking and other financial services for us and our affiliates for which they may in the future receive customary fees.
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Offer Restrictions Outside The United States
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to this offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
Australia
This prospectus is not a disclosure document under Chapter 6D of the Australian Corporations Act, has not been lodged with the Australian Securities and Investments Commission and does not purport to include the information required of a disclosure document under Chapter 6D of the Australian Corporations Act. Accordingly, (i) the offer of the securities under this prospectus is only made to persons to whom it is lawful to offer the securities without disclosure under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in section 708 of the Australian Corporations Act, (ii) this prospectus is made available in Australia only to those persons as set forth in clause (i) above, and (iii) the offeree must be sent a notice stating in substance that by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (i) above, and, unless permitted under the Australian Corporations Act, agrees not to sell or offer for sale within Australia any of the securities sold to the offeree within 12 months after its transfer to the offeree under this prospectus.
Canada
The securities may be sold in Canada only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the securities must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws. Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor. Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI33-105 regarding underwriter conflicts of interest in connection with this offering.
China
The information in this document does not constitute a public offer of the securities, whether by way of sale or subscription, in the People’s Republic of China (excluding, for purposes of this paragraph, Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan). The securities may not be offered or sold directly or indirectly in the PRC to legal or natural persons other than directly to “qualified domestic institutional investors.”
European Economic Area — Belgium, Germany, Luxembourg and Netherlands
The information in this document has been prepared on the basis that all offers of securities will be made pursuant to an exemption under the Directive 2003/71/EC (the “Prospectus Directive”), as implemented in Member States of the European Economic Area, or a Relevant Member State, from the requirement to produce a prospectus for offers of securities.
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An offer to the public of securities has not been made, and may not be made, in a Relevant Member State except pursuant to one of the following exemptions under the Prospectus Directive as implemented in that Relevant Member State:
| • | to legal entities that are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities; | |
| • | to any legal entity that has two or more of (i) an average of at least 250 employees during its last fiscal year; (ii) a total balance sheet of more than €43,000,000 (as shown on its last annual unconsolidated or consolidated financial statements) and (iii) an annual net turnover of more than €50,000,000 (as shown on its last annual unconsolidated or consolidated financial statements); | |
| • | to fewer than 100 natural or legal persons (other than qualified investors within the meaning of Article 2(1)(e) of the Prospectus Directive) subject to obtaining the prior consent of our company or any underwriter for any such offer; or | |
| • | in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of securities shall result in a requirement for the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive. |
France
This document is not being distributed in the context of a public offering of financial securities (offre au public de titres financiers) in France within the meaning of Article L.411-1 of the French Monetary and Financial Code (Code monétaire et financier) and Articles 211-1 et seq. of the General Regulation of the French Autorité des marchés financiers (“AMF”). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in France.
This document and any other offering material relating to the securities have not been, and will not be, submitted to the AMF for approval in France and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in France.
Such offers, sales and distributions have been and shall only be made in France to (i) qualified investors (investisseurs qualifiés) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-1 to D.411-3, D. 744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation and/or (ii) a restricted number of non-qualified investors (cercle restreint d’investisseurs) acting for their own account, as defined in and in accordance with Articles L.411-2-II-2° and D.411-4, D.744-1, D.754-1 and D.764-1 of the French Monetary and Financial Code and any implementing regulation.
Pursuant to Article 211-3 of the General Regulation of the AMF, investors in France are informed that the securities cannot be distributed (directly or indirectly) to the public by the investors otherwise than in accordance with Articles L.411-1, L.411-2, L.412-1 and L.621-8 to L.621-8-3 of the French Monetary and Financial Code.
Ireland
The information in this document does not constitute a prospectus under any Irish laws or regulations and this document has not been filed with or approved by any Irish regulatory authority as the information has not been prepared in the context of a public offering of securities in Ireland within the meaning of the Irish Prospectus (Directive 2003/71/EC) Regulations 2005 (the “Prospectus Regulations”). The securities have not been offered or sold, and will not be offered, sold or delivered directly or indirectly in Ireland by way of a public offering, except to (i) qualified investors as defined in Regulation 2(l) of the Prospectus Regulations and (ii) fewer than 100 natural or legal persons who are not qualified investors.
Israel
The securities offered by this prospectus have not been approved or disapproved by the Israeli Securities Authority (the “ISA”), nor have such securities been registered for sale in Israel. The shares may not be offered or sold, directly or indirectly, to the public in Israel, absent the publication of a prospectus. The ISA has not issued permits, approvals or licenses in connection with this offering or publishing the prospectus; nor has it authenticated the details included herein, confirmed their reliability or completeness, or rendered an opinion as to the quality of the securities being offered. Any resale in Israel, directly or indirectly, to the public of the securities offered by this prospectus is subject to restrictions on transferability and must be effected only in compliance with the Israeli securities laws and regulations.
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Italy
The offering of the securities in the Republic of Italy has not been authorized by the Italian Securities and Exchange Commission (Commissione Nazionale per le Societ-$$-Aga e la Borsa) (the “CONSOB”), pursuant to the Italian securities legislation and, accordingly, no offering material relating to the securities may be distributed in Italy and such securities may not be offered or sold in Italy in a public offer within the meaning of Article 1.1(t) of Legislative Decree No. 58 of 24 February 1998 (“Decree No. 58”), other than:
| • | to Italian qualified investors (“Qualified Investors”), as defined in Article 100 of Decree no. 58 by reference to Article 34-ter of CONSOB Regulation no. 11971 of 14 May 1999 (“Regulation no. 1197l”), as amended; and | |
| • | in other circumstances that are exempt from the rules on public offer pursuant to Article 100 of Decree No. 58 and Article 34-ter of Regulation No. 11971 as amended. |
Any offer, sale or delivery of the securities or distribution of any offer document relating to the securities in Italy (excluding placements where a Qualified Investor solicits an offer from the issuer) under the paragraphs above must be:
| • | made by investment firms, banks or financial intermediaries permitted to conduct such activities in Italy in accordance with Legislative Decree No. 385 of 1 September 1993 (as amended), Decree No.58, CONSOB Regulation No. 16190 of 29 October 2007 and any other applicable laws; and | |
| • | in compliance with all relevant Italian securities, tax and exchange controls and any other applicable laws. |
Any subsequent distribution of the securities in Italy must be made in compliance with the public offer and prospectus requirement rules provided under Decree No. 58 and the Regulation No. 11971 as amended, unless an exception from those rules applies. Failure to comply with such rules may result in the sale of such securities being declared null and void and in the liability of the entity transferring the securities for any damages suffered by the investors.
Japan
The securities have not been and will not be registered under Article 4, paragraph 1 of the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948), as amended (the “FIEL”), pursuant to an exemption from the registration requirements applicable to a private placement of securities to Qualified Institutional Investors (as defined in and in accordance with Article2, paragraph 3 of the FIEL and the regulations promulgated thereunder). Accordingly, the securities may not be offered or sold, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan other than Qualified Institutional Investors. Any Qualified Institutional Investor who acquires securities may not resell them to any person in Japan that is not a Qualified Institutional Investor, and acquisition by any such person of securities is conditional upon the execution of an agreement to that effect.
Portugal
This document is not being distributed in the context of a public offer of financial securities (oferta pública de valores mobiliários) in Portugal, within the meaning of Article 109 of the Portuguese Securities Code (Código dos Valores Mobiliários). The securities have not been offered or sold and will not be offered or sold, directly or indirectly, to the public in Portugal. This document and any other offering material relating to the securities have not been, and will not be, submitted to the Portuguese Securities Market Commission (Comissăo do Mercado de Valores Mobiliários) for approval in Portugal and, accordingly, may not be distributed or caused to distributed, directly or indirectly, to the public in Portugal, other than under circumstances that are deemed not to qualify as a public offer under the Portuguese Securities Code. Such offers, sales and distributions of securities in Portugal are limited to persons who are “qualified investors” (as defined in the Portuguese Securities Code). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
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Sweden
This document has not been, and will not be, registered with or approved by Finansinspektionen (the Swedish Financial Supervisory Authority). Accordingly, this document may not be made available, nor may the securities be offered for sale in Sweden, other than under circumstances that are deemed not to require a prospectus under the Swedish Financial Instruments Trading Act (1991:980) (Sw. lag (1991:980) om handel med finansiella instrument). Any offering of securities in Sweden is limited to persons who are “qualified investors” (as defined in the Financial Instruments Trading Act). Only such investors may receive this document and they may not distribute it or the information contained in it to any other person.
Switzerland
The securities may not be publicly offered in Switzerland and will not be listed on the SIX Swiss Exchange (“SIX”) or on any other stock exchange or regulated trading facility in Switzerland. This document has been prepared without regard to the disclosure standards for issuance prospectuses under art. 652a or art. 1156 of the Swiss Code of Obligations or the disclosure standards for listing prospectuses under art. 27 ff. of the SIX Listing Rules or the listing rules of any other stock exchange or regulated trading facility in Switzerland. Neither this document nor any other offering material relating to the securities may be publicly distributed or otherwise made publicly available in Switzerland.
Neither this document nor any other offering material relating to the securities have been or will be filed with or approved by any Swiss regulatory authority. In particular, this document will not be filed with, and the offer of securities will not be supervised by, the Swiss Financial Market Supervisory Authority.
This document is personal to the recipient only and not for general circulation in Switzerland.
United Arab Emirates
Neither this document nor the securities have been approved, disapproved or passed on in any way by the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates, nor have we received authorization or licensing from the Central Bank of the United Arab Emirates or any other governmental authority in the United Arab Emirates to market or sell the securities within the United Arab Emirates. This document does not constitute and may not be used for the purpose of an offer or invitation. No services relating to the securities, including the receipt of applications and/or the allotment or redemption of such shares, may be rendered within the United Arab Emirates by us.
No offer or invitation to subscribe for securities is valid or permitted in the Dubai International Financial Centre.
United Kingdom
Neither the information in this document nor any other document relating to the offer has been delivered for approval to the Financial Services Authority in the United Kingdom and no prospectus (within the meaning of section 85 of the Financial Services and Markets Act 2000, as amended (“FSMA”)) has been published or is intended to be published in respect of the securities. This document is issued on a confidential basis to “qualified investors” (within the meaning of section 86(7) of FSMA) in the United Kingdom, and the securities may not be offered or sold in the United Kingdom by means of this document, any accompanying letter or any other document, except in circumstances which do not require the publication of a prospectus pursuant to section 86(1) FSMA. This document should not be distributed, published or reproduced, in whole or in part, nor may its contents be disclosed by recipients to any other person in the United Kingdom.
Any invitation or inducement to engage in investment activity (within the meaning of section 21 of FSMA) received in connection with the issue or sale of the securities has only been communicated or caused to be communicated and will only be communicated or caused to be communicated in the United Kingdom in circumstances in which section 21(1) of FSMA does not apply to us.
| 64 |
In the United Kingdom, this document is being distributed only to, and is directed at, persons (i) who have professional experience in matters relating to investments falling within Article 19(5) (investment professionals) of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 (the “FPO”), (ii) who fall within the categories of persons referred to in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc.) of the FPO or (iii) to whom it may otherwise be lawfully communicated (together “relevant persons”). The investments to which this document relates are available only to, and any invitation, offer or agreement to purchase will be engaged in only with, relevant persons. Any person who is not a relevant person should not act or rely on this document or any of its contents.
The validity of the securities being offered by this prospectus has been passed upon for us by Lucosky Brookman LLP. Certain legal matters in connection with this offering will be passed upon for the underwriters by .
The consolidated balance sheets of Vivakor, Inc. for the years ended December 31, 2019 and December 31, 2018, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for the years then ended, have been audited by Hall & Company, an independent registered public accounting firm, as set forth in its report appearing herein and are included in reliance upon such report given on the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares offered hereby. This prospectus, which constitutes a part of the registration statement, does not contain all of the information in the registration statement and the exhibits of the registration statement. For further information with respect to us and the securities being offered under this prospectus, we refer you to the registration statement, including the exhibits and schedules thereto.
The SEC maintains a website, which is located at www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may access the registration statement of which this prospectus is a part at the SEC’s website. We are subject to the information reporting requirements of the Exchange Act, and we will file reports, proxy statements and other information with the SEC.
| 65 |
VIVAKOR, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
VIVAKOR, INC.
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| ASSETS | (Unaudited) | |||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 477,155 | $ | 604,903 | ||||
| Marketable securities, trading | 2,928,977 | – | ||||||
| Inventories | 525,744 | 525,744 | ||||||
| Precious metal concentrate | 1,183,228 | 1,183,228 | ||||||
| Prepaid expenses and other assets | 138,893 | 202,392 | ||||||
| Total current assets | 5,253,997 | 2,516,267 | ||||||
| Equity method investments | 688,701 | 727,129 | ||||||
| Other investments | 3,000 | 28,000 | ||||||
| Notes receivable | 75,970 | 844,892 | ||||||
| Property and equipment, net | 17,529,683 | 15,925,548 | ||||||
| Rights of use assets- operating leases | 1,026,175 | 1,167,149 | ||||||
| License agreement, net | 2,074,225 | 2,134,639 | ||||||
| Intellectual property, net | 15,603,971 | 16,260,169 | ||||||
| Total assets | $ | 42,255,722 | $ | 39,603,793 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) AND TEMPORARY EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,206,344 | $ | 871,867 | ||||
| Loans and notes payable | 1,390,576 | 694,145 | ||||||
| Stock payable | – | 11,800,000 | ||||||
| Operating lease liabilities, current | 311,070 | 345,442 | ||||||
| Long-term debt, current | 1,008,881 | 126,535 | ||||||
| Total current liabilities | 3,916,871 | 13,837,989 | ||||||
| Operating lease liabilities, long term | 725,861 | 826,010 | ||||||
| Long-term debt | 3,654,265 | 3,900,923 | ||||||
| Deferred income tax liabilities | 5,732,771 | 5,702,751 | ||||||
| Total liabilities | $ | 14,029,768 | $ | 24,267,673 | ||||
| Redeemable, convertible preferred stock, $.001 par value; 348,000,000 shares authorized; | ||||||||
| Series B- 12.5%, cumulative, 13,446,990 and 21,251,890 issued and outstanding as of June 30, 2020 and December 31, 2019 | $ | 2,689,400 | $ | 4,250,380 | ||||
| Series B-1- 22,330,660 and 22,758,670 issued and outstanding as of June 30, 2020 and December 31, 2019 | 5,582,689 | 5,689,690 | ||||||
| Series C-1- 13,281,760 and 13,384,760 issued and outstanding as of June 30, 2020 and December 31, 2019 | 6,800,209 | 6,841,409 | ||||||
| Total temporary equity | 15,072,298 | 16,781,479 | ||||||
| Stockholders' equity (deficit): | ||||||||
| Preferred stock, $.001 par value; 2,000,000 shares authorized; Series A- 2,000,000 issued and outstanding | 2,000 | 2,000 | ||||||
| Common stock, $.001 par value; 1,250,000,000 shares authorized; 315,463,190 and 285,343,964 issued and outstanding as of June 30, 2020 and December 31, 2019 | 315,463 | 285,344 | ||||||
| Additional paid-in capital | 38,401,838 | 24,793,943 | ||||||
| Treasury stock, at cost | (20,000 | ) | (20,000 | ) | ||||
| Accumulated deficit | (27,015,290 | ) | (27,848,500 | ) | ||||
| Total Vivakor, Inc. stockholders' equity (deficit) | 11,684,011 | (2,787,213 | ) | |||||
| Noncontrolling interest | 1,469,645 | 1,341,854 | ||||||
| Total stockholders' equity (deficit) | 13,153,656 | (1,445,359 | ) | |||||
| Total liabilities and stockholders’ equity (deficit) and temporary equity | $ | 42,255,722 | $ | 39,603,793 | ||||
See accompanying notes to consolidated financial statements
| F-2 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | $ | 38,990 | $ | – | $ | 1,023,344 | $ | – | ||||||||
| Cost of revenues | 26,364 | – | 984,941 | – | ||||||||||||
| Gross profit | 12,626 | – | 38,403 | – | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Sales and marketing | 132,620 | 22,479 | 249,089 | 49,769 | ||||||||||||
| General and administrative | 346,407 | 242,844 | 613,188 | 359,392 | ||||||||||||
| Bad debt expense | 4,645 | – | 7,645 | – | ||||||||||||
| Amortization and depreciation | 411,696 | 359,504 | 823,355 | 718,401 | ||||||||||||
| Total operating expenses | 895,368 | 624,827 | 1,693,277 | 1,127,562 | ||||||||||||
| Loss from operations | (882,742 | ) | (624,827 | ) | (1,654,874 | ) | (1,127,562 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Equity investment loss | (21,219 | ) | – | (38,428 | ) | – | ||||||||||
| Gain on extinguished debt | – | – | – | 607,536 | ||||||||||||
| Realized loss on conversion of note receivable | (121,428 | ) | – | (121,428 | ) | – | ||||||||||
| Unrealized gain (loss) on marketable securities | (834,164 | ) | – | 2,215,827 | – | |||||||||||
| Interest income | 13,525 | 18,296 | 32,859 | 35,865 | ||||||||||||
| Interest expense | (7,573 | ) | (642 | ) | (11,295 | ) | (3,938 | ) | ||||||||
| Other income | 44,850 | 3,800 | 40,010 | 12,389 | ||||||||||||
| Total other income (expense) | (926,009 | ) | 21,454 | 2,117,545 | 651,852 | |||||||||||
| Income (loss) before provision for income taxes | (1,808,751 | ) | (603,373 | ) | 462,671 | (475,710 | ) | |||||||||
| Benefit (provision) for income taxes | (353,834 | ) | 56,158 | 8,171 | (52,831 | ) | ||||||||||
| Consolidated net income (loss) | (2,162,585 | ) | (547,215 | ) | 470,842 | (528,541 | ) | |||||||||
| Less: Net loss attributable to noncontrolling interests | (189,268 | ) | (19,031 | ) | (427,116 | ) | (29,176 | ) | ||||||||
| Net income (loss) attributable to Vivakor, Inc. | $ | (1,973,317 | ) | $ | (528,184 | ) | $ | 897,958 | $ | (499,365 | ) | |||||
| Net income (loss) attributable to Vivakor, Inc. | $ | (1,973,317 | ) | $ | (528,184 | ) | $ | 897,958 | $ | (499,365 | ) | |||||
| Less: Dividend on preferred stock | 64,748 | 319,440 | 64,748 | 319,440 | ||||||||||||
| $ | (2,038,065 | ) | $ | (847,624 | ) | $ | 833,210 | $ | (818,805 | ) | ||||||
| Basic income (loss) per common share | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | |||||
| Diluted income (loss) per common share | $ | (0.01 | ) | $ | (0.00 | ) | $ | 0.00 | $ | (0.00 | ) | |||||
| Weighted average number of common shares- basic | 311,363,869 | 253,303,449 | 298,555,191 | 242,001,785 | ||||||||||||
| Weighted average number of common shares- diluted | 311,363,869 | 253,303,449 | 385,198,110 | 242,001,785 | ||||||||||||
See accompanying notes to consolidated financial statements
| F-3 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT)
| Series A Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Non-controlling Interest | Total Stockholders' Equity (Deficit) | ||||||||||||||||||||||||||||
| December 31, 2019 | 2,000,000 | $ | 2,000 | 285,343,964 | $ | 285,344 | $ | 24,793,943 | $ | (20,000 | ) | $ | (27,848,500 | ) | 1,341,854 | $ | (1,445,359 | ) | ||||||||||||||||||
| Common Stock issued for reduction in stock payable | 20,000,000 | 20,000 | 11,780,000 | – | – | – | 11,800,000 | |||||||||||||||||||||||||||||
| Common Stock issued for cash | – | – | 228,000 | 228 | 40,800 | – | – | – | 41,028 | |||||||||||||||||||||||||||
| Conversion of temporary equity Series B, B-1, and C-1 Preferred Stock to Common Stock | – | – | 9,891,226 | 9,891 | 1,764,038 | – | – | – | 1,773,929 | |||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 23,057 | – | – | – | 23,057 | |||||||||||||||||||||||||||
| Issuance of noncontrolling interest | – | – | – | – | – | – | – | 554,907 | 554,907 | |||||||||||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | – | – | (64,748 | ) | – | (64,748 | ) | |||||||||||||||||||||||||
| Net income (loss) | – | – | – | – | – | – | 897,958 | (427,116 | ) | 470,842 | ||||||||||||||||||||||||||
| June 30, 2020 (unaudited) | 2,000,000 | $ | 2,000 | 315,463,190 | $ | 315,463 | $ | 38,401,838 | $ | (20,000 | ) | $ | (27,015,290 | ) | $ | 1,469,645 | $ | 13,153,656 | ||||||||||||||||||
| Series A Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Non-controlling Interest | Total Shareholders' Deficit | ||||||||||||||||||||||||||||
| December 31, 2018 | 2,000,000 | $ | 2,000 | 230,256,188 | $ | 230,257 | $ | 13,363,511 | $ | (20,000 | ) | $ | (25,194,204 | ) | $ | (7,181 | ) | $ | (11,625,617 | ) | ||||||||||||||||
| Common Stock issued for reduction in liabilities | 171,000 | 171 | 42,629 | – | – | – | 42,800 | |||||||||||||||||||||||||||||
| Exercise of Common Stock warrants | – | – | 210,000 | 210 | 83,790 | – | – | – | 84,000 | |||||||||||||||||||||||||||
| Conversion of temporary equity Series B and B-1 Preferred Stock to Common Stock | – | – | 37,237,612 | 37,237 | 7,711,133 | – | – | – | 7,748,370 | |||||||||||||||||||||||||||
| Stock based compensation | – | – | – | – | 23,057 | – | – | – | 23,057 | |||||||||||||||||||||||||||
| Issuance of noncontrolling interest | – | – | – | – | – | – | – | 290,000 | 290,000 | |||||||||||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | – | – | (319,440 | ) | – | (319,440 | ) | |||||||||||||||||||||||||
| Net loss | – | – | – | – | – | – | (499,365 | ) | (29,176 | ) | (528,541 | ) | ||||||||||||||||||||||||
| June 30, 2019 (unaudited) | 2,000,000 | $ | 2,000 | 267,874,800 | $ | 267,875 | $ | 21,224,120 | $ | (20,000 | ) | $ | (26,013,009 | ) | $ | 253,643 | $ | (4,285,371 | ) | |||||||||||||||||
See accompanying notes to consolidated financial statements
| F-4 |
VIVAKOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2020 | 2019 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Consolidated net income (loss) | $ | 470,842 | $ | (528,541 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 823,355 | 718,401 | ||||||
| Bad debt expense | 7,645 | – | ||||||
| Equity investment loss | 38,428 | – | ||||||
| Gain on extinguished debt | – | (607,536 | ) | |||||
| Realized loss on conversion of note receivable | 121,428 | – | ||||||
| Unrealized gain- marketable securities | (2,215,827 | ) | – | |||||
| Deferred income taxes | 30,020 | 54,337 | ||||||
| Stock-based compensation | 23,057 | 23,057 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (6,000 | ) | (5,730 | ) | ||||
| Other assets | (37,549 | ) | (3,087 | ) | ||||
| Right of use assets | 140,974 | – | ||||||
| Operating lease liabilities | (140,974 | ) | – | |||||
| Accounts payable | 334,477 | 24,470 | ||||||
| Accrued interest on notes receivable | (32,859 | ) | (35,865 | ) | ||||
| Accrued interest on notes payable | 11,295 | 3,938 | ||||||
| Net cash used in operating activities | (431,688 | ) | (356,556 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Issuance of notes receivable | (9,442 | ) | (77,544 | ) | ||||
| Patent costs- intangible assets | – | (1,400 | ) | |||||
| Purchase of equipment | (877,713 | ) | (485,917 | ) | ||||
| Net cash used in investing activities | (887,155 | ) | (564,861 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from long-term debt | – | 1,620,244 | ||||||
| Payment of long-term debt | (96,429 | ) | (969,978 | ) | ||||
| Proceeds from loans and notes payable | 694,508 | 28,040 | ||||||
| Proceeds from sale of common stock | 41,028 | – | ||||||
| Payment of notes payable | (2,919 | ) | – | |||||
| Proceeds from exercised stock warrants for cash | – | 84,000 | ||||||
| Issuance of noncontrolling interest | 554,907 | 290,000 | ||||||
| Net cash provided by financing activities | 1,191,095 | 1,052,306 | ||||||
| Net increase (decrease) in cash and cash equivalents | (127,748 | ) | 130,889 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 604,903 | 916,480 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 477,155 | $ | 1,047,369 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | – | – | ||||||
| Income taxes | – | – | ||||||
| Noncash transactions: | ||||||||
| Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock | $ | 1,773,929 | $ | 7,748,370 | ||||
| Stock issued for a reduction in liabilities | $ | 11,800,000 | $ | 42,800 | ||||
| Dividend paid in Series B-1 Preferred Stock | $ | 64,748 | $ | 319,440 | ||||
| Conversion of note receivable to equity investment | $ | 809,578 | – | |||||
| Extinguished debt for equity investment | $ | – | $ | 25,314 | ||||
| Extinguished notes receivable for equity investment | – | $ | 800,000 | |||||
| Capitalized interest on construction in process | $ | 724,674 | $ | 452,282 | ||||
See accompanying notes to consolidated financial statements
| F-5 |
VIVAKOR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Organization and Basis of Presentation
Vivakor, Inc. (collectively “we”, “us,” “our,” “Vivakor” or the “Company”) is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, which is currently focused on soil remediation in the United States and Kuwait, and we have corporate offices in Utah, California, and in Qatar. We specialize in the remediation of soil from properties contaminated by or laden with heavy crude oil and other substances. The Company was originally organized on November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. The Company’s name was changed to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, the Company was converted to a C-corporation and changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and the U.S. response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations. In March 2020 we temporarily suspended operations in Kuwait and Utah due to COVID-19 government restrictions and as of the date of this report we have not resumed operations.
Note 2. Going Concern
As of June 30, 2020 we had $477,155 of cash on hand and had an accumulated deficit of $27,015,290. There is substantial doubt as to our ability to continue as a going concern based on the understanding that we do not have adequate working capital to finance our day-to-day operations for at least the next twelve months through October 2021. In order to meet our obligations as they come due and to fund the expansion of our asset acquisition strategy and the business of our technologies, we will require new funding to pay for these expenses. We may do so through loans from current stockholders, public or private equity or debt offerings, grants, or strategic arrangements with third parties, and we intend to and are in the process of seeking out possible capital raising efforts. There can be no assurance that additional capital will be available to the Company or if the terms will be favorable.
We currently have no agreements, arrangements, or understandings with any person to obtain additional funds through bank loans, lines of credit or any other sources. We entered into an engagement letter with an investment banking firm to act as the sole underwriter of a proposed registered public offering of Common Stock by the Company. The agreement is conditioned, amongst other things, the following: The parties entering into an Underwriting Agreement, and the Company meeting the criteria necessary for the inclusion of the Common Stock on the Nasdaq or the NYSE American. We have no material commitments or contractual purchase obligations for the next twelve months. If we are not able to obtain the additional financing on a timely basis, we may be required to further scale down or perhaps even cease the operation of our business. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Our consolidated financial statements do not include adjustments that might result from the outcome of this uncertainty.
| F-6 |
Note 3. Summary of Significant Accounting Policies
Interim Financial Information
The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Certain information and disclosures normally included in consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. Accordingly, these consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the related notes for the year ended December 31, 2019. The accompanying interim consolidated balance sheet as of June 30, 2020, the consolidated interim statements of operations for the six months ended June 30, 2020 and 2019, the consolidated interim statements of changes in stockholders’ equity (deficit) for the six months ended June 30, 2020 and 2019, and the consolidated statements of cash flows for the six months ended June 30, 2020 and 2019, are unaudited. The unaudited interim consolidated financial statements have been prepared on a basis consistent with that used to prepare the audited annual consolidated financial statements and include, in the opinion of management, all adjustments, consisting of normal and recurring items, necessary for the fair presentation of the consolidated financial statements. The operating results for the six months ended June 30, 2020 are not necessarily indicative of the results expected for the full year ending December 31, 2020.
Principles of Consolidation
The consolidated financial statements include the accounts of Vivakor, Inc., its wholly owned and majority-owned active subsidiaries, or joint ventures (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated. Vivakor has the following active wholly and majority-owned subsidiaries: Vivaventures Management Company, Inc., Vivaventures Energy Group, Inc. (99%), Vivaventures Oil Sands, Inc., Vivasphere, Inc., Vivasight, Inc. (inactive), and Vivathermic, Inc. (inactive). Vivakor maintains an interest in the following entities: Health America, Inc. (39%, inactive), VVPM 100, LLC (inactive), which is managed by Vivakor, VPM VII, LLC (inactive), which is managed by Vivakor, Vivakor Middle East, LLC (49%), VivaRRT, LLC (50%, inactive), and VivaVentures Precious Metal, LLC (39%). Vivakor manages and consolidates RPC Design and Manufacturing LLC, which includes a noncontrolling interest investment from Vivaopportunity Fund, LLC, which is also managed by Vivaventures Management Company, Inc.
The Company follows ASC 810-10-15 guidance with respect to accounting for Variable Interest Entities (“VIE”). A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of the entity’s expected residual returns. Variable interests are contractual, ownership, or other pecuniary interests that change with changes in the fair value of the entity’s net assets. A party is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides the party with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances. For the six months ended June 30, 2020 and for the year ended December 31, 2019 the following entity was considered to be a VIE and is consolidated in our consolidated financial statements: RPC Design and Manufacturing, LLC. For the six months ended June 30, 2020 and for the year ended December 31, 2019 the following entities were considered to be a VIE, but were not consolidated in our consolidated financial statements due to a lack of the power criterion or the losses/benefits criterion: Vivaventures UTSI, LLC, Vivaventures Royalty II, LLC, and Vivaopportunity Fund, LLC. For the six months ended June 30, 2020 and for the year ended December 31, 2019 the unaudited financial information for the unconsolidated VIEs is as follows: Vivaventures UTSI, LLC held assets of $2,767,794 and $2,341,192 (where the primary asset represents a receivable from the Company), and liabilities of $40,488 and $40,019. Vivaventures Royalty II, LLC held assets of $1,908,519 and $1,776,360 (where the primary asset represents a receivable from the Company), and liabilities of $300. Vivaopportunity Fund LLC held assets of $2,041,000 and $1,793,000 (where the primary asset represents a noncontrolling interest in units of a consolidated entity of the Company) and liabilities of $50,000 and none.
RPC Design and Manufacturing, LLC: The Company established RPC Design and Manufacturing, LLC (“RDM”) in December 2018 with a business purpose of manufacturing custom machinery and selling or leasing the manufactured equipment in long term contracts with financing or leasing activities to the Company. We own 100% of the voting rights in the RDM. We, as the sole general partner of the RDM, have the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of the LLC and take certain actions necessary to maintain the LLC in good standing without the consent of the limited partners. RDM has entered into a license agreement with the Company indicating that while RDM builds custom machinery incorporating the Company’s hydrocarbon extraction technology, RDM will pay the Company a license fee of $500,000 per Remediation Processing Center manufactured. Creditors of RDM have no recourse to the general credit of the Company. For the six months ended June 30, 2020 and 2019 investors in RDM have a noncontrolling interest of $2,019,000 and $290,000. For the year ended December 31, 2019, investors in RDM have a noncontrolling interest of $1,464,000 We have the primary risk (expense) exposure in financing and operating the assets and are responsible for 100% of the operation, maintenance and any unfunded capital expenditures, which ultimately could be 100% of a custom machine, and the decisions related to those expenditures including budgeting, financing and dispatch of power. Based on all these facts, it was determined that we are the primary beneficiary of RDM. Therefore, RDM has been consolidated by the Company. Any intercompany revenue and expense associated with RDM and its license agreement with the Company has been eliminated in consolidation.
| F-7 |
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when acquired to be cash equivalents. As of June 30, 2020 and December 31, 2019, the Company does not have any cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2020 and December 31, 2019, the Company had bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institutions, the Company annually evaluates the rating of the financial institutions in which it holds deposits.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimated allowance for doubtful accounts, if deemed necessary by management, and based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts, if any, by identifying troubled accounts and by using historical experience applied to an aging of accounts. An allowance for doubtful accounts was considered necessary by management as of June 30, 2020, and December 31, 2019 in the amounts of $27,000 and $21,000, respectively.
Equity Method Investments
Consolidated net income (loss) includes the Company’s proportionate net income or loss of equity investments. The carrying value of the Company’s equity method investments is increased and decreased by the Company’s proportionate share of the net income or loss of the investee. The carrying value of our equity method investment is also decreased by dividends the Company receives from the investee. As of June 30, 2020 and December 31, 2019 the equity method investments consisted of the following:
In 2019 the Company had an investment of $800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (ticker: BRZL, OTC Markets). For the six months ended June 30, 2020 and for the year ended December 31, 2019, the Company was attributed a loss on this equity investment in the amount of $38,428 and $72,871. There were no distributions to the Company in 2020 or 2019 from Scepter Holdings, Inc. As of June 30, 2020 and December 31, 2019 the net value of equity investment was $688,701 and $727,129. As of June 30, 2020 and December 31, 2019, the Company’s Chief Executive Officer has an immediate family member who is an officer of Scepter Holdings, Inc.
As of June 30, 2020 and December 31, 2019 the Company held a 39% interest in Vivaventures Precious Metals, LLC for which the fair value of this investment is none. In July 2020, the Company withdrew from this LLC.
Cost Method Investments
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
As of June 30, 2020, and the year ended December 31, 2019, the Company owns 1,000 Class A LLC Units in each of the following entities, which are not consolidated: Vivaventures UTSI, LLC and Vivaventures Royalty II, LLC. In 2019 the Company purchased 1,000 Class A Units in Vivaopportunity Fund LLC. In aggregate these units amount to $3,000 as of June 30, 2020 and December 31, 2019. These Class A Units give the Company’s management control of the entities but lack the necessary economics criterion, where the Company lacks the obligation to absorb losses of these entities, as well as the right to receive benefits from the LLCs.
| F-8 |
As of December 31, 2019, the Company owned 2,500,000 shares of common stock in Odyssey Group International, Inc. (ticker: ODYY, OTC Markets), at a cost of $25,000. For the six months ended June 30, 2020, the Company noted that this investment began trading on an active market and accounted for such securities based on the quoted price from the OTC Markets where the stock is currently traded (See Note 5). As of December 31, 2019 the Company accounted for such securities at cost minus impairment due to the investment not being traded on an active market noting that the stock was thinly traded.
Convertible Instruments
The Company reviews the terms of convertible debt and preferred stock for indications requiring bifurcation, and separate accounting for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company or the number of shares is variable are bifurcated and accounted for as derivative financial instruments. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires the allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the host instrument. The resulting discount to the debt instrument or the redemption value of convertible preferred securities is accreted through periodic charges to interest expense over the term of the agreements or to dividends over the period to the earliest conversion date using the effective interest rate method, respectively.
Derivative Financial Instruments
The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants to purchase the Company’s common stock and the embedded conversion features of debt and preferred instruments that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for embedded conversion features and option-based derivative financial instruments is determined using the Monte Carlo Simulation or the Black-Scholes Option Pricing Model, respectively.
Other convertible instruments that are not derivative financial instruments are accounted for by recording the intrinsic value of the embedded conversion feature as a discount from the initial value of the instrument and accreting it back to face value over the period to the earliest conversion date using the effective interest rate method.
Leases
Effective January 1, 2019, we adopted Accounting Standards Codification 842, Leases ("ASC 842"). We determine if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances.
We are the lessee in a lease contract when we obtain the right to control the asset. Operating lease right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on our consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of operations. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our local incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. ASC 842 is effective for us beginning on January 1, 2019. As of June 30, 2020 and December 31, 2019, we recorded right-of-use assets of $1,026,175 and $1,167,149 and lease obligations of $1,036,931 and $1,171,452. On adoption, we recognized additional liabilities, with corresponding ROU assets based on the present value of the lease payments over the lease term under current leasing contracts for existing operating leases. There was no statement of operations or cash flow statement impact on adoption, nor were prior periods adjusted.
The effects of the changes made to our balance sheet at adoption were as follows:
|
Balance at December 31, 2018 |
Impact from ASU 2016-02 Adoption |
Balance at January 1, 2019 |
||||||||||
| Financial statement line item: | ||||||||||||
| Right-of-use assets- operating leases | $ | – | $ | 130,383 | $ | 130,383 | ||||||
| Current lease liabilities | $ | – | $ | (130,383 | ) | $ | (130,383 | ) | ||||
| F-9 |
Long Lived Assets
The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. No impairment charges were incurred during the years ended December 31, 2019 and 2018. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.”
Property and equipment, net
Property and equipment are stated at cost or fair value when acquired. Depreciation is computed by the straight-line method and is charged to the statement of operations over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease. Impairment losses are recognized for long-lived assets, including definite-lived intangibles, used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are not sufficient to recover the assets' carrying amount. Impairment losses are measured by comparing the fair value of the assets to their carrying amount.
Interest on long-term debt for the development or manufacturing of Company assets is capitalized to the asset until the asset enters production or use, and thereafter all interest is charged to expense as incurred. Maintenance and repairs are charged to expense as incurred. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease.
The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
| Computers, software, and office equipment | 1-5 years |
| Machinery and equipment | 3-5 years |
| Vehicles | 5 years |
| Furniture and fixtures | 5 – 10 years |
|
Precious metal extraction machinery (heavy extraction equipment) |
10 years |
|
Remediation Processing Centers (heavy extraction and remediation equipment) (“RPC”) |
20 years |
| Leasehold improvements | Lesser of the lease term or estimated useful life |
In 2020, Company retained the services of an engineering firm to lend its opinion on the economic life of the Remediation Processing Centers. The engineering firm issued an equipment life cycle report and opinion of a 20-year service life. Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service.
Intangible Assets:
We account for intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 10 to 20 years. The carrying amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount.
| F-10 |
Share-Based Compensation
Share-based compensation is accounted for based on the requirements of ASC 718, “Compensation-Stock Compensation’ (“ASC 718”) which requires recognition in the financial statements of the cost of employee, consultant, or director services received in exchange for an award of equity instruments over the period the employee, consultant, or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, consultant, or director services received in exchange for an award based on the grant-date fair value of the award.
Income tax
Deferred income taxes are provided on the asset and liability method whereby deferred income tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Our annual effective tax rate is based on our income and the tax laws in the various jurisdictions in which we operate. Judgment is required in determining our annual tax expense and in evaluating our tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the position becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained; (2) the tax position is "more likely than not" to be sustained, but for a lesser amount; or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these reserves, including any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit. See Note 20 for further information on income tax.
Revenue Recognition
Effective January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). Our sales consist of the sale of precious metals with a commitment to deliver precious metals to the customer, and revenue is recognized on the settlement date, which is defined as the date on which: (1) the quantity, price, and specific items being purchased have been established, (2) metals have been delivered to the customer, and (3) payment has been received or is covered by the customer’s established credit limit with the Company.
The new standard contains a five-step approach that entities will apply to determine the measurement of revenue and timing of when it is recognized, including (i) identifying the contract(s) with a customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to separate performance obligations, and (v) recognizing revenue when (or as) each performance obligation is satisfied. The new standard requires a number of disclosures intended to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue, and the related cash flows. The disclosures include qualitative and quantitative information about contracts with customers, significant judgments made in applying the revenue guidance, and assets recognized from the costs to obtain or fulfill a contract.
In order to ensure the revenue recognition in the proper period, we review material sales contracts for proper cut-off based upon the business practices and legal requirements of each country
Our performance obligation generally consists of the promise to sell products or complete services to our customers. Control of the products is transferred upon shipment to, or receipt at, our customers' locations, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized. Services are completed upon the terms of each contract, specifically in regard to remediation, when the tonnage of contaminated soil is completed and tested our performance obligation is completed and revenue is recognized. After completion of our performance obligation, we have an unconditional right to consideration as outlined in the contract. Our receivables will generally be collected in less than six months, in accordance with the underlying payment terms.
| F-11 |
Advertising Expense
Advertising costs are expensed as incurred. The Company did not have advertising expense for the six months ended June 30, 2020 and 2019.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt-out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies.
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company beginning January 1, 2021. We are currently evaluating the impact that ASU 2019-12 may have on our consolidated financial statements.
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06 Debt—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 Contracts in an Entity’s Own Equity, which improves Convertible Instruments and Contracts in an Entity’s Own Equity and is expected to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity 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 also simplifies the diluted earnings per share (EPS) calculation in certain areas. We are currently evaluating the impact that ASU 2020-06 may have on our consolidated financial statements.
Net Income/Loss Per Share
Basic net income (loss) per share is calculated by subtracting any preferred interest distributions from net income (loss), all divided by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method if their effect is dilutive. Potential dilutive instruments for the six months ended June 30, 2020 and 2019 include the following: convertible notes payable convertible into approximately 1,380,984 and 156,731 shares of common stock, convertible Series A preferred stock convertible into 20,000,000 shares of common stock, convertible Series B preferred stock convertible into approximately 13,446,990 and 36,009,711 shares of common stock, convertible Series B-1 preferred stock convertible into approximately 22,330,660 and 23,544,455 shares of common stock, convertible Series C-1 preferred stock convertible into approximately 13,281,760 and 12,117,160 shares of common stock, stock grants to employees of 500,000 shares of common stock, and warrants for 1,060,000 and 12,080,000 shares of common stock. As of December 31, 2019, a stock payable of 20,000,000 was also outstanding.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our critical accounting estimates relate to the following: Recoverability of current and noncurrent Assets, revenue recognition, stock-based compensation, income taxes, effective interest rates related to long-term debt, marketable securities, cost basis and equity method investments, lease assets and liabilities, equity method investments, valuation of stock used to acquire assets, and derivatives.
| F-12 |
While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.
Fair Value of Financial Instruments
The Company follows Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying amounts reported in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their estimated fair market values based on the short-term maturity of these instruments. The recorded values of notes payable approximate their current fair values because of their nature, rates, and respective maturity dates or durations.
Note 4. Prepaid Expenses and Other Assets
As of June 30, 2020 and December 31, 2019, our prepaid expenses and other assets consist of the following:
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Prepaid expense on option to purchase land, net (a) | $ | 16,841 | $ | 117,889 | ||||
| Deposits (b) | 122,052 | 84,503 | ||||||
| Total Prepaid Expenses and Other Assets | $ | 138,893 | $ | 202,392 | ||||
(a) The Company entered into an Option Agreement in July 2019 for the exclusive right to purchase certain real property commonly known as Asphalt Ridge. The right to purchase the land was purchased for $200,000, which would be applied as a payment on the land if the option is exercised to purchase the land. The agreement gives the Company 12 months for due diligence and to operate on the land. The agreement grants the Company the option to extend the option for an additional 6 months for a cost of $200,000. The Company capitalized the cost of legal expense for this option in the amount of $2,096 bringing the gross value of the option to $202,096. The Company amortized the prepaid over the life of the agreement, 12 months. For the three months ended June 30, 2020 and 2019 amortization expense was $50,524 and none compared to $101,048 and none for the six months ended June 30, 2020 and 2019. In July 2020 the landowner agreed to amend the Option Agreement to extend the term of this option for an additional 6 months at no cost to the Company.
| F-13 |
(b) Various deposits with vendors, professional service agents, or security deposits on office and warehouse leases.
Note 5. Marketable Securities
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
As of December 31, 2019, the Company owned 2,500,000 shares of common stock in Odyssey Group International, Inc. (“Odyssey”) ticker: ODYY, OTC Markets), at a cost of $25,000. As of December 31, 2019 the Company accounted for such securities at cost minus impairment due to the investment not being traded on an active market noting that the stock was thinly traded. As of June 30, 2020, the Company converted the outstanding balance of $809,578 of its note receivable with Odyssey into 809,578 shares of Odyssey common stock according to the terms of the note receivable. As of June 30, 2020, the Company owns 3,309,578 shares of Odyssey common stock. The Company noted that Odyssey’s common stock began trading on an active market and classified them as trading securities with the change in unrealized gains and losses on the investment included in the statement of operations. As of June 30, 2020 all of the Company’s marketable securities are classified as trading securities. The Company accounted for such securities based on the quoted price from the OTC Markets where the stock is traded which resulted in the Company recording an unrealized loss on marketable securities in the statement of operations of $834,164 for the three months ended June 30, 2020 compared to $2,215,827 for the six months ended June 30, 2020. As of June 30, 2020 marketable securities were $2,928,977.
Note 6. Inventories
Inventories consist primarily of raw materials (including tar-sand stockpiles) and finished goods (which includes Fenix iron). Inventories are valued at the lower of cost or market (net realizable value). The tar-sand stockpiles consist of 400,000 tons of tar sand stockpile and are anticipated to be used as test material for our extraction remediation units. The stockpiles were acquired at a cost of approximately $0.83 per ton or $333,744. The nano Fenix Iron are finished goods that have a 20-year shelf life and were acquired at cost for $192,000.
Note 7. Precious Metal Concentrate
Precious metal concentrate includes metal concentrates located at the Company’s facilities. Concentrates consist of gold, silver, platinum, palladium, and rhodium. Precious metal concentrate was acquired from our funding agreements for extraction operations with Vivaventures Precious Metals LLC from 2013 through 2016. Our precious metal concentrate requires further refining to be sold as a finished product and is valued at the lower of cost or market (net realizable value).
As of June 30, 2020 and December 31, 2019, the Company carried a refining reserve of $1,183,229 against its precious metal concentrate asset based on estimates that the Company received if it were to sell the precious metal concentrate in its current concentrated form to processing refineries. The Company intends to refine our precious metal concentrate into dore bars for sale or monetization and investment purposes.
As of June 30, 2020 and December 31, 2019 the net realizable value of the precious metal concentrate is $1,183,228.
| F-14 |
Note 8. Notes Receivable
Notes receivable consist of the following:
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Related party receivable (a) | $ | – | $ | 2,202 | ||||
| Odyssey Group International, Inc. note receivable (b) | – | 779,176 | ||||||
| Scepter Holdings, Inc. note receivable (c) | 75,970 | 63,514 | ||||||
| Total Notes Receivable | $ | 75,970 | $ | 844,892 | ||||
(a) In 2019, the Company loaned $2,202 to Vivaopportunity Fund, LLC, which holds a noncontrolling interest in our consolidated financial statements. As of June 30, 2020 the $2,202 has been repaid. The Company is not required to provide any subordinated support to this entity.
(b) We entered into a Master Revolving Note with Odyssey Group International, Inc., (ticker: ODYY, OTC Markets) in January 2017 for the Company to lend up to $450,000 to the holder. The note accrued interest at a rate of 12.5% per annum and accrued monthly on the outstanding principal. The loan was amended in November 2017 to extend the maturity date to lend up to $750,000 and it extended the maturity to January 2020. All outstanding principal and accrued interest of $809,578 was converted to the borrower’s common stock in June 2020 at $1.00 per share for 809,578 shares of common stock.
(c) We entered into a Master Revolving Note with Scepter Holdings, Inc. (ticker: BRZL, OTC Markets) in January 2019 for the Company to lend up to $70,000 to the holder. The note accrues interest at a rate of 7% per annum and accrues monthly on the outstanding principal. The note is convertible into common shares of Scepter Holdings, Inc. at a rate of $0.002 per share or a 50% discount to market on the date of conversion, whichever is less. The note matured in January 2020 and was amended to extend the maturity for an additional year with a maturity of January 2021 and the maximum amount of note was increased to $100,000.
Note 9. Property and Equipment
The following table sets forth the components of the Company’s property and equipment at June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Depreciation | Net Book Value | Gross Carrying Amount | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Office furniture and equipment | $ | 14,011 | $ | 1,099 | $ | 12,912 | $ | 9,617 | $ | 229 | $ | 9388 | ||||||||||||
| Vehicles | 48,248 | 11,832 | 36,416 | 48,248 | 7,007 | 41,241 | ||||||||||||||||||
| Precious metal extraction machine- 1 ton | 2,280,000 | 228,000 | 2,052,000 | 2,280,000 | 228,000 | 2,052,000 | ||||||||||||||||||
| Precious metal extraction machine- 10 ton | 5,320,000 | 532,000 | 4,788,000 | 5,320,000 | 532,000 | 4,788,000 | ||||||||||||||||||
| Construction in process: | ||||||||||||||||||||||||
| Nanosponge prototype | 17,103 | – | 17,103 | 17,103 | – | 17,103 | ||||||||||||||||||
| Bioreactors | 1,440,000 | – | 1,440,000 | 1,440,000 | – | 1,440,000 | ||||||||||||||||||
| Remediation Processing Unit 1 | 5,448,918 | – | 5,448,918 | 4,983,731 | – | 4,983,731 | ||||||||||||||||||
| Remediation Processing Unit 2 | 3,636,981 | – | 3,636,981 | 2,496,732 | – | 2,496,732 | ||||||||||||||||||
| Remediation Processing Unit 3 | 97,353 | – | 97,353 | 97,353 | – | 97,353 | ||||||||||||||||||
| Total fixed assets | $ | 18,302,614 | $ | 772,931 | $ | 17,529,683 | $ | 16,692,784 | $ | 767,236 | $ | 15,925,548 | ||||||||||||
| F-15 |
For the year ended December 31, 2019 the Company paid $507,044 with 1,267,608 shares of Series C-1 Preferred Stock for equipment, which has been valued based on similar cash purchases of the Series C-1 Preferred Stock at $0.40 per share. For the six months ended June 30, 2020 and 2019 depreciation expense was $5,695 and $1,789. For the six months ended June 30, 2020 and 2019 capitalized interest to equipment from debt financing was $724,674 and $452,282. Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service.
Note 10. License Agreements
On August 17, 2017, the Company purchased rights to an exclusive license for the applications and implementations involving the Nanosponge Technology and to use and develop the Nanosponge as we see fit at our sole discretion. The Nanosponge contribution in the Company’s processes is to facilitate a cracking process whereby remediated or extracted oil may be further refined from a crude product to a diesel fuel. The license was valued at $2,416,572 and is amortized over its useful life of 20 years. As of June 30, 2020 and December 31, 2019 the accumulated amortization of the license was $342,347 and $281,933. For the six months ended June 30, 2020 and 2019 amortization expense of the license was $60,414. Amortization expense for the years 2020 through 2024 is $120,829 in each respective year. As of June 30, 2020 and December 31, 2019 the net value of the license is $2,074,225 and $2,134,639.
Note 11. Intellectual Property, Net
The Company entered into a Contribution Agreement dated January 5, 2015, where proprietary information and intellectual property related to certain petroleum extraction technology (also known as hydrocarbon extraction technology) suitable to extract petroleum (or hydrocarbons) from tar sands and other sand-based ore bodies, and all related concepts and conceptualizations thereof (the “Extraction Technology”) was contributed to VivaVentures Energy Group, Inc., a 99% majority-owned subsidiary of Vivakor, and was assessed a fair market value of $16,385,157, which consists of the consideration of $11,800,000 and the Company assuming a deferred tax liability in the amount of $4,585,157. All ownership in the Extraction Technology (including all future enhancements, improvements, modifications, supplements, or additions to the Extraction Technology) was assigned to the Company and is currently being applied to the Company Remediation Processing Centers, which are the units that remediate material. The Extraction Technology is amortized over a 20-year life. For the six months ended June 30, 2020 and 2019 the amortization expense of the patents was $409,629. Amortization expense for the years 2020 through 2024 is $819,258 in each respective year. As of June 30, 2020 and December 31, 2019 the net value of the Extraction Technology is $11,947,510 and $12,357,139.
In 2019, the Company began the process of patenting the Extraction Technology and all of its developments and additions since the acquisition, and we have filed a series of patents and capitalized the costs of these patents. As of June 30, 2020 the capitalized costs of these patents are $81,210. The patents are pending and when placed in service, the Company will be begin amortizing the cost over the patent useful life.
The Company entered into an asset purchase agreement dated September 5, 2017, where two patents (US patent number 7282167- Method and apparatus for forming nano-particles and US patent number 9272920- System and method for ammonia synthesis) were purchased and attributed a fair market value of $4,931,380, which consists of the consideration of $3,887,982 and the Company assuming a deferred tax liability in the amount of $1,043,398. The patents grant the Company ownership of a nano catalyst technology that facilitates chemical manufacturing, with a focus on the production of ammonia, specifically for the gas phase condensation process used to create the iron catalyst. The nano catalyst accelerators make the Haber-Bosch process more efficient by increasing the active surface area of standard commercial iron catalysts, thereby lowering the reaction temperature and pressure required for the Haber-Bosch process to occur. As a result, less energy is needed to complete the reaction and create ammonia. The patents are amortized over their useful life of 10 years. For the six months ended June 30, 2020 and 2019 the amortization expense of the patents was $246,569. Amortization expense for the years 2020 through 2024 is $493,138 in each respective year. As of June 30, 2020 and December 31, 2019 the net value of the patents was $3,575,251 and $3,821,820.
The following table sets forth the components of the Company’s intellectual property at June 30, 2020 and December 31, 2019:
| June 30, 2020 | December 31, 2019 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
| Extraction Technology patents | $ | 81,210 | $ | – | $ | 81,210 | $ | 81,210 | $ | – | $ | 81,210 | ||||||||||||
| Extraction Technology | 16,385,157 | 4,437,647 | 11,947,510 | 16,385,157 | 4,028,018 | 12,357,139 | ||||||||||||||||||
| Ammonia synthesis patents | 4,931,380 | 1,356,129 | 3,575,251 | 4,931,380 | 1,109,560 | 3,821,820 | ||||||||||||||||||
| Total Intellectual property | $ | 21,397,747 | $ | 5,793,776 | $ | 15,603,971 | $ | 21,397,747 | $ | 5,137,578 | $ | 16,260,169 | ||||||||||||
| F-16 |
Note 12. Accounts Payable and Accrued Expenses
Accounts payable consist of the following:
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Accounts payable | $ | 939,305 | $ | 583,966 | ||||
| Office access deposits | 1,290 | 1,490 | ||||||
| Accrued compensation | 100,000 | 125,000 | ||||||
| Accrued tax penalties and interest | 165,749 | 161,411 | ||||||
| Accounts payable and accrued expenses | $ | 1,206,344 | $ | 871,867 | ||||
Note 13. Stock Payable
As of December 31, 2019, the Company had an outstanding payable of $11,800,000 payable in common stock to Sustainable Fuels, Inc. (“SFI”) for the Extraction Technology (See Note 11). Before the Common Stock was issued, the owner of SFI died and the matters and affairs of his estate were passed to the executor of his estate. We attempted to contact SFI and the executor of the estate multiple times to issue and send the common stock to the company or appropriate successor of the estate to no avail. As of June 30, 2020 the Company was able to make contact with the new owner of SFI and has issued 20,000,000 shares of Common Stock to SFI per the terms of the agreement.
Note 14. Loans and Notes Payable
Loans and Notes payable consist of the following:
| June 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Various promissory notes and convertible notes (a) | $ | 81,201 | $ | 80,212 | ||||
| Novus Capital Group LLC Note (b) | 334,775 | 334,775 | ||||||
| TriValley & Triple T Notes (c) | 278,701 | 247,192 | ||||||
| National Buick GMC (d) | 29,047 | 31,966 | ||||||
| Various Bridge Notes (e) | 311,383 | – | ||||||
| Blue Ridge Bank (f) | 205,100 | – | ||||||
| Small Business Administration (g) | 150,369 | – | ||||||
| Total Loans and Notes Payable | $ | 1,390,576 | $ | 694,145 | ||||
_____________
(a) From 2013 through 2018 the Company issued a series of promissory notes and convertible notes with various interest rates ranging up to 12% per annum. The convertible notes convert at the holder’s option after 1 year of issuance and may be converted into shares of common stock. The conversion price is generally equal to the specified per share conversion rate as noted in the note agreements. In 2019 a series of the promissory note holders agreed to settle $632,850 in notes payable for 2,531,400 shares of marketable securities of Odyssey Group International, Inc. owned by the Company. The Company converted $25,314 of its convertible note receivable into 2,531,400 shares of Odyssey Group International, Inc. and transferred these shares to the note holders to extinguish the notes payable and has accounted for these marketable securities at cost or $25,314 and recorded a $607,536 gain on the extinguishment of debt in “Gain (loss) on extinguishment of debt” in the accompanying consolidated statement of operations.
| F-17 |
(b) On September 5, 2017, the Company acquired patents in the amount of $4,931,380 in which the Company also agreed to assume the encumbering debt on asset in the amount of $334,775 due in December 2019 with no interest accruing until 2020 and a deferred tax liability of $1,043,398. The Company has agreed with the holder of the encumbering debt to extend the note to January 2, 2021 and accrue interest at 7% per annum commencing January 1, 2020 through July 1, 2020, and 10% per annum commencing July 2, 2020 through January 2, 2021.
(c) The balance of these outstanding notes is due to related parties, specifically the 51% owner of Vivakor Middle East LLC, in which the Company owns 49% and consolidates this entity in its consolidated financial statements. The loans were granted to Vivakor Middle East LLC by the majority owner for operational use with only the agreement of repayment from the net proceeds of the LLC operations once it commences scaled up operations. No interest accrues on the loans, and no specific maturity date has been agreed upon.
(d) In May 2019 the Company purchased a vehicle for $36,432 and financed $34,932 over six years with an interest rate of 6.24% per annum. Monthly payments of $485 are required and commenced in July 2019.
(e) In 2020 the Company entered into convertible promissory notes with an aggregate principal of $308,000. The notes accrue interest at 10% per annum and have a maturity of the earlier of 12 months or the consummation of the Company listing its Common Stock on a senior stock exchange. The notes are convertible at the Company’s option into shares of the Company’s common stock at a price equal to 80% of the opening price of the Company’s common stock on the national exchange or the offering price paid by the investors in the financing in connection with the uplist, whichever is lower, or (ii) repaid in cash in an amount equal to the indebtedness being repaid plus a premium payment equal to 15% of the amount being repaid. If an event of default has occurred and the Company does not convert the amounts due under the Note into the Company’s common stock, then the Company will have the option to convert the outstanding indebtedness into shares of the Company’s common stock at a price equal to 80% of the weighted average trading price of the Company’s common stock on the OTC Markets, or be repaid in cash in an amount equal to all principal and interest due under the Note.
(f) In May 2020, the Company entered into a Paycheck Protection Program loan agreement with Blue Ridge Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program. The loan carries an annual interest rate of one (1) percent per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month. The loan may be fully forgivable according to the CARES Act if the Company can provide proper documentation for the use of the proceeds of the loan.
(g) In May 2020, the Company entered into a loan agreement with the Small Business Administration for a loan amount of $150,000. The loan carried an interest rate of 3.75% per annum. Monthly payments of $731 will be required beginning in month 12 from issuance and the loan shall matures in 30 years.
Note 15. Commitments and Contingencies
Leases
In June 2019, the Company entered into a Sublease agreement with US Closer, LLC, whereby we agreed to lease approximately 12,061 square feet of office and manufacturing space located in South Salt Lake City, Utah. Pursuant to the Sublease, the sublease expires on December 31, 2020 and requires a monthly lease payment of $6,633.55 plus other pass-through expenses as required under the Primary Lease.
Commencing on September 15, 2019, the Company entered into a five-year lease with Jamboree Center 1 & 2 LLC covering approximately 6,961 square feet of office space in Irvine, CA. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 $21,927, Year 2 $22,832, Year 3 $23,737, Year 4 $24,712, Year 5 $25,686. As a condition of the lease, we were required to provide a $51,992 security deposit.
The right-of-use asset for operating leases as of June 30, 2020 and December 31, 2019 was $1,026,175 and $1,167,149. Rent expense for the six months ended June 30, 2020 and 2019 was $131,562 and $20,090.
| F-18 |
Note 16. Long-term Debt
To assist in funding the manufacture of the Company’s Remediation Processing Centers, between 2015 and 2017, the Company entered into two agreements which include terms for the purchase of participation rights for the sale of future revenue of the funded RPCs, and which also require working interest budget payments by the Company.
The Company accounts for the terms under these contracts for the sale of future revenue under Accounting Standards Codification 470 (“ASC 470”). Accordingly, these contracts include the receipt of cash from an investor where the Company agrees to pay the investor for a defined period a specified percentage or amount of the revenue or a measure of income (for example, gross revenue) according to their contractual right, in which the Company will record the cash as debt and apply the effective interest method to calculate and accrue interest on the contracts. The terms of these agreements grant the holder a prorated 25% participation in the gross revenue of the assets as defined in the agreements for 20 years after operations commence for a purchase price of approximately $2,200,000. In the event that the contract is not fully subscribed by the LLCs it will receive only a prorated participation of the available 25% participation. Under the terms of the agreement, we anticipate Remediation Processing Centers to commence operations and to begin making estimated annual payments of $1,958,000 in January 2021 based on revenue projections from the RPCs.
In accordance with ASC 470, the Company records the proceeds from these contracts as debt because the Company has significant continuing involvement in the generation of the cash flows due to the investor (for example, active involvement in the generation of the operating revenues of the business segment), which constitutes the presence of a factor that independently creates a rebuttable presumption that debt classification is appropriate. The Company has determined its effective interest rates to be between 40% and 41.75% based on each contract’s future revenue streams expected to be paid to the investor. These rates represent the discount rate that equates estimated cash flows with the initial proceeds received from the investor and is used to compute the amount of interest expense to be recognized each period. During the development and manufacturing of the assets the effective interest has been capitalized to the assets. As the assets enter operations or service of their intended use, the effective interest on these contracts will be recognized as interest expense (See Note 9).
In 2016 and 2017, additional consideration to investors to enter into these agreements was granted, and the Company issued to these investors 3,390,000 shares of Series B-1 Preferred Stock with a relative fair value of $0.25 per share or based on conversion terms and price of the Company’s Common Stock at the time of issuance. The Company also issued 3,185,000 common stock warrants to investors. The relative fair value of the warrants and Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized to interest expense over the term of the agreements using the effective interest method. During the manufacturing phase of the asset, the interest expense is capitalized to the asset.
Some holders of these participation rights also have the option to relinquish ownership and all remaining benefits of their LLC units in exchange for Common Stock in the Company. Depending on the contract, these options to convert to common stock range from between 1 and 5.5 years. The exercise period ranges from between 1 year to 5.5 years with a step-up discount to market for each year the option is not exercised with a range of between a 5% to a 25% discount to market. Accordingly, under Accounting Standards Codification 815 (“ASC 815”) the Company valued these options at fair value using a Monte Carlo Simulation by a third-party valuation expert, which found the fair value of the options to be nominal. Long-term debt related to these participation rights is recorded in “Long-term debt” on the consolidated balance sheet.
The accounting for the terms under these contracts that call for working interest budget payments by the Company are recorded in current liabilities on the consolidated balance sheet and paid down through pass-through expenses or cash according to the contract. Accordingly, the Company records any unpaid balance of budget payments received in “Long-term debt, current” as these liabilities are generally paid within 12 months after proceeds are received.
Long-term debt consists of the following:
| June 30, 2020 | December 31, 2019 | |||||||
| Principal | $ | 2,186,233 | $ | 2,186,233 | ||||
| Accrued interest | 2,695,958 | 1,971,285 | ||||||
| Debt discount | (249,151 | ) | (256,595 | ) | ||||
| Working interest payable | 30,106 | 126,535 | ||||||
| Total long term debt | $ | 4,663,146 | $ | 4,027,458 | ||||
| Long term debt, current | $ | 1,008,881 | $ | 126,535 | ||||
| Long term debt | $ | 3,654,265 | $ | 3,900,923 | ||||
| F-19 |
Note 17. Stockholders' Equity
Series A, Series B, Series B-1, Series C and Series C-1 Preferred Stock
The Preferred Stock authorized by the Company may be issued from time to time in one or more series. The Company is authorized to issue 450,000,000 shares of preferred stock. The Company is authorized to issue 2,000,000 shares of Series A Preferred Stock, 98,000,000 shares of Series B Preferred Stock, 50,000,000 shares of Series B-1 Preferred Stock, 100,000,000 shares of Series C Preferred Stock, and 100,000,000 shares of Series C-1 Preferred Stock. The Board of Directors is authorized to fix or alter the number of shares constituting any series of Preferred Stock and the designation thereof.
The Company has issued 2,000,000 shares of Series A Preferred Stock, convertible at a current ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. Holders of shares of Series A Preferred Stock will have the right to 25 votes for each share of Common Stock into which such shares of Series A Preferred Stock can then be converted (with a current conversion ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock) and the right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any other Preferred Stock holder in the liquidation, dissolution or winding up of our Company. As of June 30, 2020 and December 31, 2019 the liquidation preference is $400,000. Holders of shares of Series A Preferred Stock are not currently entitled to dividends. The Company has the right, but not the obligation, to redeem shares of Series A Preferred Stock.
The Company has issued 13,446,990 and 21,251,890 of Series B Preferred Stock as of June 30, 2020, and December 31, 2019, respectively. Shares of Series B Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.20) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series B Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series B Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. Certain holders of Series B contractually agreed to an automatic conversion to Common Stock after 4 years of issuance. The Company has the right, but not the obligation, to redeem shares of Series B Preferred Stock one year after issuance. Holders of Series B Preferred Stock will have the right to one vote for each share of Common Stock into which such Series B Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of June 30, 2020 and December 31, 2019 the liquidation preference was $3,025,575 and $4,383,202. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued 22,330,660 and 22,758,670 of Series B-1 Preferred Stock as of June 30, 2020, and December 31, 2019, respectively. Shares of Series B-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.25) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series B-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series B-1 Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series B-1 Preferred Stock one year after issuance. Holders of Series B-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stockholder, except holders of Series A and Series B Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of June 30, 2020 and December 31, 2019 the liquidation preference was $5,582,689 and $5,689,690.
| F-20 |
The Company has not issued any Series C Preferred Stock as of June 30, 2020, and December 31, 2019, respectively. Shares of Series C Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.35) or a 10% discount to the market price on the conversion date). Automatic conversion of shares of Series C Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series C Preferred Stock or upon the four year anniversary date of the issuance of such shares. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C Preferred Stock one year after issuance. Holders of Series C Preferred Stock will have the right to one vote for each share of Common Stock into which such Series C Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series B and B-1 Preferred Stock, in the liquidation, dissolution or winding up of our Company. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued 13,281,760 and 13,384,760 of Series C-1 Preferred Stock as of June 30, 2020, and December 31, 2019, respectively. Shares of Series C-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.40) or a 10% discount to the market price on the conversion date). In addition, automatic conversion of shares of Series C-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series C-1 Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C-1 Preferred Stock one year after issuance. Holders of Series C-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A, Series B, Series B-1, and Series C Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of June 30, 2020 and December 31, 2019 the liquidation preference was $6,800,209 and $6,841,409.
For the six months ended June 30, 2020, $1,773,929 or 8,590,491 shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 9,891,226 shares of Common Stock.
For the six months ended June 30, 2020, the Company issued 254,581 shares of Series B-1 Preferred Stock as a $64,748 stock dividend paid to Series B Preferred Shareholders.
For the six months ended June 30, 2019, the Company issued 1,265,035 shares of Series B-1 Preferred Stock as a $319,440 stock dividend paid to Series B Preferred Shareholders.
For the six months ended June 30, 2019, $7,748,370, or 37,233,876 shares of Series B and Series B-1 Preferred Stock, were converted into 37,237,612 shares of Common Stock.
Common Stock
The Company is authorized to issue 1,250,000,000 shares of common stock. As of June 30, 2020 and 2019, there were 315,463,190 and 285,343,964 shares of our common stock issued and outstanding, respectively. Treasury stock is carried at cost.
For the six months ended June 30, 2020, $1,773,929 or 8,590,491 shares of Series B, Series B-1, and Series C-1 Preferred Stock were converted into 9,891,226 shares of Common Stock.
For the six months ended June 30, 2020 the Company issued 20,000,000 shares of Common Stock for a $11,800,000 reduction in stock payables.
For the six months ended June 30, 2020 the Company issued 228,000 shares of Common Stock in the amount of $41,028 for cash.
For the six months ended June 30, 2020, the Company granted stock-based compensation to an employee, including a 500,000 share stock award, which vests at the end of four years. For the six months ended June 30, 2020 and 2019, stock-based compensation was $23,057.
For the six months ended June 30, 2019, $7,748,370, or 37,233,876 shares of Series B and Series B-1 Preferred Stock, were converted into 37,237,612 shares of Common Stock.
| F-21 |
For the six months ended June 30, 2019, the Company issued 171,000 shares for a $42,800 reduction of liabilities.
For the six months ended June 30, 2019, the Company issued 210,000 shares of Common Stock for $84,000 in cash due to exercised warrants.
For the year ended December 31, 2019, the Company granted stock-based compensation to an employee, including a 500,000 share stock award, which vests at the end of 4 years. For the year ended December 31, 2019, stock-based compensation was $48, 421.
Noncontrolling Interest
For the six months ended June 30, 2020 and 2019, the Company issued 110,981 and 58,000 units of noncontrolling interest in RPC Design and Manufacturing LLC for cash of $554,907 and $290,000.
Note 18. Temporary Equity
Shares of Series B, B-1, C and C-1 convertible preferred stock hold conversion features providing that, at the holder’s election, the holder may convert the preferred stock into common stock. Upon conversion, the Company may be required to deliver a variable number of equity shares that is determined by using a formula based on the market price of the Company’s Common Stock. After four years from the date of issuance, Series B and C preferred shareholders are forced to automatically convert to Common Stock. For each respective series, the holder may convert their preferred shares to common shares at the original issue price as defined, which ranges from between $0.20 per share to $0.40 per share, at the lesser of the original issue price or 90% of the market price on the conversion date. As of June 30, 2020 and December 31, 2019, the market price of the Company’s Common Stock was $0.32 and $0.20 per share. As of the date of this report the market price of the shares is approximately $0.53 per share. There is no contractual cap on the number of common shares that the Company could be required to deliver on preferred shareholders’ conversions to Common Stock. Because the feature contains no explicit share limit, the Company assumes that it may be forced to cash settle the conversion feature in accordance with the accounting analysis under ASC 815-40-25.
Accordingly, under ASC 815-40-25-10 the Company may be forced to settle these conversion features in cash, specifically since it is unknown as to what date the shareholders’ may convert their preferred stock to common stock and if there will be sufficient authorized and unissued common shares on that date. As of June 30, 2020 and December 31, 2019 the Company did have sufficient authorized and unissued common shares to satisfy all preferred shareholders interest if it were converted to Common Stock, although if the stock price were to drop below $0.02 per share and the Company could not authorize further shares it may be forced to settle such conversions in cash, which may consider them redeemable. Accordingly, Series B, B-1, C and C-1 preferred stock has been classified in temporary equity.
The following table shows all changes to temporary equity during for the six months ended June 30, 2020 and 2019.
| Convertible Preferred Stock | ||||||||||||||||||||||||
| Series B | Series B-1 | Series C-1 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| December 31, 2019 | 21,251,890 | $ | 4,250,380 | 22,758,670 | $ | 5,689,690 | 13,384,760 | $ | 6,841,409 | |||||||||||||||
| Conversion of Series B, B-1, and C-1 Preferred Stock to Common Stock | (7,804,900 | ) | (1,560,980 | ) | (682,591 | ) | (171,749 | ) | (103,000 | ) | (41,200 | ) | ||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | 254,581 | 64,748 | – | – | ||||||||||||||||||
| June 30, 2020 | 13,446,990 | $ | 2,689,400 | 22,330,660 | $ | 5,582,689 | 13,281,760 | $ | 6,800,209 | |||||||||||||||
| Series B | Series B-1 | Series C-1 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| December 31, 2018 | 67,271,587 | $ | 13,454,255 | 28,251,420 | $ | 7,062,780 | 12,117,160 | $ | 6,334,365 | |||||||||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | (31,261,876 | ) | (6,252,376 | ) | (5,972,000 | ) | (1,495,994 | ) | – | – | ||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | 1,265,035 | 319,440 | – | – | ||||||||||||||||||
| June 30, 2019 | 36,009,711 | $ | 7,201,879 | 23,544,455 | $ | 5,886,226 | 12,117,160 | $ | 6,334,365 | |||||||||||||||
| F-22 |
Note 19. Warrants
As of June 30, 2020 the Company had 1,060,000 warrants outstanding. These warrants relate to the warrants issued as an incentive to investors with an investment into the Company. The outstanding warrants were issued at $0.40 per share of Common Stock. The warrants were granted for a one-year period.
Management uses the Black-Scholes option pricing model to determine the fair value of warrants on the date of issuance. The fair value of warrants issued pursuant to the issuance of notes payable was recorded as deferred debt issuance cost and amortized over the remaining term of the associated debt.
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the warrants on the date of issuance are as follows:
| Risk-free interest rate | 1.2% | ||
| Expected dividend yield | None | ||
| Expected life of warrants | 1 years | ||
| Expected volatility rate | 119% |
The following table summarizes the activity of the Company’s share purchase warrants:
| Weighted | ||||||||||||
| average | Aggregate | |||||||||||
| Number of | exercise | Intrinsic | ||||||||||
| warrants | price | Value | ||||||||||
| Balance, December 31, 2018 | 16,485,000 | $ | 0.55 | $ | – | |||||||
| Expired | (4,195,000 | ) | 0.72 | |||||||||
| Exercised | (210,000 | ) | 0.40 | |||||||||
| Balance, June 30, 2019 | 12,080,000 | $ | 0.49 | $ | – | |||||||
| Weighted | ||||||||||||
| average | Aggregate | |||||||||||
| Number of | exercise | Intrinsic | ||||||||||
| warrants | price | Value | ||||||||||
| Balance, December 31, 2019 | 1,080,000 | $ | 0.40 | $ | – | |||||||
| Exercised | (20,000 | ) | 0.40 | |||||||||
| Balance, June 30, 2020 | 1,060,000 | $ | 0.40 | $ | – | |||||||
As of June 30, 2020 and December 31, 2019, the following share purchase warrants were outstanding:
| Number of warrants outstanding | Exercise price | Expiration date | ||||||||
| Balance, June 30, 2020 | 1,060,000 | $ | 0.40 | December 2020 | ||||||
| Balance, December 31, 2019 | 1,080,000 | $ | 0.40 | December 2020 | ||||||
| F-23 |
Note 20. Income Tax
The Company calculates its quarterly tax provision pursuant to the guidelines in ASC 740 Income Taxes. ASC 740 requires companies to estimate the annual effective tax rate for current year ordinary income. In calculating the effective tax rate, permanent differences between financial reporting and taxable income are factored into the calculation, and temporary differences are not. The estimated annual effective tax rate represents the Company’s estimate of the tax provision in relation to the best estimate of pre-tax ordinary income or loss. The estimated annual effective tax rate is then applied to year-to-date ordinary income or loss to calculate the year-to-date interim tax provision.
The Company recorded income tax benefit of $353,834 and an income tax expense $8,171 for the three and six months ended June 30, 2020, respectively. The Company is projecting a (1.8%) effective tax rate for the year ending December 31, 2020, which is primarily the result of projected benefit from book losses offset by a valuation allowance increase on the projected net operating losses incurred for the year. The Company recorded income tax expense of $56,158 and $52,831 for the three and six months ended June 30, 2019, respectively. The Company’s effective tax rate for 2019 was (36.0%) which was the result of the benefit of book losses offset by additional valuation allowance on the net operating losses.
As of December 31, 2019, the Company had estimated federal and state net operating loss (NOL) carryforwards of approximately $11.6 million and $5.4 million, respectively. Federal NOL carryforwards begin to expire in 2026.
Note 21. Related Party Transactions
The Company provided secured loan financing and assistance to the development and commercialization of two bioactive beverages and one weight loss beverage for Vivaceuticals, Inc., which shared a common officer and board of director member with the Company. Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018. In 2019, the Company received 800,000 shares of preferred stock in Scepter Holdings, Inc. to extinguish the loan encumbering the assets. The Company has converted these preferred shares into 800,000,000 shares of Common Stock of Scepter Holdings, Inc., which is traded on the OTC Markets (ticker: BRZL) (see Note 3). As of June 30, 2020 and December 31, 2019, the Company’s Chief Executive Officer has an immediate family member who is an officer of Scepter Holdings, Inc.
The Company has a consulting contract with Vivaventures Precious Metals, LLC, which is majority owned by an employee of the Company. For the six months ended June 30, 2020 and 2019 the Company paid Vivaventures Precious Metals LLC none and $290,000 for consulting services rendered.
The Company has a consulting contract with LBL Professional Consulting, Inc. (“LBL”), which shares a common officer with the Company. For the six months ended June 30, 2020 and 2019 the Company paid LBL $120,228 and $108,194 for a team of consultants serving the Company. In September 2020, the Company granted non-statutory stock options to LBL for 30,000,000 shares of Common Stock at a strike price of $0.43 per share. The stock options vest over four years. The stock options are exercisable for up to ten years from the grant date. The common officer is not the beneficiary of the Company and is not permitted to participate in any discussion, including the LBL’s board meetings, regarding any Company stock that LBL may own at any time.
The Company has a note payable to TriValley and Triple T, which is owned by the 51% majority-owner of Vivakor Middle East LLC. As of June 30, 2020 and June 30, 2019 the balance owed was $278,701 and $185,270.
The Company has a common board of directors member with CannaPharmaRx Inc. As of June 30, 2020 and December 31, 2019, the Company has a $27,000 and $21,000 account receivable with CannaPharmaRx Inc. for leasing office space to this entity. As of June 30, 2020 and December 31, 2019, the Company recorded an allowance for doubtful accounts on these receivables in the amount of $27,000 and $21,000.
| F-24 |
Note 22. Subsequent Events
In July 2020, the Company amended the Option Agreement with the landowner for the exclusive right to purchase certain real property commonly known as Asphalt Ridge to grant the Company an extension of the option for six months at no cost to the Company.
In July 2020, the Company withdrew from Vivaventures Precious Metals, LLC and is not entitled to receive any further distributions from the LLC.
In July 2020, the Company entered into a Paycheck Protection Program loan agreement with JP Morgan Chase Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program, in an amount of $90,645. The loan carries an annual interest rate of 1% per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month.
On August 6, 2020, the Company entered into a loan agreement with the SBA in an amount of $150,000 having an interest rate of 3.75% per annum. Monthly payments of $731 will be required beginning in month 12 and the loan shall mature in 30 years.
Subsequent to June 30, 2020, 3,852,500 shares of Series B Preferred Stock, 3,995,535 shares of Series B-1 Preferred Stock, and shares of 565,939 Series C-1 Preferred Stock, for an aggregate of $1,995,759, were converted into 8,413,974 shares of Common Stock.
In September 2020, the Company granted non-statutory stock options to LBL Professional Consulting, Inc. for 30,000,000 shares of Common Stock. The stock options vest over four years. The stock options are exercisable for up to ten years from the grant date.
In September 2020, the Company entered into an Employment Agreement with Matthew Nicosia to serve as our Chief Executive Officer. The agreement provides for an annual salary of $50,000. The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nicosia, with three months written notice required. The agreement provides for annual increases upon the occurrence of specific performance metrics, and provides that the Company shall grant Mr. Nicosia options to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price equal to 110% of the fair market value of the Company’s Common Stock on the date of grant. The agreement also provides for an annual bonus of up to 100% of Mr. Nicosia’s then base salary upon the achievement of performance goals established and approved by the Board of Directors. The agreement entitles Mr. Nicosia to receive various employee benefits generally made available to other officers and senior managers of the Company.
In September 2020, the Company entered into an Employment Agreement with Tyler Nelson to serve as our Chief Financial Officer. The agreement provides for an annual salary of $50,000. The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nelson, with three months written notice required. The agreement provides for annual increases upon the occurrence of specific performance metrics. The agreement also provides for an annual bonus of up to 100% of Mr. Nelson’s then base salary upon the achievement of performance goals established and approved by the Board of Directors. The agreement entitles Mr. Nelson to receive various employee benefits generally made available to other officers and senior managers of the Company.
In September 2020, the Company agreed with the Novus Capital LLC to extend the note payable to January 2, 2021 and accrue interest at 7% per annum commencing January 1, 2020 through July 1, 2020, and 10% interest per annum commencing July 2, 2020 through January 2, 2021.
On October 13, 2020, the Company entered into a convertible promissory note in an amount of $280,500 having an interest rate of 12% per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of $0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration rights in conjunction with this note.
| F-25 |
Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
Vivakor, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Vivakor, Inc. (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the two years in the period ended December 31, 2019, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 2 to the financial statements, the entity has suffered recurring losses from operations and has an accumulated deficit that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Hall & Company
Hall & Company CPAS
We have served as the Company's auditor since 2019.
Irvine, CA
November 6, 2020
| F-26 |
VIVAKOR, INC.
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 604,903 | $ | 916,480 | ||||
| Accounts Receivable, less allowances of $21,000 and $9,000, respectively | – | 270 | ||||||
| Inventories | 525,744 | 525,744 | ||||||
| Precious metal concentrate | 1,183,228 | 1,183,228 | ||||||
| Prepaid expenses and other assets | 202,392 | 36,009 | ||||||
| Total current assets | 2,516,267 | 2,661,731 | ||||||
| Equity method investment | 727,129 | – | ||||||
| Other investments | 28,000 | 28,000 | ||||||
| Notes receivable | 844,892 | 1,484,325 | ||||||
| Property and equipment, net | 15,925,548 | 12,469,019 | ||||||
| Rights of use assets- operating leases | 1,167,149 | – | ||||||
| License agreement, net | 2,134,639 | 2,255,467 | ||||||
| Intellectual property, net | 16,260,169 | 17,491,355 | ||||||
| Total assets | $ | 39,603,793 | $ | 36,389,897 | ||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT AND TEMPORARY EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 871,867 | $ | 324,373 | ||||
| Loans and notes payable | 694,145 | 1,253,584 | ||||||
| Stock payable | 11,800,000 | 11,800,000 | ||||||
| Operating lease liabilities, current | 345,442 | – | ||||||
| Long-term debt, current | 126,535 | 316,150 | ||||||
| Total current liabilities | 13,837,989 | 13,694,107 | ||||||
| Operating lease liabilities, long term | 826,010 | – | ||||||
| Long-term debt | 3,900,923 | 2,355,659 | ||||||
| Deferred income tax liabilities | 5,702,751 | 5,114,348 | ||||||
| Total liabilities | $ | 24,267,673 | $ | 21,164,114 | ||||
| Redeemable, convertible preferred stock, $.001 par value; 348,000,000 shares authorized; | ||||||||
| Series B- 12.5%, cumulative, stated at redemption value of outstanding shares, 21,251,890 and 67,271,587 issued and outstanding as of December 31, 2019 and 2018 | $ | 4,250,380 | $ | 13,454,255 | ||||
| Series B-1- stated at redemption value of outstanding shares, 22,758,670 and 28,251,420 issued and outstanding as of December 31, 2019 and 2018 | 5,689,690 | 7,062,780 | ||||||
| Series C-1- stated at redemption value of outstanding shares, 13,384,760 and 12,117,160 issued and outstanding as of December 31, 2019 and 2018 | 6,841,409 | 6,334,365 | ||||||
| Total temporary equity | 16,781,479 | 26,851,400 | ||||||
| Stockholders' deficit: | ||||||||
| Convertible preferred stock, $.001 par value; 2,000,000 shares authorized; | ||||||||
| Series A- 2,000,000 issued and outstanding as of December 31, 2019 and 2018 | 2,000 | 2,000 | ||||||
| Common stock, $.001 par value; 1,250,000,000 shares authorized; 285,343,964 and 230,256,188 were issued and outstanding as of December 31, 2019 and 2018 | 285,344 | 230,257 | ||||||
| Additional paid-in capital | 24,793,943 | 13,363,511 | ||||||
| Treasury stock, at cost | (20,000 | ) | (20,000 | ) | ||||
| Accumulated deficit | (27,848,500 | ) | (25,194,204 | ) | ||||
| Total Vivakor, Inc. stockholders' deficit | (2,787,213 | ) | (11,618,436 | ) | ||||
| Noncontrolling interest | 1,341,854 | (7,181 | ) | |||||
| Total stockholders' deficit | (1,445,359 | ) | (11,625,617 | ) | ||||
| Total liabilities and stockholders’ deficit and temporary equity | $ | 39,603,793 | $ | 36,389,897 | ||||
See accompanying notes to consolidated financial statements
| F-27 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended | ||||||
| December 31, | ||||||
| 2019 | 2018 | |||||
| Revenues | $ | – | $ | 10,179 | ||
| Cost of revenues | – | 3,550 | ||||
| Gross profit | – | 6,629 | ||||
| Operating expenses: | ||||||
| Sales and marketing | 18,559 | 130,288 | ||||
| General and administrative | 748,348 | 307,441 | ||||
| Bad debt expense | 12,000 | 9,000 | ||||
| Amortization and depreciation | 1,524,274 | 1,433,618 | ||||
| Total operating expenses | 2,303,181 | 1,880,347 | ||||
| Loss from operations | (2,303,181 | ) | (1,873,718 | ) | ||
| Other income (expense): | ||||||
| Equity investment loss | (72,871 | ) | – | |||
| Gain (loss) on extinguished debt | 607,536 | (126,000 | ) | |||
| Interest income | 73,761 | 83,219 | ||||
| Interest expense | (9,288 | ) | (395,311 | ) | ||
| Other income | 19,039 | 75,810 | ||||
| Total other income (expense) | 618,177 | (362,282 | ) | |||
| Loss before provision for income taxes | (1,685,004 | ) | (2,236,000 | ) | ||
| Benefit (provision) for income taxes | (589,203 | ) | 36,645 | |||
| Net loss | (2,274,207 | ) | (2,199,355 | ) | ||
| Less: Net loss attributable to noncontrolling interests | (114,965 | ) | (21,010 | ) | ||
| Net loss attributable to Vivakor, Inc. | $ | (2,159,242 | ) | $ | (2,178,345 | ) |
| Basic and diluted loss per share: | ||||||
| Net loss attributable to Vivakor, Inc. | $ | (2,159,242 | ) | $ | (2,178,345 | ) |
| Less dividend on preferred stock | 495,054 | 1,441,938 | ||||
| $ | (2,654,296 | ) | $ | (3,620,283 | ) | |
| Loss per common share- basic and diluted | $ | (0.01 | ) | $ | (0.02 | ) |
| Weighted average number of common shares- basic and diluted | 257,611,762 | 222,185,916 | ||||
See accompanying notes to consolidated financial statements
| F-28 |
VIVAKOR, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
| Preferred Stock | Common Stock | ||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Additional Paid-in Capital | Treasury Stock | Accumulated Deficit | Non-controlling Interest | Total Stockholders' Deficit | |||||||||||||||||||
| December 31, 2017 | 2,000,000 | $ | 2,000 | 221,279,998 | $ | 221,280 | $ | 11,297,419 | $ | (20,000 | ) | $ | (21,573,921 | ) | 13,829 | $ | (10,059,393 | ) | |||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | – | – | 5,840,560 | 5,842 | 1,233,540 | – | – | – | 1,239,382 | ||||||||||||||||||
| Exercise of Common Stock warrants | – | – | 130,000 | 129 | 51,870 | – | – | – | 51,999 | ||||||||||||||||||
| Conversion of debt to Common Stock | – | – | 3,005,630 | 3,006 | 748,402 | – | – | – | 751,408 | ||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | (1,441,938 | ) | – | (1,441,938 | ) | ||||||||||||||||||
| Stock based compensation | – | – | – | – | 32,280 | – | – | – | 32,280 | ||||||||||||||||||
| Net loss | – | – | – | – | – | – | (2,178,345 | ) | (21,010 | ) | (2,199,355 | ) | |||||||||||||||
| December 31, 2018 | 2,000,000 | $ | 2,000 | 230,256,188 | $ | 230,257 | $ | 13,363,511 | $ | (20,000 | ) | $ | (25,194,204 | ) | $ | (7,181 | ) | $ | (11,625,617 | ) | |||||||
| Conversion of debt to Common Stock | – | – | 209,414 | 209 | 53,291 | – | – | – | 53,500 | ||||||||||||||||||
| Common Stock issued for services | – | – | 1,155,779 | 1,156 | 218,441 | – | – | – | 219,597 | ||||||||||||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | – | – | 53,492,583 | 53,492 | 11,018,527 | – | – | – | 11,072,019 | ||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | – | – | – | – | (495,054 | ) | – | (495,054 | ) | ||||||||||||||||
| Exercise of Common Stock warrants | – | – | 230,000 | 230 | 91,752 | – | – | – | 91,982 | ||||||||||||||||||
| Stock based compensation | – | – | – | – | 48,421 | – | – | – | 48,421 | ||||||||||||||||||
| Issuance of noncontrolling interest | – | – | – | – | – | – | – | 1,464,000 | 1,464,000 | ||||||||||||||||||
| Net loss | – | – | – | – | – | – | (2,159,242 | ) | (114,965 | ) | (2,274,207 | ) | |||||||||||||||
| December 31, 2019 | 2,000,000 | $ | 2,000 | 285,343,964 | $ | 285,344 | $ | 24,793,943 | $ | (20,000 | ) | $ | (27,848,500 | ) | 1,341,854 | $ | (1,445,359 | ) | |||||||||
See accompanying notes to consolidated financial statements
| F-29 |
VIVAKOR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
| Year Ended | ||||||||
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (2,274,207 | ) | $ | (2,199,355 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 1,524,274 | 1,433,618 | ||||||
| Bad debt expense | 12,000 | 9,000 | ||||||
| Equity investment loss | 72,871 | – | ||||||
| (Gain) loss on extinguished debt | (607,536 | ) | 126,000 | |||||
| Interest expense payment paid on behalf of affiliate in shares of preferred stock | – | 307,265 | ||||||
| Common stock issued for services | 219,597 | – | ||||||
| Deferred income taxes | 588,403 | (37,445 | ) | |||||
| Stock-based compensation | 48,421 | 32,280 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (11,730 | ) | (9,270 | ) | ||||
| Other assets | (250,590 | ) | 3,225 | |||||
| Right of use assets | (1,167,149 | ) | – | |||||
| Operating lease liabilities | 1,167,151 | – | ||||||
| Accounts payable | 547,494 | 85,457 | ||||||
| Accrued interest on notes receivable | (73,761 | ) | (83,219 | ) | ||||
| Accrued interest on notes payable | 9,288 | 64,420 | ||||||
| Net cash used in operating activities | (195,474 | ) | (268,024 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Issuance of notes receivable | (112,122 | ) | (26,280 | ) | ||||
| Purchase of investments | – | (1,000 | ) | |||||
| Patent costs- intangible assets | (81,210 | ) | – | |||||
| Purchase of equipment | (1,861,667 | ) | (822,553 | ) | ||||
| Net cash used in investing activities | (2,054,999 | ) | (849,833 | ) | ||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from long-term debt | 2,418,142 | 3,206,372 | ||||||
| Payment of long-term debt | (2,123,708 | ) | (2,292,883 | ) | ||||
| Proceeds of notes payable | 89,960 | 737,034 | ||||||
| Payment of notes payable | (1,480 | ) | – | |||||
| Proceeds from exercised stock warrants for cash | 91,982 | 51,999 | ||||||
| Issuance of noncontrolling interest | 1,464,000 | – | ||||||
| Issuance of preferred stock for cash | – | 36,900 | ||||||
| Net provided by financing activities | 1,938,896 | 1,739,422 | ||||||
| Net increase (decrease) in cash and cash equivalents | (311,577 | ) | 621,565 | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 916,480 | 294,915 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 604,903 | $ | 916,480 | ||||
| SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | – | – | ||||||
| Income taxes | – | – | ||||||
| Noncash transactions: | ||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | $ | 11,072,019 | $ | 1,239,382 | ||||
| Conversion of debt to Common Stock | $ | 53,500 | $ | 751,408 | ||||
| Dividend paid in Series B-1 Preferred Stock | $ | 495,054 | $ | 1,441,938 | ||||
| Extinguished debt for equity investment | $ | 25,314 | $ | – | ||||
| Extinguished notes receivable for equity investment | $ | 800,000 | $ | – | ||||
| Capitalized interest on construction in process | $ | 1,061,215 | $ | 551,382 | ||||
| Series C-1 Preferred Stock issued for the purchase of equipment | $ | 507,044 | $ | – | ||||
See accompanying notes to consolidated financial statements
| F-30 |
VIVAKOR, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization and Basis of Presentation
Vivakor, Inc. (collectively “we”, “us,” “our,” “Vivakor” or the “Company”) is a socially responsible operator, acquirer and developer of clean energy technologies and environmental solutions, which is currently focused on soil remediation in the United States and Kuwait, and we have corporate offices in Utah, California, and in Qatar. We specialize in the remediation of soil from properties contaminated by or laden with heavy crude oil and other substances. The Company was originally organized on November 1, 2006 as a limited liability company in the State of Nevada as Genecular Holdings, LLC. The Company’s name was changed to NGI Holdings, LLC on November 3, 2006. On April 30, 2008, the Company was converted to a C-corporation and changed its name to Vivakor, Inc. pursuant to Articles of Conversion filed with the Nevada Secretary of State.
COVID-19
On March 11, 2020, the World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and the U.S. response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the effect the COVID-19 pandemic may have in the long-term, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations. In March 2020 we temporarily suspended operations in Kuwait and Utah due to COVID-19 government restrictions and as of the date of this report we have not resumed operations.
Note 2. Going Concern
As of December 31, 2019 we had $604,903 of cash on hand and had an accumulated deficit of $27,848,500. There is substantial doubt as to our ability to continue as a going concern based on the understanding that we do not have adequate working capital to finance our day-to-day operations for at least the next twelve through September 2021. In order to meet our obligations as they come due and to fund the expansion of our asset acquisition strategy and the business of our technologies, we will require new funding to pay for these expenses. We may raise capital through loans from current stockholders, public or private equity or debt offerings, grants, or strategic arrangements with third parties, and we intend to and are in the process of seeking out possible capital raising efforts. There can be no assurance that additional capital will be available to the Company or if the terms will be favorable.
We currently have no agreements, arrangements, or understandings with any person to obtain additional funds through bank loans, lines of credit or any other sources. We have no material commitments or contractual purchase obligations for the next twelve, months other than the amounts that may be agreed to under our acquisition agreements relating to our remediation operations. If we are not able to obtain the additional financing on a timely basis, we may be required to further scale down or perhaps even cease the operation of our business. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
We currently have no agreements, arrangements, or understandings with any person to obtain additional funds through bank loans, lines of credit or any other sources. We have no material commitments or contractual purchase obligations for the next twelve, months other than the amounts that may be agreed to under our acquisition agreements relating to our remediation operations. If we are not able to obtain the additional financing on a timely basis, we may be required to further scale down or perhaps even cease the operation of our business. The issuance of additional equity securities could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments. Our financial statements do not include adjustments that might result from the outcome of this uncertainty.
Note 3. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with the Financial Accounting Standards Board (“FASB”) “FASB Accounting Standard Codification™” (the “Codification”) which is the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States.
All figures are in U.S. dollars unless indicated otherwise.
| F-31 |
Principles of Consolidation
The consolidated financial statements include the accounts of Vivakor, Inc., its wholly owned and majority-owned active subsidiaries, or joint ventures (collectively, the “Company”). Intercompany balances and transactions between consolidated entities are eliminated. Vivakor has the following active wholly and majority-owned subsidiaries: Vivaventures Management Company, Inc., Vivaventures Energy Group, Inc. (99%), Vivaventures Oil Sands, Inc., Vivasphere, Inc., Vivasight, Inc. (inactive), and Vivathermic, Inc. (inactive). Vivakor maintains an interest in the following entities: Health America, Inc. (39%, inactive), VVPM 100, LLC (inactive) which is managed by Vivakor, VPM VII, LLC (inactive), which is managed by Vivakor, Vivakor Middle East, LLC. (49%), VivaRRT, LLC (50%, inactive), VivaVentures Precious Metal, LLC. (39%). Vivakor manages and consolidates RPC Design and Manufacturing LLC, which includes a noncontrolling interest investment from Vivaopportunity Fund, LLC, which is also managed by Vivaventures Management Company, Inc.
The Company follows ASC 810-10-15 guidance with respect to accounting for Variable Interest Entities (“VIE”). A VIE is an entity that does not have sufficient equity at risk to finance its activities without additional subordinated financial support from other parties, or whose equity investors lack any of the characteristics of a controlling financial interest. A variable interest is an investment or other interest that will absorb portions of a VIE’s expected losses or receive portions of the entity’s expected residual returns. Variable interests are contractual, ownership, or other pecuniary interests that change with changes in the fair value of the entity’s net assets. A party is the primary beneficiary of a VIE and must consolidate it when that party has a variable interest, or combination of variable interests, that provides the party with a controlling financial interest. A party is deemed to have a controlling financial interest if it meets both of the power and losses/benefits criteria. The power criterion is the ability to direct the activities of the VIE that most significantly impact its economic performance. The losses/benefits criterion is the obligation to absorb losses from, or right to receive benefits from, the VIE that could potentially be significant to the VIE. The VIE model requires an ongoing reconsideration of whether a reporting entity is the primary beneficiary of a VIE due to changes in facts and circumstances. For the years ended December 31, 2019 and 2018 the following entity was considered to be a VIE and is consolidated in our consolidated financial statements: RPC Design and Manufacturing, LLC. For the years ended December 31, 2019 and 2018 the following entities were considered to be a VIE, but were not consolidated in our consolidated financial statements due to a lack of the power criterion or the losses/benefits criterion: Vivaventures UTSI, LLC, Vivaventures Royalty II, LLC, Vivaopportunity Fund, LLC. For the years ended December 31, 2019 and 2018 the unaudited financial information for the unconsolidated VIEs is as follows: Vivaventures UTSI, LLC held assets of $2,341,192 and $1,682,706 (where the primary asset represents a receivable from the Company), and liabilities of $40,019 and $43,428. Vivaventures Royalty II, LLC held assets of $1,776,360 and $1,030,321 (where the primary asset represents a receivable from the Company), and liabilities of $300 and none. Vivaopportunity Fund LLC held assets of $1,793,000 and $1,000 (where the primary asset represents a noncontrolling interest in units of a consolidated entity of the Company) and liabilities of none.
RPC Design and Manufacturing, LLC: The Company established RPC Design and Manufacturing, LLC (“RDM”) in December 2018 with a business purpose of manufacturing custom machinery and selling or leasing the manufactured equipment in long term contracts with financing or leasing activities to the Company. We own 100% of the voting rights in the RDM. We, as the sole general partner of the RDM, have the full, exclusive and complete right, power and discretion to operate, manage and control the affairs of the LLC and take certain actions necessary to maintain the LLC in good standing without the consent of the limited partners. RDM has entered into a license agreement with the Company indicating that while RDM builds custom machinery incorporating the Company’s hydrocarbon extraction technology, RDM will pay the Company a license fee of $500,000 per Remediation Processing Center manufactured. For the years ended December 31, 2019 and 2018, investors in RDM have a noncontrolling interest of $1,464,000 and none. We have the primary risk (expense) exposure in financing and operating the assets and are responsible for 100 percent of the operation, maintenance and any unfunded capital expenditures, which ultimately could be 100% of a custom machine, and the decisions related to those expenditures including budgeting, financing and dispatch of power. Based on all these facts, it was determined that we are the primary beneficiary of RDM. Therefore, RDM has been consolidated by the Company. Any intercompany revenue and expense associated with RDM and its license agreement with the Company has been eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity of three months or less when acquired to be cash equivalents. As of December 31, 2019, and 2018, the Company does not have any cash equivalents. The Company places its cash with high credit quality financial institutions. The Company’s accounts at these institutions are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. On December 31, 2019, and 2018, the Company had bank balances exceeding the FDIC insurance limit. To reduce its risk associated with the failure of such financial institutions, the Company annually evaluates the rating of the financial institutions in which it holds deposits.
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimated allowance for doubtful accounts, if deemed necessary by management, and based on a review of all outstanding amounts on a monthly basis. Management determines the allowance for doubtful accounts, if any, by identifying troubled accounts and by using historical experience applied to an aging of accounts. An allowance for doubtful accounts was considered necessary by management as of December 31, 2019, and 2018 in the amounts of $21,000 and $9,000, respectively.
| F-32 |
Equity Method Investments
Consolidated net income (loss) includes the Company’s proportionate net income or loss of equity investments. The carrying value of the Company’s equity method investments is increased and decreased by the Company’s proportionate share of the net income or loss of the investee. The carrying value of our equity method investment is also decreased by dividends the Company receives from the investee. For the years ended December 31, 2019 and 2018 the equity method investments consisted of the following:
As of December 31, 2019, the Company has an investment of $800,000 or 800,000,000 shares of common stock, or a diluted 23% equity holding in Scepter Holdings, Inc. (ticker: BRZL, OTC Markets). For the year ended December 31, 2019, Scepter Holdings, Inc. reported a net loss of $316,831, for which 23% was attributed to the Company in the amount of $72,871. There were no distributions to the Company in 2019 from Scepter Holdings, Inc. As of December 31, 2019 the net value of equity investment was $727,129. As of December 31, 2019 and 2018, the Company’s Chief Executive Officer has an immediate family member who is an officer of Scepter Holdings, Inc.
As of December 31, 2019 and 2018 the Company held a 39% interest in Vivaventures Precious Metals, LLC for which the fair value of this investment is none. In July 2020, the Company withdrew from the LLC.
Cost Method Investments
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
Initial investments in equity securities are recorded at cost and subsequently adjusted to fair value if fair value is readily determinable; otherwise, the investment remains at cost. As of December 31, 2019, and 2018, the Company has a non-controlling interest in the following entities: Odyssey Group International, Inc. (approximately 2%), which is traded on the OTC Markets (ticker: ODYY) (see Note 5).
Convertible Instruments
The Company reviews the terms of convertible debt and preferred stock for indications requiring bifurcation, and separate accounting for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company or the number of shares is variable are bifurcated and accounted for as derivative financial instruments. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires the allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the host instrument. The resulting discount to the debt instrument or the redemption value of convertible preferred securities is accreted through periodic charges to interest expense over the term of the agreements or to dividends over the period to the earliest conversion date using the effective interest rate method, respectively.
Derivative Financial Instruments
The Company does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants to purchase the Company’s common stock and the embedded conversion features of debt and preferred instruments that are not considered indexed to the Company’s common stock are classified as liabilities when either (a) the holder possesses rights to net-cash settlement, (b) physical or net share settlement is not within the control of the Company, or (c) based on its anti-dilutive provisions. In such instances, net-cash settlement is assumed for financial accounting and reporting. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period. Fair value for embedded conversion features and option-based derivative financial instruments is determined using the Monte Carlo Simulation or the Black-Scholes Option Pricing Model, respectively.
Other convertible instruments that are not derivative financial instruments are accounted for by recording the intrinsic value of the embedded conversion feature as a discount from the initial value of the instrument and accreting it back to face value over the period to the earliest conversion date using the effective interest rate method.
Leases
Effective January 1, 2019, we adopted Accounting Standards Codification 842, Leases ("ASC 842"). We determine if an arrangement contains a lease at inception based on whether or not the Company has the right to control the asset during the contract period and other facts and circumstances.
| F-33 |
We are the lessee in a lease contract when we obtain the right to control the asset. Operating lease right-of-use ("ROU") assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease, both of which are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Leases with a lease term of 12 months or less at inception are not recorded on our consolidated balance sheet and are expensed on a straight-line basis over the lease term in our consolidated statement of operations. We determine the lease term by assuming the exercise of renewal options that are reasonably certain. As most of our leases do not provide an implicit interest rate, we use our local incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. ASC 842 is effective for us beginning on January 1, 2019. As of December 31, 2019 we recorded right-of-use assets of $1,167,149 and lease obligations of $1,167,151. On adoption, we recognized additional liabilities, with corresponding ROU assets based on the present value of the lease payments over the lease term under current leasing contracts for existing operating leases. There was no statement of operations or cash flow statement impact on adoption, nor were prior periods adjusted.
The effects of the changes made to our balance sheet at adoption were as follows:
| Balance at December 31, 2018 | Impact from ASU 2016-02 Adoption | Balance at January 1, 2019 | ||||||||||
| Financial statement line item: | ||||||||||||
| Right-of-use assets- operating leases | $ | – | $ | 130,383 | $ | 130,383 | ||||||
| Current lease liabilities | $ | – | $ | (130,383 | ) | $ | (130,383 | ) | ||||
Long Lived Assets
The Company reviews the carrying values of its long-lived assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the expected future cash flow from the use of the asset and its eventual disposition is less than the carrying amount of the asset, an impairment loss is recognized and measured using the fair value of the related asset. There can be no assurance, however, that market conditions will not change or demand for the Company’s services will continue, which could result in impairment of long-lived assets in the future.
Property and equipment, net
Property and equipment are stated at cost or fair value when acquired. Depreciation is computed by the straight-line method and is charged to the statement of operations over the estimated useful lives of the assets. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease.
Interest on long-term debt for the development or manufacturing of Company assets is capitalized to the asset until the asset enters production or use, and thereafter all interest is charged to expense as incurred. Maintenance and repairs are charged to expense as incurred. Leasehold improvements are depreciated over the shorter of the estimated useful lives of the assets or the term of the related lease.
The carrying amount and accumulated depreciation of assets sold or retired are removed from the accounts in the year of disposal and any resulting gain or loss is included in results of operations. The estimated useful lives of property and equipment are as follows:
| Computers, software, and office equipment | 1-5 years |
| Machinery and equipment | 3-5 years |
| Vehicles | 5 years |
| Furniture and fixtures | 5 – 10 years |
|
Precious metal extraction machinery (heavy extraction equipment) |
10 years |
|
Remediation Processing Centers (heavy extraction and remediation equipment) (“RPC”) |
20 years |
| Leasehold improvements | Lesser of the lease term or estimated useful life |
| F-34 |
In 2020, Company retained the services of an engineering firm to lend its opinion on the economic life of the Remediation Processing Centers. The engineering firm issued an equipment life cycle report and opinion of a 20-year service life. Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service.
Intangible Assets:
We account for intangible assets in accordance with ASC 350 “Intangibles-Goodwill and Other” (“ASC 350”). Intangible asset amounts represent the acquisition date fair values of identifiable intangible assets acquired. The fair values of the intangible assets were determined by using the income approach, discounting projected future cash flows based on management’s expectations of the current and future operating environment. The rates used to discount projected future cash flows reflected a weighted average cost of capital based on our industry, capital structure and risk premiums including those reflected in the current market capitalization. Definite-lived intangible assets are amortized over their useful lives, which have historically ranged from 10 to 20 years. The carrying amounts of our definite-lived intangible assets are evaluated for recoverability whenever events or changes in circumstances indicate that the entity may be unable to recover the asset’s carrying amount. We do not have any indefinite-lived intangible assets recorded from acquisitions.
Share-Based Compensation
Share-based compensation is accounted for based on the requirements of ASC 718, “Compensation-Stock Compensation’ (“ASC 718”) which requires recognition in the financial statements of the cost of employee, consultant, or director services received in exchange for an award of equity instruments over the period the employee, consultant, or director is required to perform the services in exchange for the award (presumptively, the vesting period). ASC 718 also requires measurement of the cost of employee, consultant, or director services received in exchange for an award based on the grant-date fair value of the award.
Income tax
Deferred income taxes are provided on the asset and liability method whereby deferred income tax assets are recognized for deductible temporary differences and operating loss and tax credit carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred income tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred income tax assets will not be realized. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Our annual effective tax rate is based on our income and the tax laws in the various jurisdictions in which we operate. Judgment is required in determining our annual tax expense and in evaluating our tax positions. We establish reserves to remove some or all of the tax benefit of any of our tax positions at the time we determine that the position becomes uncertain based upon one of the following conditions: (1) the tax position is not "more likely than not" to be sustained; (2) the tax position is "more likely than not" to be sustained, but for a lesser amount; or (3) the tax position is "more likely than not" to be sustained, but not in the financial period in which the tax position was originally taken. For purposes of evaluating whether or not a tax position is uncertain, (1) we presume the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information; (2) the technical merits of a tax position are derived from authorities such as legislation and statutes, legislative intent, regulations, rulings and case law and their applicability to the facts and circumstances of the tax position; and (3) each tax position is evaluated without considerations of the possibility of offset or aggregation with other tax positions taken. We adjust these reserves, including any impact on the related interest and penalties, in light of changing facts and circumstances, such as the progress of a tax audit. See Note 20 for further information on income tax.
Revenue Recognition
Effective January 1, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). Revenue is recognized using the five-step model consistent with when performance obligations under the terms of the contracts with our customers are satisfied. Our performance obligation generally consists of the promise to sell products or complete services to our customers. Control of the products is transferred upon shipment to, or receipt at, our customers' locations, as determined by the specific terms of the contract. Upon transfer of control to the customer, which completes our performance obligation, revenue is recognized. Services are completed upon the terms of each contract, specifically in regard to remediation, when the tonnage of contaminated soil is completed and tested our performance obligation is completed and revenue is recognized. After completion of our performance obligation, we have an unconditional right to consideration as outlined in the contract. Our receivables will generally be collected in less than six months, in accordance with the underlying payment terms.
| F-35 |
Advertising Expense
Advertising costs are expensed as incurred. The Company did not have advertising expense for the years ended December 31, 2019 and 2018.
Recent Accounting Pronouncements
Under the Jumpstart Our Business Startups Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt-out of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non- emerging growth companies.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a new lease accounting model for lessees. The updated guidance requires an entity to recognize assets and liabilities arising from financing and operating leases, along with additional qualitative and quantitative disclosures. The amended guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018, with early adoption permitted. In March 2019, the FASB issued ASU 2019-01, Codification Improvements, which clarifies certain aspects of the new lease standard.
In December 2019, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2019-12, Simplifying the Accounting for Income Taxes, which eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating taxes during the quarters and the recognition of deferred tax liabilities for outside basis differences. This guidance also simplifies aspects of the accounting for franchise taxes and changes in tax laws or rates, as well as clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for the Company beginning January 1, 2021. We are currently evaluating the impact that ASU 2019-12 may have on our consolidated financial statements.
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06 Debt—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 Contracts in an Entity’s Own Equity, which improves Convertible Instruments and Contracts in an Entity’s Own Equity and is expected to improve financial reporting associated with accounting for convertible instruments and contracts in an entity’s own equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current U.S. GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument and more convertible preferred stock as a single equity 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 also simplifies the diluted earnings per share (EPS) calculation in certain areas. We are currently evaluating the impact that ASU 2019-12 may have on our consolidated financial statements.
Net Income/Loss Per Share
Basic earnings per share is calculated by subtracting any preferred interest distributions from net income (loss), all divided by the weighted-average number of common shares outstanding for the period, without consideration for common stock equivalents. Diluted net income (loss) per common share is computed by dividing the net income (loss) by the weighted-average number of common share equivalents outstanding for the period determined using the treasury stock method if their effect is dilutive. Potential dilutive instruments for the years ended December 31, 2019 and 2018 include the following: convertible notes payable convertible into approximately 160,688 and 108,281 shares of common stock, convertible Series A preferred stock convertible into approximately 20,000,000 shares of common stock, convertible Series B preferred stock convertible into approximately 21,251,890 and 67,271,587 shares of common stock, convertible Series B-1 preferred stock convertible into approximately 22,758,670 and 28,251,420 shares of common stock, convertible Series C-1 preferred stock convertible into approximately 13,384,760 and 12,117,160 shares of common stock, stock grants to employees of 500,000 and 600,000 shares of common stock, and warrants for 1,080,000 and 16,485,000 shares of common stock, and a stock payable of 20,000,000 shares of common stock.
| F-36 |
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates, judgments, and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We believe our critical accounting estimates relate to the following: Recoverability of current and noncurrent assets, revenue recognition, stock-based compensation, income taxes, effective interest rates related to long-term debt, lease assets and liabilities, cost basis and equity method investments, valuation of stock used to acquire assets, and derivatives.
While our estimates and assumptions are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions.
Fair Value of Financial Instruments
The Company follows Accounting Standards Codification (“ASC”) 820, “Fair Value Measurements and Disclosures” (“ASC 820”), for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that requires the use of fair value measurements, establishes a framework for measuring fair value, and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: Applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2: Applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company analyzes all financial instruments with features of both liabilities and equity under the Financial Accounting Standard Board’s (“FASB”) accounting standard for such instruments. Under this standard, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The carrying amounts reported in the consolidated balance sheets for cash, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their estimated fair market values based on the short-term maturity of these instruments. The recorded values of notes payable approximate their current fair values because of their nature, rates, and respective maturity dates or durations.
Note 4. Prepaid Expenses and Other Assets
As of December 31, 2019 and 2018, our prepaid expenses and other assets consist of the following:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Prepaid on option to purchase land, net (a) | $ | 117,889 | $ | – | ||||
| Deposits (b) | 84,503 | 36,009 | ||||||
| Total Prepaids and Other Assets | $ | 202,392 | $ | 36,009 | ||||
| F-37 |
(a) The Company entered into an Option Agreement in July 2019 for the exclusive right to purchase certain real property commonly known as Asphalt Ridge. The right to purchase the land was purchased for $200,000, which would be applied as a payment on the land if the option is exercised to purchase the land. The agreement gives the Company 12 months for due diligence and to operate on the land. The agreement grants the Company the option to extend the option for an additional 6 months for a cost of $200,000. The Company capitalized the cost of legal expense for this option in the amount of $2,096 bringing the gross value of the option to $202,096 as of December 31, 2019. The Company amortized the prepaid over the life of the agreement, 12 months. For the year ended December 31, 2019 amortization expense of $84,207 was recorded. As of December 31, 2019 the net value of the asset is $117,889. In July 2020 the landowner agreed to amend the option agreement and extend the option for an additional 6 months at no cost to the Company.
(b) Various deposits with vendors or security deposits on office and warehouse leases.
Note 5. Investments
Investments in marketable securities consist of equity securities recorded at fair value. Fair value is defined as the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date. We analyze our marketable securities in accordance with Accounting Standard Codification 321 (“ASC 321”). Valuations for marketable securities are based on quoted prices for identical assets in active markets. Where marketable securities were found not be part of an actively traded market, we made a measurement alternative election and estimate the fair value at cost of the investment minus impairment.
As of the years ended December 31, 2019, and 2018, the Company owns 2,500,000 shares of common stock in Odyssey Group International, Inc. (ticker: ODYY, OTC Markets), in the amount of $25,000. The Company has accounted for such securities at cost minus impairment due to the investment not being traded on an active market. For the years ended December 31, 2019 and 2018 there was no impairment.
During 2019, the Company converted $25,314 of its convertible note receivable with Odyssey Group International, Inc. into 2,531,400 shares of that entity’s common stock and transferred these shares to debt holders to extinguish outstanding notes payable (see Note 14).
As of December 31, 2019, and 2018, the Company owns 1,000 Class A LLC Units in each of the following entities, which are not consolidated: Vivaventures UTSI, LLC and Vivaventures Royalty II, LLC. In 2019 the Company purchased 1,000 Class A Units in Vivaopportunity Fund LLC. In aggregate these units amount to $3,000. These Class A Units give the Company management control of the entities but lack the necessary economics criterion, where the Company lacks the obligation to absorb losses of these entities, as well as the right to receive benefits from the LLCs.
The Company has accounted for such equity investments at cost minus impairment due to the investments not being traded in an active market.
Note 6. Inventories
Inventories consist primarily of raw materials (including tar-sand stockpiles) and finished goods (which includes Fenix iron). Inventories are valued at the lower of cost or market (net realizable value). The tar-sand stockpiles consist of 400,000 tons of tar sand stockpile and are anticipated to be used as test material for our extraction remediation units. The stockpiles were acquired at a cost of approximately $0.83 per ton or $333,744. The nano Fenix Iron are finished goods that have a 20-year shelf life and were acquired at cost for $192,000 in the acquisition of the ammonia synthesis patents (see Note 11) and bioreactors.
Note 7. Precious Metal Concentrate
Precious metal concentrate includes metal concentrates located at the Company’s facilities. Concentrates consist of gold, silver, platinum, palladium, and rhodium. Precious metal concentrate was acquired from our funding agreements for extraction operations with Vivaventures Precious Metals LLC from 2013 through 2016. Our precious metal concentrate requires further refining to be sold as a finished product and is valued at the lower of cost or market (net realizable value).
| F-38 |
During the years ended December 31, 2019 and 2018, the Company carried a refining reserve of $1,183,229 against its precious metal concentrate asset based on estimates that the Company received if it were to sell the precious metal concentrate in its current concentrated form to processing refineries. The Company intends to refine our precious metal concentrate into dore bars for sale or monetization and investment purposes.
As of December 31, 2019 and 2018 the net realizable value of the precious metal concentrate is $1,183,228.
Note 8. Notes Receivable
Notes receivable consist of the following:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Related party receivable (a) | $ | 2,202 | $ | – | ||||
| Odyssey Group International, Inc. note receivable (b) | 779,176 | 684,325 | ||||||
| Scepter Holdings, Inc. note receivable (c) | 63,514 | – | ||||||
| Vivaceuticals, Inc. note receivable (d) | – | 800,000 | ||||||
| Total Notes Receivable | $ | 844,892 | $ | 1,484,325 | ||||
(a) In 2019, the Company loaned $2,202 to Vivaopportunity Fund, LLC., which holds a noncontrolling interest in our consolidated financial statements. The $2,202 is expected to be paid to the Company in the next nine months. The Company is not required to provide any subordinated support. No interest accrues, and no specific maturity date has been agreed upon.
(b) We entered into a Master Revolving Note with Odyssey Group International, Inc., (ticker: ODYY, OTC Markets) in January 2017 for the Company to lend up to $450,000 to the holder. The note accrues interest at a rate of 12.5% per annum and accrues monthly on the outstanding principal. The note was convertible into common shares of Odyssey Group International, Inc. at a rate of $0.01 per share and was amended in 2018 to convert all of its remaining convertible debt balance based on the next qualified offering of Odyssey Group International, Inc. of at least $500,000, and at the same price as the offering. The borrower is also required to pay a royalty to the Company at a rate of 2% of gross revenue until the loan is paid back in full. The loan was amended in November 2017 to extend the maturity date to lend up to $750,000 and it extended the maturity to January 2020. All outstanding principal and accrued interest was converted to the borrower’s common stock in June 2020 at $1.00 per share.
(c) We entered into a Master Revolving Note with Scepter Holdings, Inc. (OTC Pink: BRZL) in January 2019 for the Company to lend up to $70,000 to the holder. The note accrues interest at a rate of 7% per annum and accrues monthly on the outstanding principal. The note is convertible into common shares of Scepter Holdings, Inc. at a rate of $0.002 per share or a 50% discount to market on the date of conversion, whichever is less. The note matured in January 2020, and was amended to extend the maturity for an additional year with a maturity of January 2021 and the maximum amount of note was increased to $100,000.
| F-39 |
(d) We entered into a Master Revolving Note with Vivaceuticals, Inc., a related party, in August 2012 for the Company to lend up to $3,000,000 to the holder. The note accrued interest at a rate of 12% per annum and accrued monthly on the outstanding principal. The Holder was also required to pay a royalty to the Company at a rate of 2% of gross revenue until the loan is paid back in full. The loan had a maturity of August 2017. At that time Vivaceuticals notified the Company that it was being approached by buyers of the assets that our loan encumbered. In December 2018, Vivaceuticals completed a sale of the assets to Scepter Holdings, Inc. for a fair value of the consideration received, or $800,000 of preferred shares in Scepter Holdings, Inc. In January 2019, Vivaceuticals transferred the $800,000 of preferred shares to the Company to extinguish outstanding balance and all accrued interest. In March 2019 the Company converted these preferred shares to common stock and became a 23% equity holder on a dilutive basis (see Note 3). As of December 31, 2019 and 2018 the outstanding balance of this note receivable with all accrued interest was none and $800,000.
Note 9. Property and Equipment,
The following table sets forth the components of the Company’s property and equipment at December 31, 2019 and December 31, 2018:
| December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Depreciation | Net Book Value | Gross Carrying Amount | Accumulated Depreciation | Net Book Value | |||||||||||||||||||
| Office furniture and equipment | $ | 9,617 | $ | 229 | $ | 9,388 | $ | – | $ | – | $ | – | ||||||||||||
| Vehicles | 48,248 | 7,007 | 41,241 | 11,815 | 394 | 11,421 | ||||||||||||||||||
| Precious metal extraction machine- 1 ton | 2,280,000 | 228,000 | 2,052,000 | 2,280,000 | 228,000 | 2,052,000 | ||||||||||||||||||
| Precious metal extraction machine- 10 ton | 5,320,000 | 532,000 | 4,788,000 | 5,320,000 | 532,000 | 4,788,000 | ||||||||||||||||||
| Construction in process: | ||||||||||||||||||||||||
| Nanosponge prototype | 17,103 | – | 17,103 | 14,103 | – | 14,103 | ||||||||||||||||||
| Bioreactors | 1,440,000 | – | 1,440,000 | 1,440,000 | – | 1,440,000 | ||||||||||||||||||
| Remediation Processing Unit 1 | 4,983,731 | – | 4,983,731 | 3,571,347 | – | 3,571,347 | ||||||||||||||||||
| Remediation Processing Unit 2 | 2,496,732 | – | 2,496,732 | 548,842 | – | 548,842 | ||||||||||||||||||
| Remediation Processing Unit 3 | 97,353 | – | 97,353 | 43,306 | – | 43,306 | ||||||||||||||||||
| Total fixed assets | $ | 16,692,784 | $ | 767,236 | $ | 15,925,548 | $ | 13,229,413 | $ | 760,394 | $ | 12,469,019 | ||||||||||||
For the year ended December 31, 2019 the Company paid $507,044 with 1,267,608 shares of Series C-1 Preferred Stock for equipment, which has been valued based on similar cash purchases of the Series C-1 Preferred Stock at $0.40 per share. For the years ended December 31, 2019 and 2018 our precious metal extraction machines were taken offline for design and implementation of further machinery additions and were not depreciated during this time. For the years ended December 31, 2019 and 2018 depreciation expense was $6,843 and $394. For the years ended December 31, 2019 and 2018 capitalized interest to equipment from debt financing was $1,061,215 and $551,382. Equipment that is currently being manufactured is considered construction in process and is not depreciated until the equipment is placed into service.
Note 10. License Agreements
On August 17, 2017, the Company purchased rights to an exclusive license for the applications and implementations involving the Nanosponge Technology and to use and develop the Nanosponge as we see fit at our sole discretion. The Nanosponge contribution in the Company’s processes is to facilitate a cracking process whereby remediated or extracted oil may be further refined from a crude product to a diesel fuel. The license was valued at $2,416,572 and is amortized over its useful life of 20 years. As of December 31, 2019 and 2018 the accumulated amortization of the license is $281,933 and $161,105. For the years ended December 31, 2019 and 2018 amortization expense of the license was $120,828. Amortization expense for the years 2020 through 2024 is $120,828 in each respective year. As of December 31, 2019 and 2018 the net value of the license is $2,134,639 and $2,255,467.
| F-40 |
Note 11. Intellectual Property, Net
The Company entered into a Contribution Agreement dated January 5, 2015, where proprietary information and intellectual property related to certain petroleum extraction technology (also known as hydrocarbon extraction technology) suitable to extract petroleum (or hydrocarbons) from tar sands and other sand-based ore bodies, and all related concepts and conceptualizations thereof (the “Extraction Technology”) was contributed to VivaVentures Energy Group, Inc., a 99% majority-owned subsidiary of Vivakor, and was assessed a fair market value of $16,385,157, which consists of the consideration of $11,800,000 and the Company assuming a deferred tax liability in the amount of $4,585,157. All ownership in the Extraction Technology (including all future enhancements, improvements, modifications, supplements, or additions to the Extraction Technology) was assigned to the Company and is currently being applied to the Company Remediation Processing Centers, which are the units that remediate material. The Extraction Technology is amortized over a 20-year life. As of December 31, 2019 and 2018 the amortization expense of the patents was $819,258. Amortization expense for the years 2020 through 2024 is $819,258 in each respective year. As of December 31, 2019 and 2018 the net book value of the Extraction Technology is $12,357,139 and $13,176,397.
In 2019, the Company began the process of patenting the Extraction Technology and all of its developments and additions since the acquisition, and we have filed a series of patents and capitalized the costs of these patents. As of December 31, 2019 the capitalized costs of these patents are $81,210. The patents are pending and when placed in service, the Company will be begin amortizing the cost over the patent useful life.
The Company entered into an asset purchase agreement dated September 5, 2017, where two patents (US patent number 7282167- Method and apparatus for forming nano-particles and US patent number 9272920- System and method for ammonia synthesis) were purchased and attributed a fair value of $4,931,380, which consists of the consideration of $3,887,982 and the Company assuming a deferred tax liability in the amount of $1,043,398. The patents grant the Company ownership of a nano catalyst technology that facilitates chemical manufacturing, with a focus on the production of ammonia, specifically for the gas phase condensation process used to create the iron catalyst. The nano catalyst accelerators make the Haber-Bosch process more efficient by increasing the active surface area of standard commercial iron catalysts, thereby lowering the reaction temperature and pressure required for the Haber-Bosch process to occur. As a result, less energy is needed to complete the reaction and create ammonia. The patents are amortized over their useful life of 10 years. As of December 31, 2019 and 2018 the amortization expense of the patents was $493,138. Amortization expense for the years 2020 through 2024 is $493,138 in each respective year. As of December 31, 2019 and 2018 the net book value of the patents is $3,821,820 and $4,314,958.
The following table sets forth the components of the Company’s intellectual property at December 31, 2019 and December 31, 2018:
| December 31, 2019 | December 31, 2018 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Book Value | Gross Carrying Amount | Accumulated Amortization | Net Book Value | |||||||||||||||||||
| Extraction Technology patent costs | $ | 81,210 | $ | – | $ | 81,210 | $ | – | $ | – | $ | – | ||||||||||||
| Extraction Technology | 16,385,157 | 4,028,018 | 12,357,139 | 16,385,157 | 3,208,760 | 13,176,397 | ||||||||||||||||||
| Ammonia synthesis patents | 4,931,380 | 1,109,560 | 3,821,820 | 4,931,380 | 616,422 | 4,314,958 | ||||||||||||||||||
| Total Intellectual property | $ | 21,397,747 | $ | 5,137,578 | $ | 16,260,169 | $ | 21,316,537 | $ | 3,825,182 | $ | 17,491,355 | ||||||||||||
Note 12. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Accounts payable | $ | 583,966 | $ | 155,086 | ||||
| Office access deposits | 1,490 | 1,025 | ||||||
| Accrued compensation | 125,000 | 50,000 | ||||||
| Accrued tax penalties and interest | 161,411 | 118,262 | ||||||
| Accounts payable and accrued expenses | $ | 871,867 | $ | 324,373 | ||||
| F-41 |
Note 13. Stock Payable
As of December 31, 2019 and 2018, the Company had an outstanding payable of $11,800,000 payable in common stock to Sustainable Fuels, Inc. (“SFI”) for the Extraction Technology (See Note 11). Before the Common Stock was issued, the owner of SFI died and the matters and affairs of his estate were passed to the executor of his estate. We attempted to contact SFI and the executor of the estate multiple times to issue and send the common stock to the company or appropriate successor of the estate to no avail. The Company was able to make contact with new owner of SFI in 2020 and has since issued the Common Stock to SFI. In 2020, this liability has been extinguished with the issuance of the 20,000,000 shares of Common Stock.
Note 14. Loans and Notes Payable
Loans and Notes payable consist of the following:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Various promissory notes and convertible notes (a) | $ | 80,212 | $ | 749,464 | ||||
| Novus Capital Group LLC Note (b) | 334,775 | 334,775 | ||||||
| TriValley & Triple T Notes (c) | 247,192 | 169,345 | ||||||
| National Buick GMC (d) | 31,966 | – | ||||||
| Total Loans and Notes Payable | $ | 694,145 | $ | 1,253,584 | ||||
_____________
(a) In 2013 through 2018 the Company issued a series of promissory notes and convertible notes with various interest rates ranging up to 12% per annum. The convertible notes convert at the holder’s option after 1 year of issuance and may be converted into shares of common stock. The conversion price is generally equal to the specified per share conversion rate as noted in the note agreements. In 2018 a promissory note holder settled their debt and the remaining debt discount related to this promissory note was recorded as a loss on the extinguishment of the debt of $126,000 and charged to “Gain (loss) on extinguishment of debt” in the accompanying Consolidated Statement of Operations. In 2019 a series of the promissory note holders agreed to settle $632,850 in notes payable for 2,531,400 shares of marketable securities of Odyssey Group International, Inc. owned by the Company. The Company converted $25,314 of its convertible note receivable into 2,531,400 shares of Odyssey Group International, Inc. and transferred these shares to the note holders to extinguish the notes payable and has accounted for these marketable securities at cost or $25,314 and recorded a $607,536 gain on the extinguishment of debt in “Gain (loss) on extinguishment of debt” in the accompanying consolidated statement of operations.
(b) On September 5, 2017, the Company acquired patents in the amount of $3,887,982, in which the Company also agreed to assume the encumbering debt on asset in the amount of $334,775 due in December 2019 with no interest accruing until 2020. The Company has agreed with the Holder to extend the note to January 2, 2021 and accrue interest at 7% per annum commencing January 1, 2020 through July 1, 2020, and 10% per annum commencing July 2, 2020 through January 2, 2021.
(c) The balance of these outstanding notes is due to related parties, specifically the 51% owner of Vivakor Middle East LLC, in which the Company owns 49% and consolidates this entity in its consolidated financial statements. The loans were granted to Vivakor Middle East LLC by the majority owner for operational use with only the agreement of repayment from the net proceeds of the LLC operations once it commences scaled up operations. No interest accrues on the loans, and no specific maturity date has been agreed upon.
(d) In May 2019 the Company purchased a vehicle for $36,432 and financed $34,932 over six years with an interest rate of 6.24% per annum. Monthly payments of $485 are required and commenced in July 2019.
Note 15. Commitments and Contingencies
Leases
In June 2019, the Company entered into a sublease agreement with US Closer, LLC, whereby we agreed to lease approximately 12,061 square feet of office and manufacturing space located in South Salt Lake City, Utah. Pursuant to the Sublease, the sublease expires on December 31, 2020 and requires a monthly lease payment of $6,633.55 plus other pass-through expenses as required under the primary lease.
| F-42 |
Commencing on September 15, 2019, the Company entered into a five-year lease with Jamboree Center 1 & 2 LLC covering approximately 6,961 square feet of office space in Irvine, CA. Under the terms of the lease agreement, we are required to make the following monthly lease payments: Year 1 $21,927, Year 2 $22,832, Year 3 $23,737, Year 4 $24,712, Year 5 $25,686. As a condition of the lease, we were required to provide a $51,992 security deposit.
The right-of-use asset for operating leases as of December 31, 2019 was $1,167,149. Rent expense for the years ended December 31, 2019 and 2018 was $241,131 and $220,074.
The following table reconciles the undiscounted cash flows for the leases as of December 31, 2019 to the operating lease liability recorded on the balance sheet:
| 2020 | $ | 323,515 | ||
| 2021 | 276,699 | |||
| 2022 | 287,769 | |||
| 2023 | 299,466 | |||
| 2024 | 231,174 | |||
| Total undiscounted lease payments | 1,418,623 | |||
| Less: Abatement of rents | (46,569 | ) | ||
| Less: Imputed interest | (200,602 | ) | ||
| Present value of lease payments | $ | 1,171,452 | ||
| Operating lease liabilities, current | $ | 345,442 | ||
| Operating lease liabilities, long-term | $ | 826,010 | ||
| Weighted-average remaining lease term | 4.5 years | |||
| Weighted-average discount rate | 7.0% |
The discount rate is the Company’s incremental borrowing rate, or the rate of interest that the Company would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Based on an assessment of the Company’s borrowings the incremental borrowing rate was determined to be 7%.
Note 16. Long-term Debt
To assist in funding the manufacture of the Company’s first two Remediation Processing Centers, between 2015 and 2017, the Company entered into two agreements which include terms for the purchase of participation rights for the sale of future revenue, and which also require working interest budget payments by the Company.
The Company accounts for the terms under these contracts for the sale of future revenue under Accounting Standards Codification 470 (“ASC 470”). Accordingly, these contracts include the receipt of cash from an investor where the Company agrees to pay the investor for a defined period a specified percentage or amount of the revenue or a measure of income (for example, gross revenue) according to their contractual right, in which the Company will record the cash as debt and apply the effective interest method to calculate and accrue interest on the contracts. The terms of these agreements grant the holder a prorated 25% participation in the gross revenue of the property as defined in the agreements for 20 years after operations commence for a purchase price of approximately $2,200,000. In the event that the contract is not fully subscribed by the LLCs it will receive only a prorated participation of the available 25% participation. Under the terms of the agreement, we anticipate Remediation Processing Centers to commence operations and to begin making estimated annual payments of $1,960,000, in January 2021 based on revenue projections of the RPCs.
In accordance with ASC 470, the Company records the proceeds from these contracts as debt because the Company has significant continuing involvement in the generation of the cash flows due to the investor (for example, active involvement in the generation of the operating revenues of the business segment), which constitutes the presence of a factor that independently creates a rebuttable presumption that debt classification is appropriate. The Company has determined its effective interest rates to be between 40% and 41.75% based on each contract’s future revenue streams expected to be paid to the investor. These rates represent the discount rate that equates estimated cash flows with the initial proceeds received from the investor and is used to compute the amount of interest expense to be recognized each period. During the development and manufacturing of the assets the effective interest has been capitalized to the assets. As the assets enter operations or service of their intended use, the effective interest on these contracts will be recognized as interest expense (See Note 9).
| F-43 |
In 2016 and 2017, additional consideration to investors to enter into these agreements was granted, and the Company issued to these investors 3,390,000 shares of Series B-1 Preferred Stock with a relative fair value of $0.25 per share or based on conversion terms and price of the Company’s Common Stock at the time of issuance. The Company also issued 3,185,000 common stock warrants to investors. The relative fair value of the warrants and Series B-1 preferred stock in aggregate was $1,488,550, and was recorded as a debt discount, which is amortized to interest expense over the term of these agreements using the effective interest method. During the manufacturing phase of the asset, the interest expense is capitalized to the asset.
Some holders of these participation rights also have the option to relinquish ownership and all remaining benefits of their LLC units in exchange for Common Stock in the Company. Depending on the contract, these options to convert to common stock range from between 1 and 5.5 years. The exercise period ranges from between 1 year to 5.5 years with a step-up discount to market for each year the option is not exercised with a range of between a 5% to a 25% discount to market Accordingly, under Accounting Standards Codification 815 (“ASC 815”) the Company valued these options at fair value using a Monte Carlo Simulation by a third-party valuation expert, which found the fair value of the options to be nominal. Long-term debt related to these participation rights is recorded in “Long-term debt” on the consolidated balance sheet.
As of December 31, 2019 and 2018 long-term debt related to the sale of future revenue was $3,900,923 and $2,355,659.
The accounting for the terms under these contracts that call for working interest budget payments by the Company are recorded in current liabilities on the consolidated balance sheet and paid down through pass-through expenses or cash according to the contract. Accordingly, the Company records any unpaid balance of budget payments received in “Long-term debt, current” as these liabilities are generally paid within 12 months after proceeds are received. As of December 31, 2019 and 2018 current portion of the long-term debt related to the working interest payables was $126,535 and $316,150.
Long-term debt consists of the following:
| December 31, 2019 | December 31, 2018 | |||||||
| Principal | $ | 2,186,233 | $ | 1,702,184 | ||||
| Accrued interest | 1,971,285 | 924,954 | ||||||
| Debt discount | (256,595 | ) | (271,479 | ) | ||||
| Working interest payable | 126,535 | 316,150 | ||||||
| Total long term debt | $ | 4,027,458 | $ | 2,671,809 | ||||
| Long term debt, current | $ | 126,535 | $ | 316,150 | ||||
| Long term debt | $ | 3,900,923 | $ | 2,355,659 | ||||
Note 17. Stockholders' Equity
Series A, Series B, Series B-1, Series C and Series C-1 Preferred Stock
The Preferred Stock authorized by the Company may be issued from time to time in one or more series. The Company is authorized to issue 450,000,000 shares of preferred stock. The Company is authorized to issue 2,000,000 shares of Series A Preferred Stock, 98,000,000 shares of Series B Preferred Stock, 50,000,000 shares of Series B-1 Preferred Stock, 100,000,000 shares of Series C Preferred Stock, and 50,000,000 shares of Series C-1 Preferred Stock. The Board of Directors is authorized to fix or alter the number of shares constituting any series of Preferred Stock and the designation thereof.
The Company has issued 2,000,000 shares of Series A Preferred Stock. Shares are convertible at a current ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. Holders of shares of Series A Preferred Stock will have the right to 25 votes for each share of Common Stock into which such shares of Series A Preferred Stock can then be converted (with a current conversion ratio of 10 shares of Common Stock for each outstanding share of Series A Preferred Stock) and the right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any other Preferred Stock holder in the liquidation, dissolution or winding up of our Company. As of December 31, 2019 and 2018 the liquidation preference is $400,000. Holders of shares of Series A Preferred Stock are not currently entitled to dividends. The Company has the right, but not the obligation, to redeem shares of Series A Preferred Stock.
| F-44 |
The Company has issued 21,251,890 and 67,271,587 of Series B Preferred Stock as of December 31, 2019, and 2018, respectively. Shares of Series B Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.20) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series B Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series B Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. Certain holders of Series B contractually agreed to an automatic conversion to Common Stock after 4 years of issuance. The Company has the right, but not the obligation, to redeem shares of Series B Preferred Stock one year after issuance. Holders of Series B Preferred Stock will have the right to one vote for each share of Common Stock into which such Series B Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of December 31, 2019 and 2018 the liquidation preference was $4,383,202 and $13,874,764. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued 22,758,670 and 28,251,420 of Series B-1 Preferred Stock as of December 31, 2019, and 2018, respectively. Shares of Series B-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.25) or a 10% discount to market on the conversion date). Also, automatic conversion of shares of Series B-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series B-1 Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series B-1 Preferred Stock one year after issuance. Holders of Series B-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A and Series B Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of December 31, 2019 and 2018 the liquidation preference was $5,689,668 and $7,062,855.
The Company has not issued any Series C Preferred Stock as of December 31, 2019, and 2018, respectively. Shares of Series C Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.35) or a 10% discount to the market price on the conversion date). Automatic conversion of shares of Series C Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series C Preferred Stock, or upon the four (4) year anniversary date of the issuance of such shares. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C Preferred Stock one year after issuance. Holders of Series C Preferred Stock will have the right to one vote for each share of Common Stock into which such Series C Preferred Stock is then convertible, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series B and B-1 Preferred Stock, in the liquidation, dissolution or winding up of our Company. Dividends are 12.5% and cumulative and are payable only when, as, and if declared by the Board of Directors.
The Company has issued 13,384,760 and 12,117,160 of Series C-1 Preferred Stock as of December 31, 2019, and 2018, respectively. Shares of Series C-1 Preferred Stock are convertible one year after issuance, at any time at the option of the holder, into shares of Common Stock (with a conversion price at the lesser of the issuance price ($0.40) or a 10% discount to the market price on the conversion date). In addition, automatic conversion of shares of Series C-1 Preferred Stock into shares of Common Stock may occur due to certain qualified public offerings entered into or by written consent of a majority of the holders of Series C-1 Preferred Stock. The conversion price is subject to adjustment under certain customary circumstances, including as a result of stock splits and combinations, dividends and distributions, and certain issuances of common stock. The Company has the right, but not the obligation, to redeem shares of Series C-1 Preferred Stock one year after issuance. Holders of Series C-1 Preferred Stock have no voting or dividend rights, and a right to a liquidation preference in any distribution of net assets made to the shareowners prior to and in preference to the holders of Common Stock and any Preferred Stock holder, except holders of Series A, Series B, Series B-1, and Series C Preferred Stock, in the liquidation, dissolution or winding up of our Company. As of December 31, 2019 and 2018 the liquidation preference was $5,353,904 and $4,846,864.
For the year ended December 31, 2019, the Company issued 1,980,126 shares of Series B-1 Preferred Stock as a $495,054 stock dividend paid to Series B Preferred Shareholders.
For the year ended December 31, 2019, $11,072,019, or 53,492,573 shares of Series B and Series B-1 Preferred Stock, were converted into 53,492,583 shares of Common Stock.
| F-45 |
For the year ended December 31, 2019, the Company issued 1,267,608 Series C-1 Preferred Stock for $507,044 for the purchase of equipment.
For the year ended December 31, 2018, the Company issued 5,767,126 shares of Series B-1 Preferred Stock as a $1,441,938 stock dividend paid to Series B Preferred Shareholders.
For the year ended December 31, 2018, the Company issued 90,000 shares of Series C-1 Preferred Stock for $36,900 in cash.
For the year ended December 31, 2018, the Company issued 768,160 shares of Series C-1 Preferred Stock as a $307,265 interest expense payment.
For the year ended December 31, 2018, $1,239,382, or 5,840,561 of Series B and B-1 Preferred Stock, was converted into 5,840,560 shares of Common Stock.
For the year ended December 31, 2018, the Company issued 9,000 Series C-1 Preferred Stock for $2,700 in services.
Common Stock
The Company is authorized to issue 1,250,000,000 shares of common stock. As of December 31, 2019 and 2018, there were 285,343,964 and 230,256,188 shares of our common stock issued and outstanding, respectively. Treasury stock is carried at cost.
For the year ended December 31, 2019, $11,072,019, or 53,492,573 shares of Series B and Series B-1 Preferred Stock, were converted into 53,492,583 shares of Common Stock.
For the year ended December 31, 2019, the Company issued 209,414 shares for a $53,500 reduction of liabilities.
For the year ended December 31, 2019, the Company issued 230,000 shares of Common Stock for $91,982 in cash due to exercised warrants.
For the year ended December 31, 2019, the Company issued 1,155,779 shares of Common Stock for $219,597 for services to the Company.
For the year ended December 31, 2019, the Company granted stock-based compensation to an employee, including a 500,000 share stock award, which vests after 4 years. For the year ended December 31, 2018, stock-based compensation was $48,421.
For the year ended December 31, 2018, $1,239,382, or 5,840,561 shares of Series B-1 Preferred Stock, was converted into 5,840,560 shares of Common Stock.
For the year ended December 31, 2018, the Company issued 3,005,630 shares of Common Stock for a $751,408 conversion of outstanding notes payable.
For the year ended December 31, 2018, the Company issued 130,000 shares of Common Stock for $51,999 in cash due to exercised warrants.
For the year ended December 31, 2018, the Company issued stock-based compensation to employees, including a 600,000 share stock award, which vest between 1 and 4 years. For the year ended December 31, 2018, stock-based compensation was 32,280.
Noncontrolling Interest
For the years ended December 31, 2019 and 2018, the Company issued 292,800 and no units of noncontrolling interest in RPC Design and Manufacturing LLC for cash of $1,464,000 and none.
| F-46 |
Note 18. Temporary Equity
Each of the Series B, B-1, C and C-1 convertible preferred stock have conversion features that allow the holder to convert the preferred stock into common stock at such holder’s election. Upon conversion, the Company may be required to deliver a variable number of equity shares that is determined by using a formula based on the market price of the Company’s Common Stock. After four years from the date of issuance, Series B and C preferred shareholders are forced to automatically convert to Common Stock. For each respective series, the holder may convert their preferred shares to common shares at the original issue price as defined, which ranges from between $0.20 per share to $0.40 per share, at the lesser of the original issue price or 90% of the market price on the conversion date. As of December 31, 2019 and 2018 the market price of the Company’s Common Stock was $0.20 and $0.23 per share. As of the date of this report the market price of the shares is approximately $0.53 per share. There is no contractual cap on the number of common shares that the Company could be required to deliver on preferred shareholders’ conversions to Common Stock. Because the feature contains no explicit share limit, the Company assumes that it may be forced to cash settle the conversion feature in accordance with the accounting analysis under ASC 815-40-25.
Accordingly, under ASC 815-40-25-10 the Company may be forced to settle these conversion features in cash, specifically since it is unknown as to what date the shareholders’ may convert their preferred stock to common stock and if there will be sufficient authorized and unissued common shares on that date. As of December 31, 2019 and 2018 the Company did have sufficient authorized and unissued common shares to satisfy all preferred shareholders interest if it were converted to Common Stock, although if the stock price were to drop below $0.02 per share and the Company could not authorize further shares it may be forced to settle such conversions in cash. Accordingly, Series B, B-1, C and C-1 preferred stock has been classified in temporary equity.
The following table shows all changes to temporary equity for the years ended December 31, 2019 and 2018:
Convertible Preferred Stock
| Series B | Series B-1 | Series C-1 | ||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | |||||||||||||||||||
| December 31, 2017 | 71,689,877 | $ | 14,337,913 | 23,906,565 | $ | 5,976,566 | 11,250,000 | $ | 5,987,500 | |||||||||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | (4,418,290 | ) | (883,658 | ) | (1,422,271 | ) | (355,724 | ) | – | – | ||||||||||||||
| Interest expense payment on long term debt | – | – | – | 768,160 | 307,265 | |||||||||||||||||||
| Preferred stock issued for services | – | – | – | 9,000 | 2,700 | |||||||||||||||||||
| Issuance of preferred stock for cash | – | – | – | 90,000 | 36,900 | |||||||||||||||||||
| Dividend paid in Series B-1 Preferred Stock | – | – | 5,767,126 | 1,441,938 | – | |||||||||||||||||||
| December 31, 2018 | 67,271,587 | $ | 13,454,255 | 28,251,420 | $ | 7,062,780 | 12,117,160 | $ | 6,334,365 | |||||||||||||||
| Conversion of Series B and B-1 Preferred Stock to Common Stock | (46,019,697 | ) | (9,203,875 | ) | (7,472,876 | ) | (1,868,144 | ) | – | – | ||||||||||||||
| Common Stock issued for the purchase of equipment | – | – | – | – | 1,267,600 | 507,044 | ||||||||||||||||||
| Dividends to preferred stockholders | – | – | 1,980,126 | 495,054 | – | – | ||||||||||||||||||
| December 31, 2019 | 21,251,890 | $ | 4,250,380 | 22,758,670 | $ | 5,689,690 | 13,384,760 | $ | 6,841,409 | |||||||||||||||
Note 19. Warrants
As of December 31, 2019 the Company had 1,080,000 warrants outstanding. These warrants relate to the warrants issued as an incentive to investors with an investment into the Company. As of December, 31 2018 the Company had 16,485000 warrants outstanding, where 5,625,000 these warrants related to warrants issued for incentive to investors with their investment into the Company, and 11,000,000 of the outstanding warrants were issued in the acquisition of the ammonia synthesis patents and equipment in 2017. The outstanding warrants were issued at prices ranging from $0.40 to $1.00 per share of Common Stock. The warrants were granted for periods ranging from three to ten years.
| F-47 |
Management uses the Black-Scholes option pricing model to determine the fair value of warrants on the date of issuance. The fair value of warrants issued pursuant to the issuance of notes payable was recorded as deferred debt issuance cost and amortized over the remaining term of the associated debt.
The assumptions used in the Black-Scholes option pricing model to determine the fair value of the warrants on the date of issuance are as follows:
| Risk-free interest rate | 1.3% - 2.7% | ||
| Expected dividend yield | None | ||
| Expected life of warrants | 1 – 2 years | ||
| Expected volatility rate | 73 - 131% |
The following table summarizes the activity of the Company’s share purchase warrants:
| Weighted | ||||||||||||
| average | Aggregate | |||||||||||
| Number of | exercise | Intrinsic | ||||||||||
| warrants | price | Value | ||||||||||
| Balance, January 1, 2018 | 26,267,500 | $ | 0.68 | |||||||||
| Issued | 50,000 | 0.40 | ||||||||||
| Expired | (9,702,500 | ) | 0.91 | |||||||||
| Exercised | (130,000 | ) | 0.40 | |||||||||
| Balance, December 31, 2018 | 16,485,000 | 0.55 | $ | – | ||||||||
| Expired | (15,195,000 | ) | 0.56 | |||||||||
| Exercised | (210,000 | ) | 0.40 | |||||||||
| Balance, December 31, 2019 | 1,080,000 | $ | 0.40 | $ | – | |||||||
As of December 31, 2019, the following share purchase warrants were outstanding:
| Number of warrants outstanding | Exercise price | Expiration date | ||||
| 1,080,000 | $ | 0.40 | December 2020 | |||
Note 20. Income Tax
Provision (benefit) for income tax expense consists of the following:
| December 31, | ||||||||
| 2019 | 2018 | |||||||
| Current: | ||||||||
| State | $ | 800 | $ | 800 | ||||
| 800 | 800 | |||||||
| Deferred: | ||||||||
| Federal | 422,037 | (14,654 | ) | |||||
| State | 166,366 | (22,791 | ) | |||||
| 588,403 | (37,445 | ) | ||||||
| Net provision (benefit) | $ | 589,203 | $ | (36,645 | ) | |||
| F-48 |
The differences between the expected income tax benefit based on the statutory Federal United States income tax rates and the Company's effective tax rates are summarized below for the years ended December 31, 2019 and 2018:
| December 31, 2019 | ||||||||
| Tax Computed At The Federal Statutory Rate | $ | (344,301 | ) | 21.00% | ||||
| State Tax, Net Of Fed Tax Benefit | (100,906 | ) | 6.15% | |||||
| Nondeductible Expenses | 3,405 | -0.21% | ||||||
| Flowthrough Entity not Subject to Tax | 21,313 | -1.30% | ||||||
| Foreign Corporation - Minority Interest | 14,251 | -0.87% | ||||||
| Valuation Allowance | 995,440 | -60.72% | ||||||
| Rate Change | – | 0.00% | ||||||
| R&D Credits | – | 0.00% | ||||||
| Other/Prior Year True-Up | – | 0.00% | ||||||
| Provision for income taxes | $ | 589,203 | -35.95% | |||||
| December 31, 2018 | ||||||||
| Tax Computed At The Federal Statutory Rate | $ | (461,191 | ) | 21.00% | ||||
| State Tax, Net Of Fed Tax Benefit | (148,545 | ) | 6.76% | |||||
| Nondeductible Expenses | 3,302 | -0.15% | ||||||
| Flowthrough Entity not Subject to Tax | – | 0.00% | ||||||
| Foreign Corporation - Minority Interest | 9,306 | -0.42% | ||||||
| Valuation Allowance | 560,483 | -25.52% | ||||||
| Rate Change | – | 0.00% | ||||||
| R&D Credits | – | 0.00% | ||||||
| Other/Prior Year True-Up | – | 0.00% | ||||||
| Benefit from income taxes | $ | (36,645 | ) | 1.67% | ||||
Significant components of the Company's deferred tax assets and liabilities as of December 31, 2019 and 2018 are as follows:
| December 31, 2019 | ||||
| Reserves | $ | 336,987 | ||
| Fixed Assets | (1,711,017 | ) | ||
| Leases | 1,204 | |||
| Intangibles | (4,301,036 | ) | ||
| Net Operating Losses | 2,819,624 | |||
| Impairment Losses | – | |||
| Accruals | 46,508 | |||
| Other | 21,400 | |||
| Net Deferred Liability | (2,786,330 | ) | ||
| Less: Valuation Allowance | 2,916,421 | |||
| Total deferred tax liability: | $ | (5,702,751 | ) | |
| December 31, 2018 | ||||
| Reserves | $ | 333,629 | ||
| Fixed Assets | (1,477,724 | ) | ||
| Leases | – | |||
| Intangibles | (4,665,918 | ) | ||
| Net Operating Losses | 1,886,112 | |||
| Impairment Losses | 710,389 | |||
| Accruals | 19,304 | |||
| Other | 840 | |||
| Net Deferred Liability | (3,193,368 | ) | ||
| Less: Valuation Allowance | 1,920,980 | |||
| Total deferred tax liability: | $ | (5,114,348 | ) | |
| F-49 |
In determining the possible future realization of deferred tax assets, the Company has considered future taxable income from the following sources: (a) reversal of taxable temporary differences; and (b) tax planning strategies that, if necessary, would be implemented to accelerate taxable income into years in which net operating losses might otherwise expire.
Deferred tax assets are recognized subject to management’s judgment that realization is more likely than not. A valuation allowance is recognized for a deferred tax asset if, based on the weight of the available evidence, it is more likely than not that some portion of the deferred tax asset will not be realized. In making such judgments, significant weight is given to evidence that can be objectively verified. Based on our review of the deferred tax assets the Company has concluded that a valuation allowance is necessary on the net operating loss balance, as realization of this asset does not meet the more likely than not threshold.
As of December 31, 2019 the Company had estimated net operating losses for federal and state purposes of $11.7 million and $5.2 million, respectively. Federal and state net operating losses will begin to expire in 2028.
We recognize a tax position as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.
For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. We recognize potential interest and penalties related to unrecognized tax benefits in the general and administrative expense in the statement of operations of the Company.
The Company is in the process of filing back income tax returns from 2010 through the current year and subject to IRS examination for these year. The Company has booked a reserve for potential penalties associated with non-filing of certain foreign information reports related to its subsidiary in the Middle East. Penalties and interest have been reported in the general and administrative section of the statement of operations. The reserve balance at December 31, 2019 and 2018 was $156,000 and $113,000, respectively. The Company does not expect this reserve to reverse within the next 12 months, as they will apply for a penalty waiver when the tax returns are ultimately filed. Due to the non-filing of income tax returns, statutes of limitations on the potential examination of those income tax periods will continue to run until the returns are filed, at which time the statutes will begin. The Company expects to file all past due income tax returns within the next 12 months.
Note 21. Related Party Transactions
The Company provided secured loan financing and assistance to the development and commercialization of two bioactive beverages and one weight loss beverage for Vivaceuticals, Inc., which shared a common officer and board of director member with the Company. Vivaceuticals sold its assets to Scepter Holdings, Inc. in 2018. In 2019, the Company received 800,000 shares of preferred stock in Scepter Holdings, Inc. to extinguish the loan encumbering the assets. The Company has converted these preferred shares into 800,000,000 shares of Common Stock of Scepter Holdings, Inc., which is traded on the OTC Markets (ticker: BRZL) (see Note 3). As of December 31, 2019 and 2018, the Company’s Chief Executive Officer has an immediate family member who is an officer of Scepter Holdings, Inc.
The Company has a consulting contract with Vivaventures Precious Metals, LLC, which is majority owned by an employee of the Company. For the years ended December 31, 2019 and 2018 the Company paid Vivaventures Precious Metals LLC $290,000 and $514,000 for consulting services rendered.
The Company has a consulting contract with LBL Professional Consulting, Inc. (“LBL”), which shares a common officer with the Company. For the years ended December 31, 2019 and 2018 the Company paid LBL $231,199 and $180,544 for a team of consultants serving the Company. In September 2020, the Company granted non-statutory stock options to LBL for 30,000,000 shares of Common Stock. The stock options vest over four years. The stock option is exercisable up to ten years from the grant date. The common officer is not the beneficiary of the Company and is not permitted to participate in any discussion, including the LBL’s board meetings, regarding any Company stock that LBL may own at any time.
The Company has a note payable to TriValley and Triple T, which is owned by the 51% majority-owner of Vivakor Middle East LLC. As of December 31, 2019 and 2018 the balance owed was $247,192 and $169,345 (See Note 14).
The Company has a common board of directors member with CannaPharmaRx Inc. As of December 31, 2019 and 2018, the Company has a $21,000 and $9,000 account receivable with CannaPharmaRx Inc. for leasing office space to this entity. As of December 31, 2019 and 2018, Company recorded an allowance for doubtful accounts on these receivables in the amount of $21,000 and $9,000.
| F-50 |
Note 22. Subsequent Events
In February 2020 we entered into a letter of intent to develop a cavitation technology licensed by BGreen LLC that has been tested at the University of Utah and been shown to increase the API of hydrocarbons. This technology is in development phase and intent is to work with BGreen LLC to develop the technology to a commercial state with our hydrocarbon extraction technology.
In April 2020 through August 2020 the Company entered into convertible promissory notes with a principal amount of $308,000. The notes accrue interest at 10% per annum and have a maturity of the earlier of 12 months or the consummation of the Company listing its Common Stock on a senior stock exchange. The notes are convertible into shares of the Company’s common stock at the option of the Company and at a price equal to 80% of the opening price of the Company’s common stock on the national exchange or the offering price paid by the investors in the financing in connection with the uplist, whichever is lower, or (ii) repaid in cash in an amount equal to the indebtedness being repaid plus a premium payment equal to 15% of the amount being repaid. If an event of default has occurred and the Company does not convert the amounts due under the Note into the Company’s common stock, then the Company shall have the option to convert the outstanding indebtedness into shares of the Company’s common stock at a price equal to 80% of the weighted average trading price of the Company’s common stock on the OTC Markets, or be repaid in cash in an amount equal to all principal and interest due under the Note.
In April 2020, the Company ordered equipment under a licensing agreement with solvAQUA Inc., a Canadian based clean water technology company. The technology allows for the remediation of oil and solids contaminated water, leaving both clean water and usable oil/solids byproduct. The delivery of the equipment has been delayed, and we anticipate delivery and installation in 2020. New payment terms are being negotiated due to these delays.
On May 15, 2020, the Company entered into a settlement agreement with Vivaventures Precious Metals, LLC, where the Company disputed the amount of precious metals it was owed from the LLC who was also the custodian. After performing an observation of the precious metals, it was discovered in 2019 that there was a material discrepancy in the amount of materials the LLC had on hand. Whereby the parties agreed that the Company would receive approximately 75% of the total amount of precious metals on hand and being held by the LLC, rather than 59% as previously agreed resulting in the same amount of holdings for the Company over the years. Additionally, the parties agreed to release each other from further claims and that the Company would become the custodian of the precious metals.
On May 20, 2020, the Company entered into a loan agreement with Blue Ridge Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program in an amount of $205,100. The loan carried an annual interest rate of one (1) percent per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month. The loan may be fully forgivable according to the CARES Act, if the Company can provide proper documentation and accordingly the payout schedule has not been disclosed
On May 22, 2020, RPC Design and Manufacturing LLC entered into a loan agreement with the SBA in an amount of $150,000 having an interest rate of 3.75% per annum. Monthly payments of $731 will be required beginning in month 12 and the loan shall mature in 30 years.
In June 2020, the Company entered into operations in Utah using Remediation Processing Center #2. No products have been sold, nor revenue generated.
| F-51 |
In June 2020, the Company amended the note receivable and agreed to converted its outstanding loan and all accrued interest due from Odyssey Group International, Inc. (ticker: ODYY, OTC Markets), in an amount of $809,577 into 809,578 shares of Odyssey Group International, Inc.’s common stock.
In July 2020, the Company withdrew from Vivaventures Precious Metals, LLC and is not entitled to receive any further distributions from the LLC.
In July 2020, the Company amended the Option Agreement with the landowner for the exclusive right to purchase certain real property commonly known as Asphalt Ridge to grant the Company an extension of the option for six months at no cost to the Company.
In July 2020, the Company entered into a Paycheck Protection Program loan agreement with JP Morgan Chase Bank, subject to the Small Business Administration’s (“SBA”) Paycheck Protection Program, in an amount of $90,645. The loan carries an annual interest rate of one (1) percent per annum with payment beginning in the seventh month with monthly payments required until maturity in the 18th month.
On August 6, 2020, the Company entered into a loan agreement with the SBA in an amount of $150,000 having an interest rate of 3.75% per annum. Monthly payments of $731 will be required beginning in month 12 and the loan shall mature in 30 years.
In September 2020, the Company granted non-statutory stock options to LBL Professional Consulting, Inc. for 30,000,000 shares of Common Stock. The stock options vest over four years. The stock option is exercisable up to ten years from the grant date.
In September 2020, the Company entered into an Employment Agreement with Matthew Nicosia to serve as our Chief Executive Officer. The agreement provides for an annual salary of $50,000. The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nicosia, with three months written notice required. The agreement provides for annual increases upon the occurrence of specific performance metrics, and provides that the Company shall grant Mr. Nicosia options to purchase up to 5,000,000 shares of the Company’s common stock at an exercise price equal to 110% of the fair market value of the Company’s Common Stock on the date of grant. The agreement also provides for an annual bonus of up to 100% of Mr. Nicosia’s then base salary upon the achievement of performance goals established and approved by the Board of Directors. The agreement entitles Mr. Nicosia to receive various employee benefits generally made available to other officers and senior managers of the Company.
In September 2020, the Company entered into an Employment Agreement with Tyler Nelson to serve as our Chief Financial Officer. The agreement provides for an annual salary of $50,000. The Employment Agreement has a term of three years and automatically extends for successive one-year periods unless terminated by the Company or Mr. Nelson, with three months written notice required. The agreement provides for annual increases upon the occurrence of specific performance metrics. The agreement also provides for an annual bonus of up to 100% of Mr. Nelson’s then base salary upon the achievement of performance goals established and approved by the Board of Directors. The agreement entitles Mr. Nelson to receive various employee benefits generally made available to other officers and senior managers of the Company.
In September 2020, the Company agreed with the Novus Capital LLC to extend the note payable to January 2, 2021 and accrue interest at 7% per annum commencing January 1, 2020 through July 1, 2020, and 10% interest per annum commencing July 2, 2020 through January 2, 2021.
On October 13, 2020, the Company entered into a convertible promissory note in an amount of $280,500 having an interest rate of 12% per annum. The note bears a 10% Original Issue Discount. The loan shall mature in 1 year and may be convertible at the lower of $0.40 or 80% of the lowest median daily traded price over ten trading days prior to conversion, but in the event of a Qualified Uplist the note may be converted at a 30% discount to market. The Company also issued 100,000 restricted shares with no registration rights in conjunction with this note.
In 2020, 11,657,398 shares of Series B Preferred Stock, 4,662,533, shares of Series B-1 Preferred Stock, and 668,939 shares of Series C-1 Preferred Stock, for an aggregate of 3,764,688, were converted into 18,285,200 shares of Common Stock.
In 2020, the Company issued 691,182 shares of Series B-1 Preferred Stock as a $172,796 stock dividend paid to Series B Preferred Shareholders.
In 2020 the Company issued 20,000,000 shares of Common Stock for a $11,800,000 reduction in stock payables.
In 2020 the Company issued 228,000 shares of Common Stock in the amount of $41,028 was issued for cash.
| F-52 |
Shares of Common Stock
Vivakor, Inc.
____________________________________
PROSPECTUS
____________________________________
, 2020
Through and including , 2020 (the 25th day after the date of this offering), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expenses, other than underwriting discounts and commissions, to be paid by the Registrant in connection with the issuance and distribution of the common stock being registered. All amounts other than the SEC registration fee and FINRA fee are estimates.
| SEC Registration Fee | $ | 1,599.68 | ||
| FINRA Filing Fee | 2,699.38 | |||
| Listing Fee | * | |||
| Printing and Engraving Expenses | * | |||
| Legal Fees and Expenses | * | |||
| Accounting Fees and Expenses | * | |||
| Transfer Agent Fees | * | |||
| Miscellaneous | * | |||
| Total | $ | * |
* To be completed by amendment.
Item 14. Indemnification of Officers and Directors
The Nevada Revised Statutes limits or eliminates the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties as directors. Our Bylaws include provisions that require the company to indemnify our directors or officers against monetary damages for actions taken as a director or officer of our Company. We are also expressly authorized to carry directors’ and officers’ insurance to protect our directors, officers, employees and agents for certain liabilities. Our Amended and Restated Articles of Incorporation do not contain any limiting language regarding director immunity from liability.
The limitation of liability and indemnification provisions under the Nevada Revised Statutes and our Amended and Restated Bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. However, these provisions do not limit or eliminate our rights, or those of any stockholder, to seek non-monetary relief such as injunction or rescission in the event of a breach of a director’s fiduciary duties. Moreover, the provisions do not alter the liability of directors under the federal securities laws. In addition, your investment may be adversely affected to the extent that, in a class action or direct suit, we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.
Item 15. Recent Sales of Unregistered Securities.
The following sets forth information regarding all unregistered securities sold by us in transactions that were exempt from the requirements of the Securities Act in the last three years. Except where noted, all of the securities discussed in this Item 15 were all issued in reliance on the exemption under Section 4(a)(2) of the Securities Act.
On April 21, 2020, the Company issued 20,000,000 shares of common stock pursuant to a contribution agreement at a price of $0.59.
On April 13, 2020, the Company issued 60,000 shares of common stock to investors at $0.3198 per share for cash proceeds of $19,188.
On January 27, 2020, the Company issued 168,000 shares of common stock to investors at $0.13 per share for cash proceeds of $21,840.
From January 1, 2020 through October 28, 2020, the Company issued 691,182 shares of Series B-1 Preferred Stock as a $172,796 stock dividend paid to Series B Preferred Shareholders at a price of $0.25 per share.
From January 1, 2020 through October 28, 2020, the Company issued 12,680,938 shares of common stock for $2,331,480 for the conversion of 11,657,398 shares of Series B Preferred Stock, at an average price of approximately $0.20 per share.
From January 1, 2020 through October 28, 2020, the Company issued 4,902,559 shares of common stock for $1,165,633 for the conversion of 4,662,533 shares of Series B-1 Preferred Stock, at an average price of approximately $0.25 per share.
From January 1, 2020 through October 28, 2020, the Company issued 701,703 shares of common stock for $267,576 for the conversion of 668,939 shares of Series C-1 Preferred Stock, at an average price of approximately $0.40 per share.
| II-1 |
On December 31, 2019, the Company issued 1,155,779 shares of common stock to a consultant for market services valued at $219,597 at a price of $0.19 per share.
On December 18, 2019, the Company issued 539,373 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $215,749.
On December 16, 2019 the Company issued 32,931 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $13,172.
On July 11, 2019 the Company issued 695,304 shares of Series C-1 Preferred Stock at $0.40 per share for the purchase of equipment valued at $278,122.
From January 1, 2019 through December 31, 2019, the Company issued 1,980,126 shares of Series B-1 Preferred Stock as a $495,054 stock dividend paid to Series B Preferred Shareholders at a price of $0.25 per share.
From January 1, 2019 through December 31, 2019, the Company issued 46,019,697 shares of common stock for $9,203,875 for the conversion of 46,019,697 shares of Series B Preferred Stock, at an average price of $0.20 per share.
From January 1, 2019 through December 31, 2019, the Company issued 7,472,876 shares of common stock for $1,868,144 for the conversion of 7,472,876 shares of Series B-1 Preferred Stock, at an average price of $0.25 per share.
From January 1, 2019 through December 31, 2019, the Company issued 209,414 shares for a $53,500 reduction of liabilities pursuant to conversion of promissory notes at an average price of $0.25 per share.
From January 1, 2019 through December 31, 2019, the Company issued 230,000 shares of common stock for $91,982 in cash for the exercise of 230,000 warrants at an average price of $0.40 per share.
On December 12, 2018, the Company issued 768,160 shares of Series C-1 Preferred Stock to 57 investors valued at $0.40 per share for aggregate proceeds of $307,165 which was recorded as interest payable on behalf of an affiliate.
On June 4, 2018, the Company issued 90,000 shares of Series C-1 Preferred Stock to an investor at $0.40 per share for cash proceeds of $36,000.
One June 4, 2018, the Company issued 9,000 shares of Series C-1 Preferred Stock at $0.40 per share for services valued at $2,700.
From January 1, 2018 through December 31, 2018, the Company issued 5,767,126 shares of Series B-1 Preferred Stock as a $1,441,938 stock dividend paid to Series B Preferred Shareholders at a price of $0.25 per share.
From January 1, 2018 through December 31, 2018, the Company issued 4,418,290 shares of common stock for $883,658 pursuant to the conversion of 4,418,290 shares of Series B Preferred Stock at an average price price of $0.20 per share.
From January 1, 2018 through December 31, 2018, the Company issued 1,422,271 shares of common stock for $355,724 pursuant to the conversion of 1,422,271 shares of Series B-1 Preferred Stock, at an average price of $0.25 per share.
From January 1, 2018 through December 31, 2018, the Company issued 3,005,630 shares of common stock for a $751,408 reduction of liabilities pursuant to conversion of promissory notes at an average price of $0.25 per share.
From January 1, 2018 through December 31, 2018, the Company issued 130,000 shares of Common Stock for $51,999 in cash pursuant to the exercise of 130,000 warrants at $0.40.
On December 12, 2017, the Company issued 6,250,000 shares of Series C-1 Preferred Stock at $0.59 per share for the acquisition of patents and equipment valued at $3,687,500.
On October 9, 2017, the Company issued 5,000,000 shares of Series C-1 Preferred Stock at $0.46 per share to CSS Nanotech Ltd. in exchange for a technology license valued at $2,300,000.
| II-2 |
Item 16. Exhibits and Financial Statement Schedules
The following exhibits are filed with this Registration Statement:
| ____________ |
* to be filed by amendment.
(b) Financial statement schedules.
All schedules have been omitted because either they are not required, are not applicable or the information is otherwise set forth in the financial statements and related notes thereto.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
| (1) | To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: |
| (i) | To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; | |
| (ii) | To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; | |
| (iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; |
| (2) | That for the purpose of determining any liability under the Securities Act of 1933 each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| (3) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
| II-3 |
| (4) | That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. | |
| (5) | That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: |
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
| (i) | Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424; | |
| (ii) | Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; | |
| (iii) | The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and | |
| (iv) | Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
| (f) | The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. | |
| (h) | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. | |
| (i) | The undersigned Registrant hereby undertakes: |
| (1) | That for purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
| (2) | That for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and this offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. | |
| * | Paragraph references correspond to those of Regulation S-K, Item 512. |
| II-4 |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Salt Lake City, Utah, on November 10, 2020.
| Vivakor, Inc. | ||||
| By: | /s/ Matthew Nicosia | |||
| Name: Matthew Nicosia | ||||
| Title: Chief Executive Officer | ||||
| (Principal Executive Officer) | ||||
POWER OF ATTORNEY: KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Matthew Nicosia, his or her true and lawful attorneys-in-fact and agents with full power of substitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to sign any registration statement for the same offering covered by the Registration Statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or his, her or their substitute or substitutes, may lawfully do or cause to be done or by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
| Signature | Title | Date | ||
| /s/ Matthew Nicosia | Chief Executive Officer and | November 10, 2020 | ||
| Matthew Nicosia | Director (Principal Executive Officer) | |||
| /s/ Tyler Nelson | Chief Financial Officer | November 10, 2020 | ||
| Tyler Nelson | (Principal Accounting Officer and Principal Financial Officer) |
|||
| /s/ Joseph Spence | Director | November 10, 2020 | ||
| Joseph Spence | ||||
| /s/ Matthew Balk | Director | November 10, 2020 | ||
| Matthew Balk | ||||
| /s/ Trevor Staggs | Director | November 10, 2020 | ||
| Trent Staggs | ||||
| /s/ Al Ferrara | Director | November 10, 2020 | ||
| Al Ferrara | ||||
| Director |
| II-5 |
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
VIVAKOR, INC.,
a Nevada corporation
ARTICLE I
The name of the corporation is Vivakor, Inc. (the "Corporation").
ARTICLE II
The Corporation may engage in any lawful activity.
ARTICLE III
A. Classes of Stock. The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares that the Corporation is authorized to issue is 1,700,000,000 shares. 1,250,000,000 shares shall be Common Stock, par value $.001 per share, and 450,000,000 shares shall be Preferred Stock, par value $.001 per share. On November 26, 2013 (the "2013 Forward Stock Split Effective Date"), the Corporation filed Amended and Restated Articles of Incorporation of the Corporation with the Nevada Secretary of State, pursuant to which, among other things, each share of Common Stock then outstanding was forward split, on a ten (10) for one (1) basis, and thereupon constituted ten (10) shares of Common Stock for every one (1) share of Common Stock (the "2013 Forward Stock Split"). The 2013 Forward Stock Split did not affect the total number of shares of Common Stock that the Corporation then was authorized to issue, which, notwithstanding the 2013 Forward Stock Split, was 700,000,000 shares. The 2013 Forward Stock Split did not affect the total number of shares of Preferred Stock that the Corporation then was authorized to issue, which, notwithstanding the 2013 Forward Stock Split, was 100,000,000 shares, and did not affect the total number of shares of Series A Preferred Stock that were outstanding on the 2013 Forward Stock Split Effective Date.
B. Rights, Preferences, Privileges and Restrictions of Preferred Stock. The Preferred Stock authorized by these Amended and Restated Articles of Incorporation may be issued from time to time in one or more series. The rights, preferences, privileges and restrictions granted to and imposed on the Series A Preferred Stock, which series shall consist of 2,000,000 shares, are as set forth below in Article III(C). The rights, preferences, privileges and restrictions granted to and imposed on the Series B Preferred Stock, which series shall consist of 98,000,000 shares, are as set forth below in Article IIl(D). The rights, preferences, privileges and restrictions granted to and imposed on the Series B-1 Preferred Stock, which series shall consist of 50,000,000 shares, are as set forth below in Article III(E). The rights, preferences, privileges and restrictions granted to and imposed on the Series C Preferred Stock, which series shall consist of 100,000,000 shares, are as set forth below in Article 11l(F). The rights, preferences, privileges and restrictions granted to and imposed on the Series C-1 Preferred Stock, which series shall consist of 50,000,000 shares, are as set forth below in Article 11l(G).The Corporation's Board of Directors (the "Board of Directors") hereby is authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed on each additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them. Subject to compliance with applicable protective voting rights that have been or may be granted to the Preferred Stock or any series thereof in Certificates of Designation or in these Articles of Incorporation ("Protective Provisions"), but notwithstanding any of the other rights of the Preferred Stock or any series thereof, the rights, preferences, privileges and restrictions of any such additional series of Preferred Stock may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent) or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. Subject to compliance with applicable Protective Provisions (if any), the Board of Directors also is authorized to increase or decrease the number of shares of any series of Preferred Stock (other than the Series A Preferred Stock), before or after the issuance of such series, but not below the number of shares of such series then outstanding. In case the number of shares of any series is so decreased, the shares constituting such decrease shall resume the status that they had before the adoption of the resolution originally fixing the number of shares of such series.
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C. Rights, Preferences, Privileges and Restrictions of Series A Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series A Preferred Stock are as set forth below in this Article 11l(C).
1. No Dividend Rights. The holders of the Series A Preferred Stock shall have no dividend rights. The holders of the Series A Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Series B Preferred Stock of the Corporation (whether or not such dividend on the Series B Preferred Stock of the Corporation is payable in cash, in Series B Preferred Stock, in Series B-1 Preferred Stock, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Series B Preferred Stock, Series B-1 Preferred Stock or Common Stock). The holders of the Series A Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Series C Preferred Stock of the Corporation (whether or not such dividend on the Series C Preferred Stock of the Corporation is payable in cash, in Series C Preferred Stock, in Series C-1 Preferred Stock, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Series C Preferred Stock, Series C-1 Preferred Stock or Common Stock). The holders of the Series A Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Common Stock of the Corporation (whether or not such dividend on the Common Stock of the Corporation is payable in cash, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock).
2. Liquidation Preference.
(a) Subject and subordinate to the provisions of Section 2 of Article 11l(D) hereof (with respect to the liquidation preference of the Series B Preferred Stock), to the provisions of Section 2 of Article IIl(E) hereof (with respect to the liquidation preference of the Series B-1 Preferred Stock), to the provisions of Section 2 of Article IIl(F) hereof (with respect to the liquidation preference of the Series C Preferred Stock) and to the provisions of Section 2 of Article 11l(G) hereof (with respect to the liquidation preference of the Series C-1 Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, subject to the rights of the Series B Preferred Stock, the Series B-1 Preferred Stock, the Series C Preferred Stock, the Series C-1 Preferred Stock and any other series of Preferred Stock that from time to time may come into existence, the holders of Series A Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock or any other series of Preferred Stock by reason of their ownership thereof, an amount per share equal to $0.20 for each outstanding share of Series A Preferred Stock (the "Original Series A Issue Price") (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like; provided, however, that such fixed dollar amount shall not be adjusted for or by reason of the 2013 Forward Stock Split). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A Preferred Stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of any series of Preferred Stock that from time to time may come into existence, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock, in proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by subsection 2(a) immediately above and any other distribution that may be required with respect to any series of Preferred Stock that from time to time may come into existence, all of the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.
(c) For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the shares of Series A Preferred Stock then outstanding determine otherwise), (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation) or (ii) a sale of all or substantially all of the assets of the Corporation; unless, with respect to clause (i) or clause (ii) of this subsection 2(c), the Corporation's stockholders of record as constituted immediately before such acquisition or sale will immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.
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(d) Whenever any liquidation, dissolution or winding up of the Corporation provided for in this Section 2 requires that any distribution in connection therewith will be payable in property other than cash, then the value of such property shall be its fair market value, as determined in good faith by the Board of Directors, except that, if such property consists of securities, then such securities shall be valued as follows:
(i) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:
(A) If the securities are then traded on a national securities exchange or the NASDAQ Global Market (or a similar global or national quotation system), then the value of such securities shall be deemed to be the average of the daily closing prices of such securities on such exchange or system over the thirty (30) day period ending three (3) days before the distribution; and
(B) If the securities are then actively traded over-the counter, then the value of such securities shall be deemed to be the average of the daily closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days before the distribution; and
(C) If there is no active public market for the securities, then the value of such securities shall be the fair market value thereof, as determined in good faith by the Board of Directors.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined pursuant to any of subparagraphs (i)(A), (i)(B) or (i)(C) of this subsection 2(d) (as applicable) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.
3. Conversion. The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into the number of fully paid and nonassessable shares of Common Stock determined by dividing the Original Series A Issue Price by the Conversion Price applicable to such share of Series A Preferred Stock, determined as hereinafter provided, in effect on the date the certificate is surrendered for conversion. As of the 2013 Forward Stock Split Effective Date (pursuant to an adjustment for and by reason of the 2013 Forward Stock Split as required by subsection 3(d) hereof), the Conversion Price per share for shares of Series A Preferred Stock is and shall be Two Cents ($0.02); provided, however, that the Conversion Price for the Series A Preferred Stock shall be subject to further adjustment as set forth in subsection 3(d) hereof.
(b) Automatic Conversion. Each share of Series A Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series A Preferred Stock immediately upon the date specified by written consent or agreement of the holders of a majority of the then-outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series A Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series A Preferred Stock and shall give written notice to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at that office to the holder of Series A Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. The conversion shall be deemed to have been made immediately before the close of business on the date of such surrender of the shares of Series A Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of the shares of Common Stock as of such date.
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(d) Conversion Price Adjustments of Series A Preferred Stock for Stock Splits and Combinations. The Conversion Price for the Series A Preferred Stock shall be subject to adjustment from time to time as follows:
(i) If the Corporation at any time or from time to time after the date upon which any shares of Series A Preferred Stock first were issued (the "Purchase Date") fixes a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price for the Series A Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of each share of the Series A Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series A Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable upon conversion of each share of the Series A Preferred Stock shall be decreased in proportion to such decrease in outstanding shares.
(e) Recapitalizations. If at any time or from time to time there is a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or in Section 2 of this Article III(C)), provision shall be made so that the holders of the Series A Preferred Stock thereafter shall be entitled to receive upon conversion of the Series A Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise to which a holder of Common Stock deliverable upon conversion would have been entitled upon such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Series A Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Series A Conversion Price then in effect and the number of shares purchasable upon conversion of the Series A Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.
(f) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series A Preferred Stock against impairment.
(g) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series A Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one half being rounded upward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series A Preferred Stock that the holder at the time is converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price for the Series A Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock a certificate setting forth the adjustment or readjustment and showing in detail the facts upon which the adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series A Preferred Stock at the time in effect and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series A Preferred Stock.
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(h) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series A Preferred Stock, at least twenty (20) days before the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of such dividend, distribution or right.
(i) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series A Preferred Stock, such number of shares of Common Stock as from time to time shall be sufficient to effect the conversion of all outstanding shares of the Series A Preferred Stock; and, if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then-outstanding shares of the Series A Preferred Stock, then, in addition to such other remedies as may be available to the holders of the then-outstanding shares of Series A Preferred Stock, the Corporation shall take such corporate action as may, in the opinion of the Corporation's counsel, be necessary to increase the Corporation's authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these Articles of Incorporation.
(j) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series A Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder's address appearing on the books of the Corporation.
4. Redemption. The Corporation shall have the right, but not the obligation, to the extent that it may lawfully do so, at any time and from time to time to repurchase and redeem from the holder or holders thereof all or any portion of the then-outstanding shares of Series A Preferred Stock for a purchase/redemption price per share equal to $0.20 per share (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like; provided, however, that such fixed dollar amount shall not be adjusted for or by reason of the 2013 Forward Stock Split) in cash or its equivalent (the "Series A Redemption Price"). In order to exercise this right of redemption, at least fifteen (15) but no more than thirty (30) days before the applicable Series A Redemption Date (as defined below), the Corporation shall provide written notice that the Corporation is redeeming all or a portion of the then-outstanding shares of Series A Preferred Stock (the "Series A Redemption Notice") by mail, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such notice is given) of the then-outstanding shares of Series A Preferred Stock to be redeemed (at the address last shown on the records of the Corporation for each such holder), notifying such holder of the redemption to be effected on the applicable Series A Redemption Date (as defined below), specifying the number of shares of Series A Preferred Stock to be redeemed from such holder on the applicable Series A Redemption Date (as defined below), the date as of which such redemption shall be (or be deemed to be) effective (any and each such date, the "Series A Redemption Date"), the place at which payment of the Series A Redemption Price for the shares of Series A Preferred Stock to be redeemed on the Series A Redemption Date may be obtained by such holder and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares of Series A Preferred Stock to be redeemed on the Series A Redemption Date. On or after the Series A Redemption Date, each such holder shall surrender to the Corporation the certificate or certificates representing such shares of Series A Preferred Stock to be redeemed on the Series A Redemption Date as specified in the Series A Redemption Notice, in the manner and at the place designated in the Series A Redemption Notice, and thereupon the Series A Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled. In the event that less than all of the shares of Series A Preferred Stock represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Series A Redemption Date, all rights of the holder or holders of shares of Series A Preferred Stock designated for redemption on such Series A Redemption Date in the Series A Redemption Notice (except the right to receive the applicable Series A Redemption Price for such shares without interest upon surrender of such holder or holders' certificate or certificates representing such shares) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
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5. Voting Rights. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation or by written consent of the stockholders of the Corporation in lieu of meeting, the holders of shares of Series A Preferred Stock shall have the right to twenty-five (25) votes for each share of Common Stock into which such shares of Series A Preferred Stock could then be converted, and, with respect to such votes, such holders (a) shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, (b) shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation and (c) shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted, and fractional voting rights available on an as converted basis (after aggregating all shares into which shares of Series A Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one half being rounded upward). Except as otherwise expressly provided herein, and except to the extent otherwise provided by the Nevada Revised Statutes, the holders of shares of Series A Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation. Without limiting the generality of the foregoing, the holders of shares of Series A Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation with respect to any plan of merger, plan of conversion or plan of exchange under Section 92A.120 of the Nevada Revised Statutes.
6. Status of Converted or Redeemed Series A Preferred Stock. If shares of Series A Preferred Stock are converted pursuant to Section 3 of this Article III(C) or redeemed pursuant to Section 4 of this Article III(C), then such shares so converted or redeemed shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock.
D. Rights, Preferences, Privileges and Restrictions of Series B Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series B Preferred Stock are as set forth below in this Article III(D).
1. Dividend Provisions. Subject to the rights of any series of Preferred Stock that from time to time may come into existence, the holders of shares of Series B Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock of the Corporation, at the rate of $0.025 per share per annum for the Series B Preferred Stock (as adjusted for stock splits, stock dividends, recapitalizations or the like), payable only when, as and if declared by the Board of Directors. Such dividends shall be cumulative.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, subject to the rights of any series of Preferred Stock that from time to time may come into existence, the holders of Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock, Series A Preferred Stock or any other series of Preferred Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.20 for each outstanding share of Series B Preferred Stock (the "Original Series B Issue Price") and (ii) an amount equal to declared but unpaid dividends on such share (if any) (subject to adjustment of such fixed dollar amounts for stock splits, stock dividends, combinations, recapitalizations or the like). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B Preferred Stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of any series of Preferred Stock that from time to time may come into existence, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock, in proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by subsection 2(a) immediately above, the distribution required by subsection 2(a) of Article 11l(E) hereof (with respect to the Series B-1 Preferred Stock), the distribution required by subsection 2(a) of Article 11l(F) hereof (with respect to the Series C Preferred Stock), the distribution required by subsection 2(a) of Article III(G) hereof (with respect to the Series C-lPreferred Stock), the distribution required by subsection 2(a) of Article III(C) hereof (with respect to the Series A Preferred Stock) and any other distribution that may be required with respect to any series of Preferred Stock that from time to time may come into existence, all of the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.
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(c) For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the shares of Series B Preferred Stock then outstanding determine otherwise), (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation) or (ii) a sale of all or substantially all of the assets of the Corporation; unless, with respect to clause (i) or clause (ii) of this subsection 2(c), the Corporation's stockholders of record as constituted immediately before such acquisition or sale will immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.
(d) Whenever any liquidation, dissolution or winding up of the Corporation provided for in this Section 2 requires that any distribution in connection therewith will be payable in property other than cash, then the value of such property shall be its fair market value, as determined in good faith by the Board of Directors, except that, if such property consists of securities, then such securities shall be valued as follows:
(i) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:
(A) If the securities are then traded on a national securities exchange or the NASDAQ Global Market (or a similar global or national quotation system), then the value of such securities shall be deemed to be the average of the daily closing prices of such securities on such exchange or system over the thirty (30) day period ending three (3) days before the distribution; and
(B) If the securities are then actively traded over-the counter, then the value of such securities shall be deemed to be the average of the daily closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days before the distribution; and
(C) If there is no active public market for the securities, then the value of such securities shall be the fair market value thereof, as determined in good faith by the Board of Directors.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined pursuant to any of subparagraphs (i)(A), (i)(B) or (i)(C) of this subsection 2(d) (as applicable) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.
3. Conversion. The holders of Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time on or after the date that is one (1) year after the date of issuance of such share, at the office of the Corporation, into the number of fully paid and nonassessable shares of Common Stock determined by dividing the Original Series B Issue Price by the Conversion Price applicable to such share of Series B Preferred Stock, determined as hereinafter provided, in effect on the Conversion Date (as defined below herein). The initial Conversion Price per share for shares of Series B Preferred Stock shall be the lesser of (i) the Original Series B Issue Price and (ii) ninety percent (90%) of the Market Price on the Conversion Date; provided, however, that the Conversion Price for the Series B Preferred Stock shall be subject to adjustment as set forth in subsection 3(d) (Conversion Price Adjustments of Series B Preferred Stock for Stock Splits and Combinations) hereof. For purposes of this Section 3, the following capitalized terms shall have the following meanings:
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"Conversion Date" means the date on which the certificate or certificates for shares of Series B Preferred Stock to be converted and the Conversion Notice are received by the Corporation from the holder in accordance with subsection 3(c) (Mechanics of Conversion) hereof; provided, however, that, if the conversion is an automatic conversion pursuant to subsection 3(b) (Automatic Conversion) hereof, then "Conversion Date" means and shall be the actual date of such conversion pursuant to subsection 3(b) (Automatic Conversion) hereof.
"Conversion Notice" has the meaning set forth in subsection 3(c) (Mechanics of Conversion) hereof.
"Market Price" means the average closing sale price for one (1) share of Common Stock during the ten (10) Trading Day period ending one (1) Trading Day before the Conversion Date. If the Market Price for one (1) share of Common Stock cannot be calculated on the Conversion Date in the manner provided in the preceding sentence, then the "Market Price" for one (1) share of Common Stock shall be the fair market value of one (1) share of Common Stock as reasonably determined by the Board of Directors.
"Trading Day" means any day on which the Common Stock is traded for any period on Pink Sheets or on the principal exchange or other securities market on which the Common Stock is then being traded.
(b) Automatic Conversion. Each share of Series B Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series B Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c) (Mechanics of Conversion) hereof, the Corporation's sale of Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $0.60 per share (as adjusted for stock splits, stock dividends, recapitalizations or the like), and the aggregate offering proceeds of which to the Corporation (net of underwriting commissions, discounts, fees and expenses) are not less than $5,000,000 (a "Qualified Public Offering"), or (ii) the date specified by written consent or agreement of the holders of a majority of the then-outstanding shares of Series B Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series B Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation and shall give written notice (the "Conversion Notice") to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at that office to the holder of Series B Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. The conversion shall be deemed to have been made immediately before the close of business on the date of such surrender of the shares of Series B Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of the shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, then the conversion may, at the option of any holder tendering Series B Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person or persons entitled to receive Common Stock upon conversion of the Series B Preferred Stock shall not be deemed to have converted the Series B Preferred Stock until immediately before the closing of such sale of securities.
(d) Conversion Price Adjustments of Series B Preferred Stock for Stock Splits and Combinations. The Conversion Price for the Series B Preferred Stock shall be subject to adjustment from time to time as follows:
(i) If the Corporation at any time or from time to time after the date upon which any shares of Series B Preferred Stock first were issued (the "Purchase Date") fixes a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price for the Series B Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of each share of the Series B Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.
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(ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series B Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable upon conversion of each share of the Series B Preferred Stock shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation declares a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 3(d)(i) hereof, then, in each such case for the purpose of this subsection 3(e), the holders of the Series B Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock into which their shares of Series B Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there is a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or in Section 2 of this Article III(D)), provision shall be made so that the holders of the Series B Preferred Stock thereafter shall be entitled to receive upon conversion of the Series B Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise to which a holder of Common Stock deliverable upon conversion would have been entitled upon such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Series B Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Series B Conversion Price then in effect and the number of shares purchasable upon conversion of the Series B Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series B Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one half being rounded upward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series B Preferred Stock that the holder at the time is converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price for the Series B Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Preferred Stock a certificate setting forth the adjustment or readjustment and showing in detail the facts upon which the adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series B Preferred Stock at the time in effect and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series B Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series B Preferred Stock, at least twenty (20) days before the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of such dividend, distribution or right.
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(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Preferred Stock, such number of shares of Common Stock as from time to time shall be sufficient to effect the conversion of all outstanding shares of the Series B Preferred Stock; and, if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then-outstanding shares of the Series B Preferred Stock, then, in addition to such other remedies as may be available to the holders of the then-outstanding shares of Series B Preferred Stock, the Corporation shall take such corporate action as may, in the opinion of the Corporation's counsel, be necessary to increase the Corporation's authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these Articles of Incorporation.
(k) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series B Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder's address appearing on the books of the Corporation.
4. Redemption. At any time after the date immediately preceding the first anniversary of the Purchase Date (as defined in subsection 3(d)(i) of this Article IIl(D)), the Corporation shall have the right, but not the obligation, to the extent that it may lawfully do so, at any time and from time to time to repurchase and redeem from the holder or holders thereof all or any portion of the then-outstanding shares of Series B Preferred Stock for a purchase/redemption price per share equal to the sum of (i) $0.20 per share and (ii) an amount equal to declared but unpaid dividends on such share (if any) (subject to adjustment of such fixed dollar amounts for stock splits, stock dividends, combinations, recapitalizations or the like) in cash or its equivalent (the "Series B Redemption Price"). In order to exercise this right of redemption, at least thirty (30) but no more than sixty (60) days before the applicable Series B Redemption Date (as defined below), the Corporation shall provide written notice that the Corporation is redeeming all or a portion of the then-outstanding shares of Series B Preferred Stock (the "Series B Redemption Notice") by mail, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such notice is given) of the then-outstanding shares of Series B Preferred Stock to be redeemed (at the address last shown on the records of the Corporation for each such holder), notifying such holder of the redemption to be effected on the applicable Series B Redemption Date (as defined below), specifying the number of shares of Series B Preferred Stock to be redeemed from such holder on the applicable Series B Redemption Date (as defined below), the date as of which such redemption shall be (or be deemed to be) effective (any and each such date, the "Series B Redemption Date"), the place at which payment of the Series B Redemption Price for the shares of Series B Preferred Stock to be redeemed on the Series B Redemption Date may be obtained by such holder and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares of Series B Preferred Stock to be redeemed on the Series B Redemption Date. On or after the Series B Redemption Date, each such holder shall surrender to the Corporation the certificate or certificates representing such shares of Series B Preferred Stock to be redeemed on the Series B Redemption Date as specified in the Series B Redemption Notice, in the manner and at the place designated in the Series B Redemption Notice, and thereupon the Series B Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled. In the event that less than all of the shares of Series B Preferred Stock represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Series B Redemption Date, all rights of the holder or holders of shares of Series B Preferred Stock designated for redemption on such Series B Redemption Date in the Series B Redemption Notice (except the right to receive the applicable Series B Redemption Price for such shares without interest upon surrender of such holder or holders' certificate or certificates representing such shares) shall cease with respect to such shares, such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever, and such shares shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. Notwithstanding any of the foregoing provisions of this Section 4, each holder of shares of Series B Preferred Stock to be redeemed pursuant to a Series B Redemption Notice shall have the right to elect, in lieu of having such shares redeemed as specified in such Series B Redemption Notice, to convert all of such shares into shares of Common Stock pursuant to and in accordance with the provisions of subsection 3(a) and subsection 3(c) of this Article III(D) within fifteen (15) days after the date on which such holder receives such Series B Redemption Notice. In order to exercise this right to make such election, such holder within such fifteen (15) days must surrender the certificate or certificates representing the shares of Series B Preferred Stock to be converted into shares of Common Stock, duly endorsed, at the office of the Corporation or of any transfer agent for the Series B Preferred Stock and give written notice to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.
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5. Voting Rights. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation or by written consent of the stockholders of the Corporation in lieu of meeting, the holders of shares of Series B Preferred Stock shall have the right to one (1) vote for each share of Common Stock into which such shares of Series B Preferred Stock could then be converted, and, with respect to such vote, such holders (a) shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, (b) shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation and (c) shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted, and fractional voting rights available on an as converted basis (after aggregating all shares into which shares of Series B Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one half being rounded upward). Except as otherwise expressly provided herein, and except to the extent otherwise provided by the Nevada Revised Statutes, the holders of shares of Series B Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation. Without limiting the generality of the foregoing, the holders of shares of Series B Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation with respect to any plan of merger, plan of conversion or plan of exchange under Section 92A.120 of the Nevada Revised Statutes.
6. Protective Provisions. So long as any shares of Series B Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then-outstanding shares of Series B Preferred Stock (voting together as a single series of Preferred Stock):
(a) alter or change any of the rights, preferences or privileges of the shares of Series B Preferred Stock so as to affect such shares; or
(b) increase the authorized number of shares of Series B Preferred Stock.
7. Status of Converted or Redeemed Series B Preferred Stock. If shares of Series B Preferred Stock are converted pursuant to Section 3 of this Article IIl(D) or redeemed pursuant to Section 4 of this Article III(D), then such shares so converted or redeemed shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock.
E. Rights, Preferences, Privileges and Restrictions of Series B-1 Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series B-1 Preferred Stock are as set forth below in this Article 11l(E).
1. No Dividend Rights. The holders of the Series B-1 Preferred Stock shall have no dividend rights. The holders of the Series B-1 Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Series B Preferred Stock of the Corporation (whether or not such dividend on the Series B Preferred Stock of the Corporation is payable in cash, in Series B Preferred Stock, in Series B-1 Preferred Stock, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Series B Preferred Stock, Series B-1 Preferred Stock or Common Stock). The holders of the Series B-1 Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Series C Preferred Stock of the Corporation (whether or not such dividend on the Series C Preferred Stock of the Corporation is payable in cash, in Series C Preferred Stock, in Series C-1 Preferred Stock, in Common Stock or in other securities or rights convertible into or entitling the,holder thereof to receive, directly or indirectly, additional shares of Series C Preferred Stock, Series C-1 Preferred Stock or Common Stock). The holders of the Series B-1 Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Common Stock of the Corporation (whether or not such dividend on the Common Stock of the Corporation is payable in cash, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock).
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2. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Series B-1 Preferred Stock shall be entitled to receive, pari passu with the holders of Series B Preferred Stock and prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock, Series C Preferred Stock, Series C-1 Preferred Stock, Series A Preferred Stock or any other series of Preferred Stock by reason of their ownership thereof, an amount per share equal to $0.25 for each outstanding share of Series B-1 Preferred Stock (the "Original Series B-1 Issue Price") (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series B Preferred Stock and the Series B-1 Preferred Stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock and the Series B-1 Preferred Stock, in proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by subsection 2(a) immediately above, the distribution required by subsection 2(a) of Article 11l(F) hereof (with respect to the Series C Preferred Stock), the distribution required by subsection 2(a) of Article III(G) hereof (with respect to the Series C-1 Preferred Stock), the distribution required by subsection 2(a) of Article 11l(C) hereof (with respect to the Series A Preferred Stock) and any other distribution that may be required with respect to any series of Preferred Stock that from time to time may come into existence, all of the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.
(c) For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the shares of Series B-1 Preferred Stock then outstanding determine otherwise), (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation) or (ii) a sale of all or substantially all of the assets of the Corporation; unless, with respect to clause (i) or clause (ii) of this subsection 2(c), the Corporation's stockholders of record as constituted immediately before such acquisition or sale will immediately after such acquisition or sale (by virtue of securities issued as co.nsideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.
(d) Whenever any liquidation, dissolution or winding up of the Corporation provided for in this Section 2 requires that any distribution in connection therewith will be payable in property other than cash, then the value of such property shall be its fair market value, as determined in good faith by the Board of Directors, except that, if such property consists of securities, then such securities shall be valued as follows:
(i) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:
(A) If the securities are then traded on a national securities exchange or the NASDAQ Global Market (or a similar global or national quotation system), then the value of such securities shall be deemed to be the average of the daily closing prices of such securities on such exchange or system over the thirty (30) day period ending three (3) days before the distribution; and
(B) If the securities are then actively traded over-the counter, then the value of such securities shall be deemed to be the average of the daily closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days before the distribution; and
(C) If there is no active public market for the securities, then the value of such securities shall be the fair market value thereof, as determined in good faith by the Board of Directors.
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(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined pursuant to any of subparagraphs (i)(A), (i)(B) or (i)(C) of this subsection 2(d) (as applicable) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.
3. Conversion. The holders of Series B-1 Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B-1 Preferred Stock shall be convertible, at the option of the holder thereof, at any time on or after the date that is one (1) year after the date of issuance of such share, at the office of the Corporation, into the number of fully paid and nonassessable shares of Common Stock determined by dividing the Original Series B-1 Issue Price by the Conversion Price applicable to such share of Series B-1 Preferred Stock, determined as hereinafter provided, in effect on the Conversion Date (as defined below herein). The initial Conversion Price per share for shares of Series B-1 Preferred Stock shall be the lesser of (i) the Original Series B-1 Issue Price and (ii) ninety percent (90%) of the Market Price on the Conversion Date; provided, however, that the Conversion Price for the Series B-1 Preferred Stock shall be subject to adjustment as set forth in subsection 3(d) (Conversion Price Adjustments of Series B-1 Preferred Stock for Stock Splits and Combinations) hereof. For purposes of this Section 3, the following capitalized terms shall have the following meanings:
"Conversion Date" means the date on which the certificate or certificates for shares of Series B-1 Preferred Stock to be converted and the Conversion Notice are received by the Corporation from the holder in accordance with subsection 3(c) (Mechanics of Conversion) hereof; provided, however, that, if the conversion is an automatic conversion pursuant to subsection 3(b) (Automatic Conversion) hereof, then "Conversion Date" means and shall be the actual date of such conversion pursuant to subsection 3(b) (Automatic Conversion) hereof.
"Conversion Notice" has the meaning set forth in subsection 3(c) (Mechanics of Conversion) hereof.
"Market Price" means the average closing sale price for one (1) share of Common Stock during the ten (10) Trading Day period ending one (1) Trading Day before the Conversion Date. If the Market Price for one (1) share of Common Stock cannot be calculated on the Conversion Date in the manner provided in the preceding sentence, then the "Market Price" for one (1) share of Common Stock shall be the fair market value of one (1) share of Common Stock as reasonably determined by the Board of Directors.
"Trading Day" means any day on which the Common Stock is traded for any period on Pink Sheets or on the principal exchange or other securities market on which the Common Stock is then being traded.
(b) Automatic Conversion. Each share of Series B-1 Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series B-1 Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c) (Mechanics of Conversion) hereof, the Corporation's sale of Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $0.60 per share (as adjusted for stock splits, stock dividends, recapitalizations or the like), and the aggregate offering proceeds of which to the Corporation (net of underwriting commissions, discounts, fees and expenses) are not less than $5,000,000 (a "Qualified Public Offering"), or (ii) the date specified by written consent or agreement of the holders of a majority of the then-outstanding shares of Series B-1 Preferred Stock.
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(c) Mechanics of Conversion. Before any holder of Series B-1 Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation and shall give written notice (the "Conversion Notice") to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at that office to the holder of Series B-1 Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. The conversion shall be deemed to have been made immediately before the close of business on the date of such surrender of the shares of Series B-1 Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of the shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, then the conversion may, at the option of any holder tendering Series B-1 Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person or persons entitled to receive Common Stock upon conversion of the Series B-1 Preferred Stock shall not be deemed to have converted the Series B-1 Preferred Stock until immediately before the closing of such sale of securities.
(d) Conversion Price Adjustments of Series B-1 Preferred Stock for Stock Splits and Combinations. The Conversion Price for the Series B-1 Preferred Stock shall be subject to adjustment from time to time as follows:
(i) If the Corporation at any time or from time to time after the date upon which any shares of Series B-1 Preferred Stock first were issued (the "Purchase Date") fixes a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price for the Series B l Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of each share of the Series B-1 Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series B-1 Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable upon conversion of each share of the Series B-1 Preferred Stock shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation declares a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 3(d)(i) hereof, then, in each such case for the purpose of this subsection 3(e), the holders of the Series B-1 Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock into which their shares of Series B-1 Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there is a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or in Section 2 of this Article IIl(E)), provision shall be made so that the holders of the Series B-1 Preferred Stock thereafter shall be entitled to receive upon conversion of the Series B-1 Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise to which a holder of Common Stock deliverable upon conversion would have been entitled upon such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Series B-1 Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Series B-1 Conversion Price then in effect and the number of shares purchasable upon conversion of the Series B-1 Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.
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(g) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B-1 Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series B-1 Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one half being rounded upward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series B-1 Preferred Stock that the holder at the time is converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price for the Series B-1 Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B-1 Preferred Stock a certificate setting forth the adjustment or readjustment and showing in detail the facts upon which the adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series B-1 Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series B-1 Preferred Stock at the time in effect and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series B-1 Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series B-1 Preferred Stock, at least twenty (20) days before the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B-1 Preferred Stock, such number of shares of Common Stock as from time to time shall be sufficient to effect the conversion of all outstanding shares of the Series B-1 Preferred Stock; and, if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then-outstanding shares of the Series B-1 Preferred Stock, then, in addition to such other remedies as may be available to the holders of the then-outstanding shares of Series B-1 Preferred Stock, the Corporation shall take such corporate action as may, in the opinion of the Corporation's counsel, be necessary to increase the Corporation's authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these Articles of Incorporation.
(k) Restrictions on Transfers. If and whenever the Corporation undertakes an underwritten public offering of Common Stock, each holder of shares of Series B l Preferred Stock and/or shares of Common Stock into which shares of Series B-1 Preferred Stock have been converted will be required to comply with a six (6) month market stand-off agreement. Additionally, upon conversion of shares of Series B-1 Preferred Stock into Common Stock, for a period of four (4) years after the date of conversion, each holder thereof shall not, in any ninety (90) day period, sell a greater number of shares of Common Stock than ten percent (10%) of the ten (10) day average daily trading volume preceding the sale.
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(l) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series B-1 Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder's address appearing on the books of the Corporation.
4. Redemption. At any time after the date immediately preceding the first anniversary of the Purchase Date (as defined in subsection 3(d)(i) of this Article IIl(E)), the Corporation shall have the right, but not the obligation, to the extent that it may lawfully do so, at any time and from time to time to repurchase and redeem from the holder or holders thereof all or any portion of the then-outstanding shares of Series B-1 Preferred Stock for a purchase/redemption price per share equal to $0.25 per share (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like) in cash or its equivalent (the "Series B-1 Redemption Price"). In order to exercise this right of redemption, at least thirty (30) but no more than sixty (60) days before the applicable Series B-1 Redemption Date (as defined below), the Corporation shall provide written notice that the Corporation is redeeming all or a portion of the then-outstanding shares of Series B-1 Preferred Stock (the "Series B-1 Redemption Notice") by mail, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such notice is given) of the then-outstanding shares of Series B-1 Preferred Stock to be redeemed (at the address last shown on the records of the Corporation for each such holder), notifying such holder of the redemption to be effected on the applicable Series B-1 Redemption Date (as defined below), specifying the number of shares of Series B-1 Preferred Stock to be redeemed from such holder on the applicable Series B-1 Redemption Date (as defined below), the date as of which such redemption shall be (or be deemed to be) effective (any and each such date, the "Series B-1 Redemption Date"), the place at which payment of the Series B-1 Redemption Price for the shares of Series B-1 Preferred Stock to be redeemed on the Series B-1 Redemption Date may be obtained by such holder and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares of Series B-1 Preferred Stock to be redeemed on the Series B-1 Redemption Date. On or after the Series B-1 Redemption Date, each such holder shall surrender to the Corporation the certificate or certificates representing such shares of Series B-1 Preferred Stock to be redeemed on the Series B-1 Redemption Date as specified in the Series B-1 Redemption Notice, in the manner and at the place designated in the Series B-1 Redemption Notice, and thereupon the Series B-1 Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled. In the event that less than all of the shares of Series B-1 Preferred Stock represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Series B-1 Redemption Date, all rights of the holder or holders of shares of Series B-1 Preferred Stock designated for redemption on such Series B-1 Redemption Date in the Series B-1 Redemption Notice (except the right to receive the applicable Series B-1 Redemption Price for such shares without interest upon surrender of such holder or holders' certificate or certificates representing such shares) shall cease with respect to such shares, such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever, and such shares shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. Notwithstanding any of the foregoing provisions of this Section 4, each holder of shares of Series B-1 Preferred Stock to be redeemed pursuant to a Series B-1 Redemption Notice shall have the right to elect, in lieu of having such shares redeemed as specified in such Series B-1 Redemption Notice, to convert all of such shares into shares of Common Stock pursuant to and in accordance with the provisions of subsection 3(a) and subsection 3(c) of this Article III(E) within fifteen (15) days after the date on which such holder receives such Series B-1 Redemption Notice. In order to exercise this right to make such election, such holder within such fifteen (15) days must surrender the certificate or certificates representing the shares of Series B-1 Preferred Stock to be converted into shares of Common Stock, duly endorsed, at the office of the Corporation or of any transfer agent for the Series B-1 Preferred Stock and give written notice to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.
5. No Voting Rights. The holders of the Series B-1 Preferred Stock shall have no voting rights. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation or by written consent of the stockholders of the Corporation in lieu of meeting, each holder of outstanding shares of Series B-1 Preferred Stock shall have no right to vote whatsoever for any share of Series B-1 Preferred Stock then held by such holder and shall not be entitled to vote, together with holders of Common Stock or otherwise, with respect to any question upon which holders of Common Stock have the right to vote. Except as otherwise expressly provided herein, and except to the extent otherwise provided by the Nevada Revised Statutes, the holders of outstanding shares of Series B-1 Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation. Without limiting the generality of the foregoing, the holders of outstanding shares of Series B-1 Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation with respect to any plan of merger, plan of conversion or plan of exchange under Section 92A.120 of the Nevada Revised Statutes.
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6. Status of Converted or Redeemed Series B-1 Preferred Stock. If shares of Series B-1 Preferred Stock are converted pursuant to Section 3 of this Article III(E) or redeemed pursuant to Section 4 of this Article III(E), then such shares so converted or redeemed shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock.
F. Rights, Preferences, Privileges and Restrictions of Series C Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series C Preferred Stock are as set forth below in this Article III(F).
1. Dividend Provisions. Subject to the rights of any series of Preferred Stock that from time to time may come into existence, the holders of shares of Series C Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock of the Corporation, at the rate of $0.03125 per share per annum for the Series C Preferred Stock (as adjusted for stock splits, stock dividends, recapitalizations or the like), payable only when, as and if declared by the Board of Directors. Such dividends shall be cumulative.
2. Liquidation Preference.
(a) Subject and subordinate to the provisions of Section 2 of Article 11l(D) hereof (with respect to the liquidation preference of the Series B Preferred Stock) and to the provisions of Section 2 of Article 11l(E) hereof (with respect to the liquidation preference of the Series B-1 Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, subject to the rights of the Series B Preferred Stock, the Series B-1 Preferred Stock and any other series of Preferred Stock that from time to time may come into existence, the holders of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock, Series A Preferred Stock or any other series of Preferred Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.25 for each outstanding share of Series C Preferred Stock (the "Original Series C Issue Price") and (ii) an amount equal to declared but unpaid dividends on such share (if any) (subject to adjustment of such fixed dollar amounts for stock splits, stock dividends, combinations, recapitalizations or the like). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series C Preferred Stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of any series of Preferred Stock that from time to time may come into existence, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock, in proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by subsection 2(a) of Article III(D) hereof (with respect to the Series B Preferred Stock), the distribution required by subsection 2(a) of Article III(D) hereof (with respect to the Series B-1 Preferred Stock), the distribution required by subsection 2(a) immediately above, the distribution required by subsection 2(a) of Article III(G) hereof (with respect to the Series C-1 Preferred Stock), the distribution required by subsection 2(a) of Article IIl(C) hereof (with respect to the Series A Preferred Stock) and any other distribution that may be required with respect to any series of Preferred Stock that from time to time may come into existence, all of the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.
(c) For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the shares of Series C Preferred Stock then outstanding determine otherwise), (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation) or (ii) a sale of all or substantially all of the assets of the Corporation; unless, with respect to clause (i) or clause (ii) of this subsection 2(c), the Corporation's stockholders of record as constituted immediately before such acquisition or sale will immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.
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(d) Whenever any liquidation, dissolution or winding up of the Corporation provided for in this Section 2 requires that any distribution in connection therewith will be payable in property other than cash, then the value of such property shall be its fair market value, as determined in good faith by the Board of Directors,.except that, if such property consists of securities, then such securities shall be valued as follows:
(i) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:
(A) If the securities are then traded on a national securities exchange or the NASDAQ Global Market (or a similar global or national quotation system), then the value of such securities shall be deemed to be the average of the daily closing prices of such securities on such exchange or system over the thirty (30) day period ending three (3) days before the distribution; and
(B) If the securities are then actively traded over-the counter, then the value of such securities shall be deemed to be the average of the daily closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days before the distribution; and
(C) If there is no active public market for the securities, then the value of such securities shall be the fair market value thereof, as determined in good faith by the Board of Directors.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined pursuant to any of subparagraphs (i)(A), (i)(B) or (i)(C) of this subsection 2(d) (as applicable) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.
3. Conversion. The holders of Series C Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time on or after the date that is one (1) year after the date of issuance of such share, at the office of the Corporation, into the number of fully paid and nonassessable shares of Common Stock determined by dividing the Original Series C Issue Price by the Conversion Price applicable to such share of Series C Preferred Stock, determined as hereinafter provided, in effect on the Conversion Date (as defined below herein). The initial Conversion Price per share for shares of Series C Preferred Stock shall be the lesser of (i) the Original Series C Issue Price and (ii) ninety percent (90%) of the Market Price on the Conversion Date; provided, however, that the Conversion Price for the Series C Preferred Stock shall be subject to adjustment as set forth in subsection 3(d) (Conversion Price Adjustments of Series C Preferred Stock for Stock Splits and Combinations) hereof. For purposes of this Section 3, the following capitalized terms shall have the following meanings:
"Conversion Date" means the date on which the certificate or certificates for shares of Series C Preferred Stock to be converted and the Conversion Notice are received by the Corporation from the holder in accordance with subsection 3(c) (Mechanics of Conversion) hereof; provided, however, that, if the conversion is an automatic conversion pursuant to subsection 3(b) (Automatic Conversion) hereof, then "Conversion Date" means and shall be the actual date of such conversion pursuant to subsection 3(b) (Automatic Conversion) hereof.
"Conversion Notice" has the meaning set forth in subsection 3(c) (Mechanics of Conversion) hereof.
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"Market Price" means the average closing sale price for one (1) share of Common Stock during the ten (10) Trading Day period ending one (1) Trading Day before the Conversion Date. If the Market Price for one (1) share of Common Stock cannot be calculated on the Conversion Date in the manner provided in the preceding sentence, then the "Market Price" for one (1) share of Common Stock shall be the fair market value of one (1) share of Common Stock as reasonably determined by the Board of Directors.
"Trading Day" means any day on which the Common Stock is traded for any period on Pink Sheets or on the principal exchange or other securities market on which the Common Stock is then being traded.
(b) Automatic Conversion. Each share of Series C Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series C Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c) (Mechanics of Conversion) hereof, the Corporation's sale of Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $0.60 per share (as adjusted for stock splits, stock dividends, recapitalizations or the like), and the aggregate offering proceeds of which to the Corporation (net of underwriting commissions, discounts, fees and expenses) are not less than $5,000,000 (a "Qualified Public Offering"), or (ii) the date specified by written consent or agreement of the holders of a majority of the then-outstanding shares of Series C Preferred Stock, or (iii) the four (4) year anniversary date of the issuance of such share of Series C Preferred Stock.
(c) Mechanics of Conversion. Before any holder of Series C Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation and shall give written notice (the "Conversion Notice") to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at that office to the holder of Series C Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. The conversion shall be deemed to have been made immediately before the close of business on the date of such surrender of the shares of Series C Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of the shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, then the conversion may, at the option of any holder tendering Series C Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person or persons entitled to receive Common Stock upon conversion of the Series C Preferred Stock shall not be deemed to have converted the Series C Preferred Stock until immediately before the closing of such sale of securities.
(d) Conversion Price Adjustments of Series C Preferred Stock for Stock Splits and Combinations. The Conversion Price for the Series C Preferred Stock shall be subject to adjustment from time to time as follows:
(i) If the Corporation at any time or from time to time after the date upon which any shares of Series C Preferred Stock first were issued (the "Purchase Date") fixes a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price for the Series C Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of each share of the Series C Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.
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(ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series C Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable upon conversion of each share of the Series C Preferred Stock shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation declares a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 3(d)(i) hereof, then, in each such case for the purpose of this subsection 3(e), the holders of the Series C Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock into which their shares of Series C Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to time there is a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or in Section 2 of this Article III(F)), provision shall be made so that the holders of the Series C Preferred Stock thereafter shall be entitled to receive upon conversion of the Series C Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise to which a holder of Common Stock deliverable upon conversion would have been entitled upon such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Series C Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Series C Conversion Price then in effect and the number of shares purchasable upon conversion of the Series C Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series C Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one half being rounded upward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series C Preferred Stock that the holder at the time is converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price for the Series C Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series C Preferred Stock a certificate setting forth the adjustment or readjustment and showing in detail the facts upon which the adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series C Preferred Stock at the time in effect and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series C Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series C Preferred Stock, at least twenty (20) days before the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of such dividend, distribution or right.
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(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of shares of Common Stock as from time to time shall be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock; and, if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then-outstanding shares of the Series C Preferred Stock, then, in addition to such other remedies as may be available to the holders of the then-outstanding shares of Series C Preferred Stock, the Corporation shall take such corporate action as may, in the opinion of the Corporation's counsel, be necessary to increase the Corporation's authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these Articles of Incorporation.
(k) Restrictions on Transfers. If and whenever the Corporation undertakes an underwritten public offering of Common Stock, each holder of shares of Series C Preferred Stock and/or shares of Common Stock into which shares of Series C Preferred Stock have been converted will be required to comply with a six (6) month market stand-off agreement. Additionally, upon conversion of shares of Series C Preferred Stock into Common Stock, for a period of four (4) years after the date of conversion, each holder thereof shall not, in any ninety (90) day period, sell a greater number of shares of Common Stock than ten percent (10%) of the ten (10) day average daily trading volume preceding the sale.
(1) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series C Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder's address appearing on the books of the Corporation.
4. Redemption. At any time after the date immediately preceding the first anniversary of the Purchase Date (as defined in subsection 3(d)(i) of this Article IIl(F)}, the Corporation shall have the right, but not the obligation, to the extent that it may lawfully do so, at any time and from time to time to repurchase and redeem from the holder or holders thereof all or any portion of the then-outstanding shares of Series C Preferred Stock for a purchase/redemption price per share equal to the sum of (i) $0.25 per share and (ii) an amount equal to declared but unpaid dividends on such share (if any) (subject to adjustment of such fixed dollar amounts for stock splits, stock dividends, combinations, recapitalizations or the like) in cash or its equivalent (the "Series C Redemption Price"). In order to exercise this right of redemption, at least thirty (30) but no more than sixty (60) days before the applicable Series C Redemption Date (as defined below), the Corporation shall provide written notice that the Corporation is redeeming all or a portion of the then-outstanding shares of Series C Preferred Stock (the "Series C Redemption Notice") by mail, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such notice is given) of the then-outstanding shares of Series C Preferred Stock to be redeemed (at the address last shown on the records of the Corporation for each such holder), notifying such holder of the redemption to be effected on the applicable Series C Redemption Date (as defined below), specifying the number of shares of Series C Preferred Stock to be redeemed from such holder on the applicable Series C Redemption Date (as defined below), the date as of which such redemption shall be (or be deemed to be) effective (any and each such date, the "Series C Redemption Date"), the place at which payment of the Series C Redemption Price for the shares of Series C Preferred Stock to be redeemed on the Series C Redemption Date may be obtained by such holder and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares of Series C Preferred Stock to be redeemed on the Series C Redemption Date. On or after the Series C Redemption Date, each such holder shall surrender to the Corporation the certificate or certificates representing such shares of Series C Preferred Stock to be redeemed on the Series C Redemption Date as specified in the Series C Redemption Notice, in the manner and at the place designated in the Series C Redemption Notice, and thereupon the Series C Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled. In the event that less than all of the shares of Series C Preferred Stock represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Series C Redemption Date, all rights of the holder or holders of shares of Series C Preferred Stock designated for redemption on such Series C Redemption Date in the Series C Redemption Notice (except the right to receive the applicable Series C Redemption Price for such shares without interest upon surrender of such holder or holders' certificate or certificates representing such shares) shall cease with respect to such shares, such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever, and such shares shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. Notwithstanding any of the foregoing provisions of this Section 4, each holder of shares of Series C Preferred Stock to be redeemed pursuant to a Series C Redemption Notice shall have the right to elect, in lieu of having such shares redeemed as specified in such Series C Redemption Notice, to convert all of such shares into shares of Common Stock pursuant to and in accordance with the provisions of subsection 3(a) and subsection 3(c) of this Article IIl(F) within fifteen (15) days after the date on which such holder receives such Series C Redemption Notice. In order to exercise this right to make such election, such holder within such fifteen (15) days must surrender the certificate or certificates representing the shares of Series C Preferred Stock to be converted into shares of Common Stock, duly endorsed, at the office of the Corporation or of any transfer agent for the Series C Preferred Stock and give written notice to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.
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5. Voting Rights. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation or by written consent of the stockholders of the Corporation in lieu of meeting, the holders of shares of Series C Preferred Stock shall have the right to one (1) vote for each share of Common Stock into which such shares of Series C Preferred Stock could then be converted, and, with respect to such vote, such holders (a) shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, (b) shall be entitled, notwithstanding any provision hereof, to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation and (c) shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. Fractional votes shall not, however, be permitted, and fractional voting rights available on an as converted basis (after aggregating all shares into which shares of Series C Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one half being rounded upward). Except as otherwise expressly provided herein, and except to the extent otherwise provided by the Nevada Revised Statutes, the holders of shares of Series C Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation. Without limiting the generality of the foregoing, the holders of shares of Series C Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation with respect to any plan of merger, plan of conversion or plan of exchange under Section 92A.120 of the Nevada Revised Statutes.
6. Protective Provisions. So long as any shares of Series C Preferred Stock are outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of at least a majority of the then-outstanding shares of Series C Preferred Stock (voting together as a single series of Preferred Stock):
(a) alter or change any of the rights, preferences or privileges of the shares of Series C Preferred Stock so as to affect such shares.
7. Status of Converted or Redeemed Series C Preferred Stock. If shares of Series C Preferred Stock are converted pursuant to Section 3 of this Article III(F) or redeemed pursuant to Section 4 of this Article III(F), then such shares so converted or redeemed shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock.
G. Rights, Preferences, Privileges and Restrictions of Series C-1 Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series C-1 Preferred Stock are as set forth below in this Article III(G).
1. No Dividend Rights. The holders of the Series C-1 Preferred Stock shall have no dividend rights. The holders of the Series C-1 Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Series C Preferred Stock of the Corporation (whether or not such dividend on the Series C Preferred Stock of the Corporation is payable in cash, in Series C Preferred Stock, in Series C-1 Preferred Stock, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Series C Preferred Stock, Series C-1 Preferred Stock or Common Stock). The holders of the Series C-1 Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Series B Preferred Stock of the Corporation (whether or not such dividend on the Series B Preferred Stock of the Corporation is payable in cash, in Series B Preferred Stock, in Series B-1 Preferred Stock, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Series B Preferred Stock, Series B-1 Preferred Stock or Common Stock). The holders of the Series C-1 Preferred Stock shall not be entitled to receive dividends upon the declaration or payment of any dividend on the Common Stock of the Corporation (whether or not such dividend on the Common Stock of the Corporation is payable in cash, in Common Stock or in other securities or rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock).
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2. Liquidation Preference.
(a) Subject and subordinate to the provisions of Section 2 of Article 11l(D) hereof (with respect to the liquidation preference of the Series B Preferred Stock) and to the provisions of Section 2 of Article 11l(E) hereof (with respect to the liquidation preference of the Series B-1 Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Series C-1 Preferred Stock shall be entitled to receive, pari passu with the holders of Series C Preferred Stock and prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock, Series A Preferred Stock or any other series of Preferred Stock by reason of their ownership thereof, an amount per share equal to $0.30 for each outstanding share of Series C-1 Preferred Stock (the "Original Series C-1 Issue Price") (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series C Preferred Stock and the Series C-1 Preferred Stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock and the Series C-1 Preferred Stock, in proportion to the amount of such stock owned by each such holder.
(b) Upon the completion of the distribution required by subsection 2(a) of Article 11l(D) hereof (with respect to the Series B Preferred Stock), the distribution required by subsection 2(a) of Article 11l(E) hereof (with respect to the Series B-1 Preferred Stock), the distribution required by subsection 2(a) immediately above, the distribution required by subsection 2(a) of Article 11l(C) hereof (with respect to the Series A Preferred Stock) and any other distribution that may be required with respect to any series of Preferred Stock that from time to time may come into existence, all of the remaining assets of the Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.
(c) For purposes of this Section 2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include (unless the holders of at least a majority of the shares of Series C-1 Preferred Stock then outstanding determine otherwise), (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation) or (ii) a sale of all or substantially all of the assets of the Corporation; unless, with respect to clause (i) or clause (ii) of this subsection 2(c), the Corporation's stockholders of record as constituted immediately before such acquisition or sale will immediately after such acquisition or sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least fifty percent (50%) of the voting power of the surviving or acquiring entity.
(d) Whenever any liquidation, dissolution or winding up of the Corporation provided for in this Section 2 requires that any distribution in connection therewith will be payable in property other than cash, then the value of such property shall be its fair market value, as determined in good faith by the Board of Directors, except that, if such property consists of securities, then such securities shall be valued as follows:
(i) The method of valuation of securities not subject to investment letter or other similar restrictions on free marketability shall be as follows:
(A) If the securities are then traded on a national securities exchange or the NASDAQ Global Market (or a similar global or national quotation system), then the value of such securities shall be deemed to be the average of the daily closing prices of such securities on such exchange or system over the thirty (30) day period ending three (3) days before the distribution; and
(B) If the securities are then actively traded over-the counter, then the value of such securities shall be deemed to be the average of the daily closing bid or sale prices (whichever is applicable) over the thirty (30) day period ending three (3) days before the distribution; and
(C) If there is no active public market for the securities, then the value. of such securities shall be the fair market value thereof, as determined in good faith by the Board of Directors.
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(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability shall be to make an appropriate discount from the market value determined pursuant to any of subparagraphs (i)(A), (i)(B) or (i)(C) of this subsection 2(d) (as applicable) to reflect the approximate fair market value thereof, as determined in good faith by the Board of Directors.
3. Conversion. The holders of Series C-1 Preferred Stock shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series C-1 Preferred Stock shall be convertible, at the option of the holder thereof, at any time on or after the date that is one (1) year after the date of issuance of such share, at the office of the Corporation, into the number of fully paid and nonassessable shares of Common Stock determined by dividing the Original Series C-1 Issue Price by the Conversion Price applicable to such share of Series C-1 Preferred Stock, determined as hereinafter provided, in effect on the Conversion Date (as defined below herein). The initial Conversion Price per share for shares of Series C-1 Preferred Stock shall be the lesser of (i) the Original Series C-1 Issue Price and (ii) ninety percent (90%) of the Market Price on the Conversion Date; provided, however, that the Conversion Price for the Series C-1 Preferred Stock shall be subject to adjustment as set forth in subsection 3(d) (Conversion Price Adjustments of Series C-1 Preferred Stock for Stock Splits and Combinations) hereof. For purposes of this Section 3, the following capitalized terms shall have the following meanings:
"Conversion Date" means the date on which the certificate or certificates for shares of Series C-1 Preferred Stock to be converted and the Conversion Notice are received by the Corporation from the holder in accordance with subsection 3(c) (Mechanics of Conversion) hereof; provided, however, that, if the conversion is an automatic conversion pursuant to subsection 3(b) (Automatic Conversion) hereof, then "Conversion Date" means and shall be the actual date of such conversion pursuant to subsection 3(b) (Automatic Conversion) hereof.
"Conversion Notice" has the meaning set forth m subsection 3(c) (Mechanics of Conversion) hereof.
"Market Price" means the average closing sale price for one (1) share of Common Stock during the ten (10) Trading Day period ending one (1) Trading Day before the Conversion Date. If the Market Price for one (1) share of Common Stock cannot be calculated on the Conversion Date in the manner provided in the preceding sentence, then the "Market Price" for one (1) share of Common Stock shall be the fair market value of one (1) share of Common Stock as reasonably determined by the Board of Directors.
"Trading Day" means any day on which the Common Stock is traded for any period on Pink Sheets or on the principal exchange or other securities market on which the Common Stock is then being traded.
(b) Automatic Conversion. Each share of Series C-1 Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such Series C-1 Preferred Stock immediately upon the earlier of (i) except as provided below in subsection 3(c) (Mechanics of Conversion) hereof, the Corporation's sale of Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended, the public offering price of which is not less than $0.60 per share (as adjusted for stock splits, stock dividends, recapitalizations or the like), and the aggregate offering proceeds of which to the Corporation (net of underwriting commissions, discounts, fees and expenses) are not less than $5,000,000 (a "Qualified Public Offering"), or (ii) the date specified by written consent or agreement of the holders of a majority of the then-outstanding shares of Series C-1 Preferred Stock.
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(c) Mechanics of Conversion. Before any holder of Series C-1 Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation and shall give written notice (the "Conversion Notice") to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at that office to the holder of Series C-1 Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. The conversion shall be deemed to have been made immediately before the close of business on the date of such surrender of the shares of Series C-1 Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of the shares of Common Stock as of such date. If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, then the conversion may, at the option of any holder tendering Series C-1 Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person or persons entitled to receive Common Stock upon conversion of the Series C-1 Preferred Stock shall not be deemed to have converted the Series C-1 Preferred Stock until immediately before the closing of such sale of securities.
(d) Conversion Price Adjustments of Series C-1 Preferred Stock for Stock Splits and Combinations. The Conversion Price for the Series C-1 Preferred Stock shall be subject to adjustment from time to time as follows:
(i) If the Corporation at any time or from time to time after the date upon which any shares of Series C-1 Preferred Stock first were issued (the "Purchase Date") fixes a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as "Common Stock Equivalents") without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), the Conversion Price for the Series C l Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of each share of the Series C-1 Preferred Stock shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.
(ii) If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series C-1 Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable upon conversion of each share of the Series C-1 Preferred Stock shall be decreased in proportion to such decrease in outstanding shares.
(e) Other Distributions. In the event the Corporation declares a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 3(d)(i) hereof, then, in each such case for the purpose of this subsection 3(e), the holders of the Series C-1 Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock into which their shares of Series C-1 Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock entitled to receive such distribution.
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(f) Recapitalizations. If at any time or from time to time there is a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 3 or in Section 2 of this Article III(G)), provision shall be made so that the holders of the Series C-1 Preferred Stock thereafter shall be entitled to receive upon conversion of the Series C-1 Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise to which a holder of Common Stock deliverable upon conversion would have been entitled upon such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 3 with respect to the rights of the holders of the Series C-1 Preferred Stock after the recapitalization to the end that the provisions of this Section 3 (including adjustment of the Series C-1 Conversion Price then in effect and the number of shares purchasable upon conversion of the Series C-1 Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable.
(g) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation but will at all times in good faith assist in the carrying out of all provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C-1 Preferred Stock against impairment.
(h) No Fractional Shares and Certificate as to Adjustments.
(i) No fractional shares shall be issued upon the conversion of any share or shares of the Series C-1 Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share (with one half being rounded upward). Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Series C-1 Preferred Stock that the holder at the time is converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.
(ii) Upon the occurrence of each adjustment or readjustment of the Conversion Price for the Series C-1 Preferred Stock pursuant to this Section 3, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series C-1 Preferred Stock a certificate setting forth the adjustment or readjustment and showing in detail the facts upon which the adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C-1 Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for the Series C-1 Preferred Stock at the time in effect and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Series C-1 Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series C-1 Preferred Stock, at least twenty (20) days before the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C-1 Preferred Stock, such number of shares of Common Stock as from time to time shall be sufficient to effect the conversion of all outstanding shares of the Series C-1 Preferred Stock; and, if at any time the number of authorized but unissued shares of Common Stock is not sufficient to effect the conversion of all then-outstanding shares of the Series C-1 Preferred Stock, then, in addition to such other remedies as may be available to the holders of the then-outstanding shares of Series C-1 Preferred Stock, the Corporation shall take such corporate action as may, in the opinion of the Corporation's counsel, be necessary to increase the Corporation's authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these Articles of Incorporation.
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(k) Restrictions on Transfers. If and whenever the Corporation undertakes an underwritten public offering of Common Stock, each holder of shares of Series C l Preferred Stock and/or shares of Common Stock into which shares of Series C-1 Preferred Stock have been converted will be required to comply with a six (6) month market stand-off agreement. Additionally, upon conversion of shares of Series C-1 Preferred Stock into Common Stock, for a period of four (4) years after the date of conversion, each holder thereof shall not, in any ninety (90) day period, sell a greater number of shares of Common Stock than ten percent (10%) of the ten (10) day average daily trading volume preceding the sale.
(l) Notices. Any notice required by the provisions of this Section 3 to be given to the holders of shares of Series C-1 Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder's address appearing on the books of the Corporation.
4. Redemption. At any time after the date immediately preceding the first anniversary of the Purchase Date (as defined in subsection 3(d)(i) of this Article III(G)), the Corporation shall have the right, but not the obligation, to the extent that it may lawfully do so, at any time and from time to time to repurchase and redeem from the holder or holders thereof all or any portion of the then-outstanding shares of Series C-1 Preferred Stock for a purchase/redemption price per share equal to $0.30 per share (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like) in cash or its equivalent (the "Series C-1 Redemption Price"). In order to exercise this right of redemption, at least thirty (30) but no more than sixty (60) days before the applicable Series C-1 Redemption Date (as defined below), the Corporation shall provide written notice that the Corporation is redeeming all or a portion of the then-outstanding shares of Series C-1 Preferred Stock (the "Series C-1 Redemption Notice") by mail, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such notice is given) of the then-outstanding shares of Series C-1 Preferred Stock to be redeemed (at the address last shown on the records of the Corporation for each such holder), notifying such holder of the redemption to be effected on the applicable Series C-1 Redemption Date (as defined below), specifying the number of shares of Series C-1 Preferred Stock to be redeemed from such holder on the applicable Series C-1 Redemption Date (as defined below), the date as of which such redemption shall be (or be deemed to be) effective (any and each such date, the "Series C-1 Redemption Date"), the place at which payment of the Series C-1 Redemption Price for the shares of Series C-1 Preferred Stock to be redeemed on the Series C-1 Redemption Date may be obtained by such holder and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares of Series C-1 Preferred Stock to be redeemed on the Series C-1 Redemption Date. On or after the Series C-1 Redemption Date, each such holder shall surrender to the Corporation the certificate or certificates representing such shares of Series C-1 Preferred Stock to be redeemed on the Series C-1 Redemption Date as specified in the Series C-1 Redemption Notice, in the manner and at the place designated in the Series C-1 Redemption Notice, and thereupon the Series C-1 Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled. In the event that less than all of the shares of Series C-1 Preferred Stock represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Series C-1 Redemption Date, all rights of the holder or holders of shares of Series C-1 Preferred Stock designated for redemption on such Series C-1 Redemption Date in the Series C-1 Redemption Notice (except the right to receive the applicable Series C-1 Redemption Price for such shares without interest upon surrender of such holder or holders' certificate or certificates representing such shares) shall cease with respect to such shares, such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever, and such shares shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. Notwithstanding any of the foregoing provisions of this Section 4, each holder of shares of Series C-1 Preferred Stock to be redeemed pursuant to a Series C-1 Redemption Notice shall have the right to elect, in lieu of having such shares redeemed as specified in such Series C-1 Redemption Notice, to convert all of such shares into shares of Common Stock pursuant to and in accordance with the provisions of subsection 3(a) and subsection 3(c) of this Article 11l(G) within fifteen (15) days after the date on which such holder receives such Series C-1 Redemption Notice. In order to exercise this right to make such election, such holder within such fifteen (15) days must surrender the certificate or certificates representing the shares of Series C-1 Preferred Stock to be converted into shares of Common Stock, duly endorsed, at the office of the Corporation or of any transfer agent for the Series C-1 Preferred Stock and give written notice to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.
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5. No Voting Rights. The holders of the Series C-1 Preferred Stock shall have no voting rights. On any matter presented to the stockholders of the Corporation for their action or consideration at any meeting of stockholders of the Corporation or by written consent of the stockholders of the Corporation in lieu of meeting, each holder of outstanding shares of Series C-1 Preferred Stock shall have no right to vote whatsoever for any share of Series C-1 Preferred Stock then held by such holder and shall not be entitled to vote, together with holders of Common Stock or otherwise, with respect to any question upon which holders of Common Stock have the right to vote. Except as otherwise expressly provided herein, and except to the extent otherwise provided by the Nevada Revised Statutes, the holders of outstanding shares of Series C-1 Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation. Without limiting the generality of the foregoing, the holders of outstanding shares of Series C-1 Preferred Stock shall have no right to vote as a separate class or series of shares of capital stock of the Corporation with respect to any plan of merger, plan of conversion or plan of exchange under Section 92A.120 of the Nevada Revised Statutes.
6. Status of Converted or Redeemed Series C-1 Preferred Stock. If shares of Series C-1 Preferred Stock are converted pursuant to Section 3 of this Article III(G) or redeemed pursuant to Section 4 of this Article IIl(G), then such shares so converted or redeemed shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock.
H. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of Common Stock shall be entitled to receive, when, as and if declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section 2 of Article III(C) hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock shall have the right to one (1) vote for each such share, shall be entitled to notice of any stockholders' meeting in accordance with the Bylaws of the Corporation and shall be entitled to vote upon such matters and in such manner as may be provided by law.
ARTICLE IV
The Board of Directors is authorized, from time to time, to create and issue, whether or not in connection with the issuance and sale of any of the stock or other securities or property of the Corporation, rights entitling the holders thereof to purchase from the Corporation shares of stock or other securities of the Corporation or any other corporation. The times at which and the terms upon which such rights are to be issued will be determined by the Board of Directors and set forth in the contracts or instruments that evidence such rights. The authority of the Board of Directors with respect to such rights shall include, but not be limited to, determination of the following:
(a) The initial purchase price per share or other unit of the stock or other securities or property to be purchased upon exercise of such rights.
(b) Provisions relating to the times at which and the circumstances under which such rights may be exercised or sold or otherwise transferred, either together with or separately from any other stock or other securities of the Corporation.
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(c) Provisions that adjust the number or exercise price of such rights or amount or nature of the stock or other securities or property receivable upon exercise of such rights in the event of a combination, split or recapitalization of any stock of the Corporation, a change in ownership of the Corporation's stock or other securities or a reorganization, merger, consolidation, sale of assets or other occurrence relating to the Corporation or any stock of the Corporation, and provisions restricting the ability of the Corporation to enter into any such transaction absent an assumption by the other party or parties thereto of the obligations of the Corporation under such rights.
(d) Provisions that deny the holder of a specified percentage of the outstanding stock or other securities of the Corporation the right to exercise such rights and/or cause the rights held by such holder to become void.
(e) Provisions that permit the Corporation to redeem or exchange such rights.
(f) The appointment of a rights agent with respect to such rights.
ARTICLE V
The governing board of the Corporation shall be styled as a "Board of Directors," and any member of such Board of Directors shall be styled as a "director." The number of directors of the Corporation may be fixed and increased or decreased in the manner provided in the Bylaws of the Corporation, provided that the number of directors shall never be less than one (1). In the interim between elections of directors by stockholders entitled to vote, all vacancies, including vacancies caused by an increase in the number of directors and including vacancies resulting from the removal of directors by the stockholders entitled to vote that are not filled by such stockholders, may be filled by the remaining directors, though less than a quorum. Notwithstanding the foregoing, whenever the holders of any one or more series of shares of Preferred Stock issued by the Corporation have the right, voting separately by series, to elect directors at an annual or special meeting of stockholders, the election, term of office, filling of vacancies and other features of such directorships shall be governed by the terms of these Articles of Incorporation or the resolution or resolutions adopted by the Board of Directors pursuant to Article III(B) hereof.
ARTICLE VI
The personal liability of the directors and officers of the Corporation hereby is eliminated to the fullest extent permitted by Nevada Revised Statutes, Chapter 78, as the same exists or hereafter may be amended. No director or officer of the Corporation will be liable to the Corporation or its stockholders for damages for breach of fiduciary duty as a director or officer, excepting only (i) acts or omissions that involve intentional misconduct, fraud or a knowing violation of law or (ii) the payment of dividends in violation of Nevada Revised Statutes Section 78.300. No amendment, modification or repeal of this Article VI applies to or has any effect on the liability or alleged liability of any director or officer of the Corporation for or with respect to any act or omission of such director or officer having occurred before such amendment, modification or repeal, except as otherwise required by law.
ARTICLE VII
The Corporation shall, to the fullest extent permitted by the laws of the State of Nevada, as the same exist or hereafter may be amended (but in the case of such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than such laws permitted the Corporation to provide before such amendment), indemnify and hold harmless each person who was or is a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "Proceeding"), by reason of the fact that such person or a person for whom such person is the legal representative is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, manager or trustee of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such Proceeding is alleged action or inaction in an official capacity or in any other capacity while serving as a director or officer of the Corporation or at the request of the Corporation as a director, officer, manager or trustee of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, against and from all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement and amounts expended in seeking indemnification granted to such person under applicable law, this Article VII or any agreement with the Corporation) reasonably incurred or suffered by such person in connection therewith. The Corporation may, by action of the Board of Directors or through the adoption of Bylaws, provide indemnification to employees and agents of the Corporation, and to persons who are serving or did serve at the request of the Corporation as an employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, with the same scope and effect as provided to the directors and officers of the Corporation pursuant to the foregoing provisions of this Article VII.
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The indemnification provided for herein shall not be deemed exclusive of any other right to which a person indemnified may be entitled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to actions of such person in such person's official capacity and as to actions of such person in another capacity while holding such office. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, manager, trustee, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, against any liability asserted against such person in any such capacity or arising out of such person's status as such, whether or not the Corporation would have the power to indemnify such person against such liability under the provisions of Nevada Revised Statutes, Chapter 78. The expenses of any director or officer, current or past, incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation as incurred and in advance of the final disposition of such action, suit or proceeding upon the Corporation's receipt of an undertaking by or on behalf of such current or past director or officer to repay the Corporation for all of such expenses if it ultimately is determined by a court of competent jurisdiction that such current or past director or officer is not entitled to be indemnified by the Corporation. The indemnification provided for herein shall continue as to a person who has ceased to be a director, officer, employee or agent of the Corporation, or who has ceased to serve at the request of the Corporation as a director, officer, manager, trustee, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, and shall inure to the benefit of such person's heirs, executors and administrators. No amendment, modification or repeal of this Article VII applies to or has any effect on any right or protection of any director, officer, employee or agent of the Corporation, or any person who is or was serving at the request of the Corporation as a director, officer, manager, trustee, employee or agent of another corporation or of a partnership, limited liability company, joint venture, trust or other enterprise, existing at the time of such amendment, modification or repeal.
ARTICLE VIII
In furtherance and not in limitation of the rights, powers, privileges and discretionary authority granted or conferred by Nevada Revised Statutes, Chapter 78 or other statutes or laws of the State of Nevada, the Board of Directors is expressly authorized: (i) to make, adopt, amend, alter or repeal the Bylaws of the Corporation, except as and to the extent otherwise provided in such Bylaws; (ii) from time to time to adopt Bylaw provisions with respect to indemnification of directors, officers, employees, agents and other persons as the Board of Directors deems expedient and in the best interests of the Corporation and to the extent permitted by law; and (iii) to fix and determine designations, preferences, privileges, rights and powers, and relative, participating, optional or other special rights, qualifications, limitations or restrictions, on the capital stock of the Corporation as provided by Nevada Revised Statutes Section 78.195, unless otherwise provided herein.
ARTICLE IX
Unless the Corporation consents in writing to the selection of an alternative forum, the District Courts of the State of Nevada shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the Corporation, (ii) any action asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or other agent of the Corporation to the Corporation or the Corporation's stockholders, (iii) any action asserting a claim arising pursuant to any provision of Title 7 of the Nevada Revised Statutes or (iv) any action asserting a claim governed by the internal affairs doctrine, in each case subject to such District Courts having personal jurisdiction over the indispensable parties named as defendants therein.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal any prov1s1on contained in these Articles of Incorporation in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
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Exhibit 3.2
BYLAWS
OF
VIVAKOR, INC.
(A NEVADA CORPORATION)
BYLAWS
OF
VIVAKOR, INC.
a Nevada corporation
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the corporation in the State of Nevada shall be at such place as the board shall resolve.
Section 2. Other Offices. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Nevada as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
Section 3. Corporate Seal. The corporate seal shall consist of a stamp or die bearing the name of the corporation and the date and state of incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
Section 4. Place of Meetings. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Nevada, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof.
Section 5. Annual Meeting.
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors.
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(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before tile meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation not later than the close of business on the sixtieth (60th) day nor earlier than the close of business on the ninetieth (90th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not earlier than the close of business on the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or, in the event public announcement of the date of such annual meeting is first made by the corporation fewer than seventy (70) days prior to the date of such annual meeting, the close of business on the tenth (10th) day following the day on which public announcement of the date of such meeting is first made by the corporation. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting: (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Not withstanding anything in these Bylaws to tile contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at tile meeting that any such business not properly brought before the meeting shall not be transacted.
(c) Only persons who are confirmed in accordance with the procedures set forth in this paragraph (c) shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by, or at the direction of the Board of Directors or by any stockholder of the corporation entitled to vote in the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c).
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Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation in accordance with the provisions of paragraph (b) of this Section 5. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director: (A) the name, age, business address and residence address of such person, B) the principal occupation or employment of such person, (C) the class and number of shares of the corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 5. At the request of the Board of Directors, any person nominated by a stockholder for election as a director shall furnish to the Secretary of the corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded.
(d) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Section 6. Special Meetings.
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by( i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of tile total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), and shall be held at such place, on such date, and at such time, as the Board of Directors shall determine.
(b) If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telephonic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to tile stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within sixty (60) days after the receipt of tile request, tile person or persons requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
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Section 7. Notice of Meetings. Except as otherwise provided by law or the Articles of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of tile meeting.
Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
Section 8. Quorum. At all meetings of stockholders, except where otherwise provided by statute or by the Articles of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holder or holders of not less than fifty percent (50%) of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In tile absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, all action taken by the holders of a majority of the votes cast, excluding abstentions, at any meeting at which a quorum is present shall be valid and binding upon the corporation; provided, however, that directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on tile election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Articles of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Articles of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast, including abstentions, by the holders of shares of such class or classes or series shall be the act of such class or classes or series.
Section 9. Adjournment and Notice of Adjourned Meetings. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes, excluding abstentions. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact ally business which might have been transacted at the original meeting. I the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
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Section 10. Voting Rights. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Nevada law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
Section 11. Joint Owners of Stock. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Nevada Court of Chancery for relief as provided in the General Corporation Law of Nevada, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
Section 12. List of Stockholders. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present.
Section 13. Action Without Meeting. No action shall be taken by the stockholders except at an annual or special meeting of stockholders called in accordance with these Bylaws, or by the written consent of the stockholders setting forth the action so taken and signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote upon were present and voted.
Section 14. Organization.
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
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(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accord31lce with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
Section 15. Number and Qualification. The authorized number of directors of the corporation shall be not less than one (1) nor more than thirteen (13) as fixed from time to time by resolution of the Board of Directors; provided that no decrease in the number of directors shall shorten the term of any incumbent directors. Directors need not be stockholders unless so required by the Articles of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
Section 16. Powers. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Articles of Incorporation.
Section 17. Election and Term of Office of Directors. Members of the Board of Directors shall hold office for the terms specified in the Articles of Incorporation, as it may be amended from time to time, and until their successors have been elected as provided in the Articles of Incorporation.
Section 18. Vacancies. Unless otherwise provided in the Articles of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholder vote, be filled only by 11le affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full tern1 of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Bylaw in the case of the death, removal or resignation of any director.
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Section 19. Resignation. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
Section 20. Removal. Subject to the Articles of Incorporation, any director may be removed by the affirmative vote of the holders of a majority of the outstanding shares of the Corporation then entitled to vote, with or without cause.
Section 21. Meetings.
(a) Annual Meetings. The annual meeting of the Board of Directors shall be held immediately after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
(b) Regular Meetings. Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to Section 2 hereof. Unless otherwise restricted by the Articles of Incorporation, regular meetings of the Board of Directors may also be held at any place within or without the state of Nevada which has been designated by resolution of the Board of Directors or the written consent of all directors.
(c) Special Meetings. Unless otherwise restricted by the Articles of h1corporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Nevada whenever called by the Chairman of the Board, the President or any two of the directors.
(d) Telephone Meetings. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(e) Notice of Meetings. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, facsimile, telegraph or telex, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
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(f) Waiver of Notice. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
Section 22. Quorum and Voting.
(a) Unless the Articles of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof; for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with the Articles of Incorporation, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Articles of Incorporation provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Articles of Incorporation or these Bylaws.
Section 23. Action Without Meeting. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee.
Section 24. Fees and Compensation. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
Section 25. Committees.
(a) Executive Committee. The Board of Directors may by resolution passed by a majority of the whole Board of Directors appoint an Executive Committee to consist of one (I) or more members of the Board of directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, including without limitation the power or authority to declare a dividend, to authorize the issuance of stock and to adopt a certificate of ownership and merger, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Articles of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the bylaws of the corporation.
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(b) Other Committees. The Board of directors may, by resolution passed by a majority of the whole Board of Directors, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (I) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall such committee have the powers denied to the Executive Committee in these Bylaws.
(c) Term. Each member of a committee of the Board of directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to the provisions of subsections (a) or (b) of this Bylaw may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of directors may at any time for any reason remove any individual committee member and the Board of directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) Meetings. Unless the Board of directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
Section 26. Organization. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or if the President is absent, the most senior Vice President, or, in the absence of any such officer, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
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ARTICLE V
OFFICERS
Section 27. Officers Designated. The officers of the corporation shall include, if and when designated by the Board of directors, the Chairman of the Board of directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of directors may assign such additional titles to one or more
of the officers as it shall deem appropriate. Anyone person may hold any number of offices of the corporation at anyone time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
Section 28. Tenure and Duties of Officers.
(a) General. All officers shall hold office at the pleasure of the Board of directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
(b) Duties of Chairman of the Board of Directors. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors.
The Chairman of the Board of directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28.
(c) Duties of President. The President shall preside at all meetings of the stockholders and at all meetings of the Board of directors, unless the Chairman of the Board of directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of directors shall designate from time to time.
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(d) Duties of Vice Presidents. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of directors or the President shall designate from time to time.
(e) Duties of Secretary. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perfo11ll the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) Duties of Chief Financial Officer. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
Section 29. Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
Section 30. Resignations. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
Section 31. Removal. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
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ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION
Section 32. Execution of Corporate Instruments. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of directors or otherwise required by law, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board of Directors, or the President or any Vice President, and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiting the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of directors.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
Section 33. Voting of Securities Owned by the Corporation. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and an proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
Section 34. Form and Execution of Certificates. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Articles of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.
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Section 35. Lost Certificates. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, Or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
Section 36. Transfers.
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perfol1n any agreement with any number of stockholders of anyone or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Nevada.
Section 37. Fixing Record Dates.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If o record date is filed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
Section 38. Registered Stockholders. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Nevada.
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ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
Section 39. Execution of Other Securities. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
Section 40. Declaration of Dividends. Dividends upon the capital stock of the corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Articles of Incorporation.
Section 41. Dividend Reserve. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or owns as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
Section 42. Fiscal Year. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
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ARTICLE XI
INDEMNIFICATION
Section 43. Indemnification of Directors, Executive Officers, Other Officers, Employees and Other Agents.
(a) Directors Officers. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the Nevada Revised Statutes; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in collection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Nevada Revised Statutes or (iv) such indemnification is required to be made under subsection (d).
(b) Employees and Other Agents. The corporation shall have power to indemnify its employees and other agents as set forth in the Nevada Revised Statutes.
(c) Expense. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or executive officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding upon receipt of an undertaking by or on behalf of such person to repay said mounts if it should be determined ultimately that such person is not entitled to be indemnified under this Bylaw or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Bylaw, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) Enforcement. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Bylaw to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standard of conduct that make it permissible under the Nevada Revised Statutes for the corporation to indemnify the claimant for the amount claimed. In collection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed in the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counselor its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the Nevada Revised Statutes, nor an actual determination by the corporation (including its Board of directors, independent legal counselor its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement o expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Article XI or otherwise shall be on the corporation.
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(e) Non-Exclusivity of Rights. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Articles of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Nevada Revised Statutes.
(f) Survival of Rights. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) Insurance. To the fullest extent permitted by the Nevada Revised Statutes, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Bylaw.
(h) Amendments. Any repeal or modification of this Bylaw shall only be prospective and shall not affect the rights under this Bylaw in effect at tile time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) Saving Clause. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Bylaw that shall not have been invalidated, or by any other applicable law.
(j) Certain Definitions. For the purposes of this Bylaw, the following definitions shall apply:
(i) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(ii) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in collection with any proceeding.
(iii) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent or another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Bylaw with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
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(iv) References to a "director,” "executive officer,” "officer," "employee,” or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(v) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
Section 44. Notices.
(a) Notice to Stockholders. Whenever, under any provisions of these Bylaws, notice is required to be given to ,my stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent.
(b) Notice to directors. Any notice required to be given to any director may be given by the method stated in subsection (a), or by facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) Affidavit of Mailing. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
(d) Time Notices Deemed Given. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission.
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(e) Methods of Notice. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(f) Failure to Receive Notice. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him ill the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice.
(g) Notice to Person with Whom Communication Is Unlawful. Whenever notice is required to be given, under any provision of law or of the Articles of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be require and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Nevada Revised Statutes, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(h) Notice to Person with Undeliverable Address. Whenever notice is required to be given, under any provision of law or the Articles of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Nevada Revised Statutes, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph.
ARTICLE XII
AMENDMENTS
Section 45. Amendments. The Board of Directors shall have the sole power to adopt, amend, or repeal Bylaws as set forth in the Articles of Incorporation.
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ARTICLE XIV
LOANS TO OFFICERS
Section 46. Loans to Officers. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
ARTICLE XV
BOARD OF ADVISORS
Section 47. Board of Advisors. The Board of Directors, in its discretion, may establish it Board of Advisors consisting of individuals who may or may not be stockholders or directors of the corporation. The purpose of the Board of Advisors would be to advise the officers and directors of the corporation with respect to such matters as such officers and directors shall choose, and any other such matters which the members of such Board of Advisors deem appropriate in furtherance of the best interest of the corporation. The Board of Advisors shall meet on such basis as the members thereof may determine. The Board of Directors may eliminate the Board of Advisors at any time. No member of the Board of Advisors, nor the Board of Advisors itself, shall have any authority within the corporation or any decision making power and shall be merely advisory in nature. Unless the Board of Directors determines another method of appointment, the President shall recommend possible members to the Board of Directors, who shall approve or reject such appointments.
Declared and certified as the Bylaws of VivaKor, Inc. on April 30, 2008.
| Signature of Officer: | /s/ CHRISTOPHER A. WILSON |
| Name of Officer: | Christopher A. Wilson |
| Title of Officer: | Secretary |
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Exhibit 3.3
AMENDMENTS TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION OF VIVAKOR, INC.
ARTICLE III
B. Rights, Preferences, Privileges and Restrictions of Preferred Stock. The Preferred Stock authorized by these Amended and Restated Articles of Incorporation may be issued from time to time in one or more series. The rights, preferences, privileges and restrictions granted to and imposed on the Series A Preferred Stock, which series shall consist of 2,000,000 shares, are as set forth below in Article IIl(C). The rights, preferences, privileges and restrictions granted to and imposed on the Series B Preferred Stock, which series shall consist of98,000,000 shares, are as set forth below in Article IIl(D). The rights, preferences, privileges and restrictions granted to and imposed on the Series B-1 Preferred Stock, which series shall consist of 50,000,000 shares, are as set forth below in Article III(E). The rights, preferences, privileges and restrictions granted to and imposed on the Series C Preferred Stock, which series shall consist of 100,000,000 shares, are as set forth below in Article III(F). The rights, preferences, privileges and restrictions granted to and imposed on the Series C-1 Preferred Stock, which series shall consist of 100,000,000 shares, are as set forth below in Article III(G).The Corporation's Board of Directors (the "Board of Directors") hereby is authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed on each additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of them. Subject to compliance with applicable protective voting rights that have been or may be granted to the Preferred Stock or any series thereof in Certificates of Designation or in these Articles of Incorporation ("Protective Provisions"), but notwithstanding any of the other rights of the Preferred Stock or any series thereof, the rights, preferences, privileges and restrictions of any such additional series of Preferred Stock may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent) or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. Subject to compliance with applicable Protective Provisions (if any), the Board of Directors also is authorized to increase or decrease the number of shares of any series of Preferred Stock (other than the Series A Preferred Stock), before or after the issuance of such series, but not below the number of shares of such series then outstanding. In case the number of shares of any series is so decreased, the shares constituting such decrease shall resume the status that they had before the adoption of the resolution originally fixing the number of shares of such series.
Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock) on the Common Stock of the Corporation, at the rate of $0.04375 per share per annum for the Series C Preferred Stock (as adjusted for stock splits, stock dividends, recapitalizations or the like) , payable only when, as and if declared by the Board of Directors. Such dividends shall be cumulative.
2. Liquidation Preference.
(a) Subject and subordinate to the provisions of Section 2 of Article III(D) hereof (with respect to the liquidation preference of the Series B Preferred Stock) and to the provisions of Section 2 of Article III(E) hereof (with respect to the liquidation preference of the Series B-1 Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, subject to the rights of the Series B Preferred Stock, the Series B-1 Preferred Stock and any other series of Preferred Stock that from time to time may come into existence, the holders of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock, Series A Preferred Stock or any other series of Preferred Stock by reason of their ownership thereof, an amount per share equal to the sum of (i) $0.35 for each outstanding share of Series C Preferred Stock (the "Original Series C Issue Price") and (ii) an amount equal to declared but unpaid dividends on such share (if any) (subject to adjustment of such fixed dollar amounts for stock splits, stock dividends, combinations, recapitalizations or the like). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series C Preferred Stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, subject to the rights of any series of Preferred Stock that from time to time may come into existence, the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock, in proportion to the amount of such stock owned by each such holder.
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4. Redemption. At any time after the date immediately preceding the first anniversary of the Purchase Date (as defined in subsection 3(d)(i) of this Article III(F)), the Corporation shall have the right , but not the obligation , to the extent that it may lawfully do so, at any time and from time to time to repurchase and redeem from the holder or holders thereof all or any portion of the then-outstanding shares of Series C Preferred Stock for a purchase/redemption price per share equal to the sum of (i) $0.35 per share and (ii) an amount equal to declared but unpaid dividends on such share (if any) (subject to adjustment of such fixed dollar amounts for stock splits, stock dividends, combinations, recapitalizations or the like) in cash or its equivalent (the "Series C Redemption Price"). In order to exercise this right ofr edemption, at least thirty (30) but no more than sixty (60) days before the applicable Series C Redemption Date (as defined below), the Corporation shall provide written notice that the Corporation is redeeming all or a portion of the then outstanding shares of Series C Preferred Stock (the "Series C Redemption Notice") by mail, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such notice is given) of the then-outstanding shares of Series C Preferred Stock to be redeemed (at the address last shown on the records of the Corporation for each such holder), notifying such holder of the redemption to be effected on the applicable Series C Redemption Date (as defined below), specifying the number of shares of Series C Preferred Stock to be redeemed from such holder on the applicable Series C Redemption Date (as defined below), the date as of which such redemption shall be (or be deemed to be) effective (any and each such date, the "Series C Redemption Date"), the place at which payment of the Series C Redemption Price for the shares of Series C Preferred Stock to be redeemed on the Series C Redemption Date may be obtained by such holder and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder's certificate or certificates representing the shares of Series C Preferred Stock to be redeemed on the Series C Redemption Date. On or after the Series C Redemption Date, each such holder shall surrender to the Corporation the certificate or certificates representing such shares of Series C Preferred Stock to be redeemed on the Series C Redemption Date as specified in the Series C Redemption Notice, in the manner and at the place designated in the Series C Redemption Notice, and thereupon the Series C Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled. In the event that less than all of the shares of Series C Preferred Stock represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Series C Redemption Date, all rights of the holder or holders of shares of Series C Preferred Stock designated for redemption on such Series C Redemption Date in the Series C Redemption Notice (except the right to receive the applicable Series C Redemption Price for such shares without interest upon surrender of such holder or holders' certificate or certificates representing such shares) shall cease with respect to such shares, such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever, and such shares shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. Notwithstanding any of the foregoing provisions of this Section 4, each holder of shares of Series C Preferred Stock to be redeemed pursuant to a Series C Redemption Notice shall have the right to elect, in lieu of having such shares redeemed as specified in such Series C Redemption Notice, to convert all of such shares into shares of Common Stock pursuant to and in accordance with the provisions of subsection 3(a) and subsection 3(c) of this Article III(F) within fifteen (15) days after the date on which such holder receives such Series C Redemption Notice. In order to exercise this right to make such election, such holder within such fifteen (15) days must surrender the certificate or certificates representing the shares of Series C Preferred Stock to be converted into shares of Common Stock, duly endorsed, at the office of the Corporation or of any transfer agent for the Series C Preferred Stock and give written notice to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.
G. Rights, Preferences, Privileges and Restrictions of Series C-1 Preferred Stock. The rights, preferences, privileges and restrictions granted to and imposed on the Series C-1 Preferred Stock are as set forth below in this Article III(G).
2. Liquidation Preference.
(a) Subject and subordinate to the provisions of Section 2 of Article III(D) hereof (with respect to the liquidation preference of the Series B Preferred Stock) and to the provisionsof Section 2 of Article IIl(E) hereof (with respect to the liquidation preference of the Series B-1 Preferred Stock), in the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Series C l Preferred Stock shall be entitled to receive, pari passu with the holders of Series C Preferred Stock and prior and in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock, Series A Preferred Stock or any other series of Preferred Stock by reason of their ownership thereof, an amount per share equal to $0.40 for each outstanding share of Series C-1 Preferred Stock (the "Original Series C l Issue Price") (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like). If, upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series C Preferred Stock and the Series C-1 Preferred Stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock and the Series C-1 Preferred Stock, in proportion to the amount of such stock owned by each such holder.
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4. Redemption. At any time after the date immediately preceding the first anniversary of the Purchase Date (as defined in subsection 3(d)(i) of this Article III(G)), the Corporation shall have the right, but not the obligation, to the extent that it may lawfully do so, at any time and from time to time to repurchase and redeem from the holder or holders thereof all or any portion of the then-outstanding shares of Series C-1 Preferred Stock for a purchase/redemption price per share equal to $0.40 per share (subject to adjustment of such fixed dollar amount for stock splits, stock dividends, combinations, recapitalizations or the like) in cash or its equivalent (the "Series C-1 Redemption Price"). In order to exercise this right of redemption, at least thirty (30) but no more than sixty (60) days before the applicable Series C-1 Redemption Date (as defined below), the Corporation shall provide written notice that the Corporation is redeeming all or a portion of the then-outstanding shares of Series C-1 Preferred Stock (the "Series C-1 Redemption Notice") by mail, first class postage prepaid, to each holder of record (at the close of business on the business day next preceding the day on which such notice is given) of the then-outstanding shares of Series C-1 Preferred Stock to be redeemed (at the address last shown on the records of the Corporation for each such holder), notifying such holder of the redemption to be effected on the applicable Series C-1 Redemption Date (as defined below), specifying the number of shares of Series C-1 Preferred Stock to be redeemed from such holder on the applicable Series C-1 Redemption Date (as defined below), the date as of which such redemption shall be (or be deemed to be) effective (any and each such date, the "Series C-1 Redemption Date"), the place at which payment of the Series C-1 Redemption Price for the shares of Series C-1 Preferred Stock to be redeemed on the Series C-1 Redemption Date may be obtained by such holder and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, such holder' s certificate or certificates representing the shares of Series C-1 Preferred Stock to be redeemed on the Series C-1 Redemption Date. On or after the Series C-1 Redemption Date, each such holder shall surrender to the Corporation the certificate or certificates representing such shares of Series C-1 Preferred Stock to be redeemed on the Series C-1 Redemption Date as specified in the Series C-1 Redemption Notice, in the manner and at the place designated in the Series C-1 Redemption Notice, and thereupon the Series C-1 Redemption Price for such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be cancelled. In the event that less than all of the shares of Series C-1 Preferred Stock represented by any such surrendered certificate are redeemed, a new certificate shall be issued representing the unredeemed shares. From and after each Series C-1 Redemption Date, all rights of the holder or holders of shares of Series C-1 Preferred Stock designated for redemption on such Series C-1 Redemption Date in the Series C-1 Redemption Notice (except the right to receive the applicable Series C-1 Redemption Price for such shares without interest upon surrender of such holder or holders' certificate or certificates representing such shares) shall cease with respect to such shares, such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever, and such shares shall be cancelled and shall not be issuable by the Corporation. The Articles of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. Notwithstanding any of the foregoing provisions of this Section 4, each holder of shares of Series C-1 Preferred Stock to be redeemed pursuant to a Series C-1 Redemption Notice shall have the right to elect, in lieu of having such shares redeemed as specified in such Series C-1 Redemption Notice, to convert all of such shares into shares of Common Stock pursuant to and in accordance with the provisions of subsection 3(a) and subsection 3(c) of this Article 11l(G) within fifteen (15) days after the date on which such holder receives such Series C-1 Redemption Notice. In order to exercise this right to make such election, such holder within such fifteen (15) days must surrender the certificate or certificates representing the shares of Series C-1 Preferred Stock to be converted into shares of Common Stock, duly endorsed, at the office of the Corporation or of any transfer agent for the Series C-1 Preferred Stock and give written notice to the Corporation at its principal corporate office of the election to convert the same, stating therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.
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Exhibit 10.1
AMENDED CONTRIBUTION AGREEMENT
THIS CONTRIBUTION AGREEMENT, dated as of June 15, 2016, is an amended agreement to the agreement between the parties signed on January 5, 2015, and is by and among Vivakor, Inc., a Nevada corporation (“Vivakor”), and Sustainable Fuels Incorporated., an incorporated entity (“SFI” or “Sustainable Fuels Incorporated”).
WHEREAS, SFI has developed and owns all proprietary rights in and to a petroleum extraction technology suitable to extract petroleum from Tar sands and other sand based ore bodies (the “Extraction Technology”);
WHEREAS, Vivakor and SFI desire to collectively enter into the business of extracting petroleum from Tar Sands using SFI’s Extraction Technology (the “Extraction Business”);
WHEREAS, the parties desire to form a new entity, VivaVentures Energy Group, Inc. (the “Company”), to conduct the Extraction Business and hold the Extraction Technology;
WHEREAS, SFI desires to assign all right, title and interest to the Company and the Company desires to accept, all of their respective rights, titles and interests as of the Extraction Technology and any other assets used in the operation of the Extraction Business (collectively, the “Assets”), as consideration for stock interest in the Company, upon the terms and subject to the conditions set forth in this Agreement; and
WHEREAS, Vivakor desires to contribute the services and stock described below as consideration for stock of the Company, upon the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises, agreements and covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in reliance upon the mutual representations and warranties contained herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Certain Defined Terms.
(a) As used in this Agreement, the following terms shall have the following meanings:
“Affiliate” means with respect to any specified Person, any other Person that directly or indirectly through one or more intermediaries controls, is controlled by or is under common control with such specified Person.
“Agreement” means this Agreement (including all Exhibits and Schedules hereto) as amended, supplemented or modified and in effect from time to time.
“Business Day” means any day that is not a Saturday, a Sunday or other day on which federal banks are required or authorized by law to be closed.
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“Code” means the Internal Revenue Code of 1986, as amended through the date hereof, and the regulations thereunder, published by the IRS rulings, and court decisions in respect thereof, all as the same shall be in effect at the time.
“Enforceable” means, with respect to any contract or other agreement, that such contract or other agreement is the legal, valid and binding obligation of the Person in question, enforceable against such Person in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization or other Legal Requirements affecting creditors’ rights generally and general principles of equity (whether considered in a proceeding at law or in equity).
“Environmental Claims” means any and all actual or potential actions, suits, demands, demand letters, claims, Liens, notices of noncompliance or violation, notices of Liability or potential Liability, investigations, proceedings, consent orders or consent agreements or other obligations pursuant to a Governmental Order or contractual obligation to any Person relating in any way to any Environmental Law or any Permit issued thereunder.
“Family” means, with respect to an individual, (i) the individual, (ii) the individual’s spouse, (iii) any other natural Person who is related to the individual or the individual’s spouse within the second degree and (iv) any other natural Person who resides with such individual.
“Governmental Order” means any order, writ, subpoena, judgment, injunction, decree, stipulation, determination or award entered by or with any Regulatory Authority.
“Indebtedness” means, with respect to any Person, (i) the principal, accreted value, accrued and unpaid interest, prepayment and redemption premium (if any), unpaid fees or expenses and other monetary obligations in respect of (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable, (ii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement, (iii) all obligations of such Person under leases required to be capitalized in accordance with GAAP, (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction, (v) the liquidation value, accrued and unpaid dividends and prepayment or redemption premium (if any), unpaid fees or expenses and other monetary obligations in respect of any redeemable preferred stock of such Person, (vi) all obligations of the type referred to in clauses (i) through (v) of any Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations and (vii) all obligations of the type referred to in clauses (i) through (vi) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person).
“IRS” means the Internal Revenue Service of the United States of America.
“Knowledge” when used in respect of any Person, is determined as follows: (i) an individual is deemed to have “Knowledge” of a particular fact or other matter if that individual is actually aware of that fact or matter; and (ii) a Person other than an individual is deemed to have “Knowledge” of a particular fact or other matter if any individual who is serving or who has at any time served as a director, manager, officer or partner of that Person or owns an equity interest in that Person has, or at any time had, Knowledge of that fact or other matter (as set forth above).
“Legal Requirements” means all statutes, laws, rules, codes, ordinances, regulations, orders, judgments, decrees and Permits of any Regulatory Authority.
“Liability” means any Indebtedness or other liability or obligation, whether accrued or fixed, absolute or contingent, matured or unmatured, known or unknown, or determined or determinable.
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“Lien” means any lien (including the lien of any mortgage or deed of trust, any mechanic’s or materialmen’s liens and any judgment liens), pledge, hypothecation, security interest, encumbrance, lease, sublease, license, occupancy agreement, adverse claim or interest, easement, right-of-way, covenant, encroachment, burden, option, lien, right of first refusal or other similar restriction.
“Material Adverse Effect” means any change or effect on (a) such party or its assets that is materially adverse to the condition (financial or otherwise), results of operations or prospects of such party or such party’s business, (b) the ability of such party to materially perform its obligations under any of the Transaction Documents or (c) the validity or enforceability of the Transaction Documents against any party hereto.
“Material Interest” means direct or indirect beneficial ownership of voting securities or other voting interests representing at least 10% of the outstanding voting power of a Person or equity securities or other equity interests representing at least 10% of the outstanding equity securities or equity interests in a Person.
“Permits” means all licenses, consents, approvals, permits, registrations, certificates and determinations of need and other authorizations, if any, issued by any Regulatory Authority that are required or convenient to operate a party’s Business.
“Permitted Encumbrances” means: (a) Liens imposed by law for Taxes that are not yet due or that are being contested in good faith and for which adequate reserves have been set aside therefore or are secured by a bond; (b) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens imposed by law, arising or incurred in the ordinary course of business consistent with past practice not yet delinquent or the amount or validity of which is being contested in good faith by appropriate proceedings; (c) pledges and deposits made in the ordinary course of business consistent with past practice in compliance with workers’ compensation, unemployment insurance and other social security laws or regulations; (d) cash deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business consistent with past practice; (e) Liens arising solely by virtue of any statutory or common law provisions relating to banker’s Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; (f) easements, rights-of-way, restrictions, defects or other exceptions to title or other similar encumbrances incurred in the ordinary course of business consistent with past practice, which do not detract in any material respect from the value or marketability of the property subject thereto or substantially interfere with the ordinary conduct of business consistent with past practice; (g) Liens arising under the Material Agreements; and (h) Liens arising under the Operating Agreement.
“Person” means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity.
“Regulatory Authority” means all agencies, authorities, bodies, boards, commissions, institutions, instrumentalities, legislatures and offices of any nature whatsoever for any governing unit or political subdivision, whether foreign, federal, state, county, district, municipal, city or otherwise and whether now or hereafter in existence.
“Related Person” means, with respect to (a) a particular individual: (1) each other member of such individual’s Family; (2) any Person that is directly or indirectly controlled by any one or more members of such individual’s Family; (3) any Person in which members of such individual’s Family hold (individually or in the aggregate) a Material Interest; and (4) any Person with respect to which one or more members of such individual’s Family serves as a director, officer, partner, executor or trustee (or in a similar capacity) and (b) a specified Person other than an individual: (1) any Person that directly or indirectly controls, is directly or indirectly controlled by, or is directly or indirectly under common control with, such specified Person; (2) any Person that holds a Material Interest in such specified Person; (3) each Person that serves as a director, officer, partner, executor or trustee of such specified Person (or in a similar capacity); (4) any Person in which such specified Person holds a Material Interest; and (4) any Person which respect to which such specified Person serves as a general partner or trustee (or in a similar capacity).
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“Tax” or “Taxes” means any and all taxes, levies, duties, tariffs, imposts and other similar charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any Regulatory Authority, including taxes on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added or gains taxes for any Person, or imposed on such Person with respect to another Person by contract, as transferee or successor, under U.S. Treasury regulation Section 1.1502-6 or any similar provision of any Legal Requirement.
“Tax Return” means all Tax returns, Tax reports, claims for a refund of Taxes, amended Tax returns and declarations of estimated Tax or other statement relating to Taxes and any schedule or attachments to any of the foregoing filed or maintained or required to be filed or maintained in connection with the calculation, determination, assessment or collection of any Tax, including any amended filings.
“Transaction Documents” means this Agreement and each other instrument, document and agreement to be executed and delivered pursuant hereto.
Section 1.2 Rules of Construction. Unless the context otherwise requires:
(a) References to Articles, Sections, Schedules and Exhibits shall refer to Articles, Sections, Schedules and Exhibits of this Agreement, unless otherwise specified.
(b) The words “herein,” “hereof” and “hereunder” and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement.
(c) References to a “party” means a party to this Agreement and include references to such party’s successors and permitted assigns.
(d) References to a “third party” means a Person not party to this Agreement.
(e) The headings in this Agreement are for convenience and identification only and are not intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
(f) All references to any time during a day refer to prevailing Eastern Time.
(g) An accounting term not otherwise defined has the meaning assigned to it in accordance with, or shall otherwise be interpreted by reference to, GAAP.
(h) References in the singular or to “him,” “her,” “it,” “itself,” or other like references and references in the plural or the feminine or masculine reference, as the case may be, shall also, when the context so requires, be deemed to include the plural or singular or the masculine, feminine or neuter reference, as the case may be.
(i) The word “or” is not exclusive.
(j) With respect to any matter or thing, the terms “including” or “includes” means “including but not limited to” such matter or thing.
(k) Any definition of or reference to any Legal Requirement, agreement, instrument or other document herein shall be construed as referring to such Legal Requirement, agreement, instrument or other document as from time to time amended, supplemented or otherwise modified; and any definition of or reference to any statute shall be construed as referring also to any rules and regulations promulgated thereunder.
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ARTICLE II
FORMATION, NAME, AND PRINCIPLE PLACE OF BUSINESS
Section 2.1 Formation. Vivakor and SFI (the “Parties”) do hereby agree to form the Company to operate the Extraction Business pursuant to the laws of a jurisdiction selected by the Parties in order for the Parties to carry on the purposes for which provision is made herein.
Section 2.2 Additional Documents and Agreements. The Parties shall execute such articles of organization, operating agreements, documents and certificates as may be required by the laws of the jurisdiction selected by the Parties in order for the Company to operate its business and shall do all other acts and things requisite for the continuation of the Company pursuant to applicable law.
Section 2.3 Name. The name and style under which the Company shall be conducted is:
“VIVAVENTURES ENERGY GROUP, INC.”
Section 2.4 Principal Place of Business. The Company shall maintain its principal place of business at such location as the Board of Directors may agree from time to time, which initially shall be Las Vegas, Nevada. The Company may re-locate its office from time to time or have additional offices as the Parties may determine.
Section 2.5 Shares of Common Stock. The Company will have two classes of capital stock, 800,000 shares of common stock the (“Common Stock”) and 200,000 shares of Series A Preferred Stock (the “Preferred Stock”).
Section 2.6 Board of Directors; Officers. The Company shall be managed by a Board of Directors which will consist of five members, of which Four will be appointed by Vivakor or and One of which will be appointed by SFI. The initial officers of the Company shall be Matthew Nicosia as Chief Executive Officer, Dr. Doug Carpenter as Chief Scientist and Tyler Nelson as Secretary.
ARTICLE III
CONTRIBUTIONS OF THE PARTIES
Section 3.1 Contribution of the Sustainable Fuels Incorporated Parties. On the terms and subject to the conditions set forth in this Agreement, the Sustainable Fuels Incorporated Parties will contribute all of their respective rights, titles and interests, legal and equitable, in and to the assets identified below (the “SFI Contribution”) to the Company, its successors and assigns, free and clear of all Liens other than Permitted Encumbrances, per the definitions outlined herein:
(a) All ownership of the Extraction Technology and the Extraction Business; and
(b) All future enhancements, improvements, modifications, supplements or additions to the Extraction Technology.
(c) All rights to causes of action, lawsuits, claims and demands of any nature available to or being pursued by the Sustainable Fuels Incorporated Parties with respect to the Extraction Technology.
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Section 3.2 Contributions of Vivakor, Inc. On the terms and subject to the conditions set forth in this Agreement, Vivakor, Inc. will contribute:
(a) 20,000,000 shares of Series B Preferred Stock of Vivakor;
(b) capital raising efforts and capital to finance the initial business and operations of the Extraction Business. The financial needs of the Company will be agreed by the Parties from time to time and VivaVentures Energy Group, Inc. shall identify prospective sources of capital, including but not limited to Vivakor. The parties acknowledge and agree that Vivakor has contributed $40,745.45 to the Company operation as of the date hereof (Initial Seed Capital) which the Company will reflect on its books accordingly. Vivakor will continue to contribute additional seed capital for preliminary mining activities based on achieving mutually agreed upon milestones.
Section 3.3 Consideration for the Contributions. In consideration for their respective contributions, the Company shall issue the following shares of interest:
(a) Vivakor will be issued Eight Hundred Thousand (800,000) fully paid and non-assessable shares of Common Stock, representing one hundred percent (100%) of the outstanding common stock of the Company on a fully diluted basis, immediately following the Closing;
(b) SFI will be issued 200,000 shares of Company Preferred Stock, which SFI may convert into 20,000,000 shares of Vivakor Series B Preferred Stock. Such conversion may be effectuated only once and for all shares of Common Stock (i.e. no partial conversions). Vivakor Series B Preferred Stock can be converted to Vivakor common stock at any tie commencing three years after the date of this Agreement. The shares of Vivakor common stock received upon any such conversion are subject to certain transfer and sale restrictions. All of the stock issued to SFI will remain in ledger and Corporate Trust until the white paper an successful patents have been filed assigning all technology to Vivakor or it’s assignees. SFI may sell once in any 90-day period a number of shares of Vivakor common stock equal to ten percent of the average trading volume during the ten days prior to the date of proposed. The Vivakor Series B Preferred Stock will be automatically converted into common stock upon a change of control of Vivakor;
(c) SFI shall release all rights to any royalty previously discussed both verbally and in writing, as Vivakor is finishing the project and taking on the responsibility of further development due to the health condition of Dr. Carpenter.
Section 3.4 Company Assumed Obligations. Subject to the following sentence, the Company hereby assumes and agrees to pay, perform and discharge all of the obligations arising from or relating to (i) maintenance of the Extraction Technology, and (ii) other contractual obligations associated with the Extraction Business as may be unanimously agreed by the Parties from and after the Effective Date collectively, the “Assumed Obligations”). Notwithstanding the foregoing, the Company is not assuming any liabilities or obligations arising from or relating to the ownership of the Claims or the operation of the Extraction Business prior to the Closing, including Liability for Taxes (the “Excluded Liabilities”). For the avoidance of doubt, it is understood and agreed that each individual party, respectively, shall retain all liability for, and the Company shall not assume or have any obligation with respect to, any Excluded Liabilities.
Section 3.5 Closing. The closing of the transactions contemplated by this Agreement and the other Transaction Documents (the “Closing”) shall take place at the offices of Vivakor and shall be effective as of January 5, 2015 agree. The date on which the Closing occurs is referred to herein as the “Closing Date”.
Section 3.6 Capital Account and Tax Treatment. For purposes of determining the amount credited to the capital account of SFI, (i) the value of the SFI Contribution will be treated as being equal to $10,000,000, with the Vivakor Series B Preferred Stock issued to the Company pursuant to Section 3.2 will be $0.50 per share.
Section 3.7 Taking of Necessary Action; Further Action. Each of the Parties hereto will take all such reasonable and lawful actions as may be necessary or appropriate in order to effectuate the transactions contemplated hereunder in accordance with this Agreement as promptly as possible.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SFI AND SUSTAINABLE FUELS INCORPORATED
Sustainable Fuels Incorporated makes the following representations and warranties as of the date hereof and as of the Closing Date to the Company:
Section 4.1 Authority; Enforceability.
(a) Sustainable Fuels Incorporated has all requisite power to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and all other Transaction Documents executed or to be executed pursuant to this Agreement and the consummation of the transactions contemplated hereby and thereby, have been authorized by all necessary action. This Agreement and all other Transaction Documents executed or to be executed by SFI pursuant to this Agreement have been, at the time of their respective execution and delivery, duly executed and delivered by SFI.
(b) This Agreement constitutes and, upon execution and delivery by Sustainable Fuels Incorporated, each of the Transaction Documents executed or to be executed by it will constitute, a valid and legally binding obligation of Sustainable Fuels Incorporated, enforceable against it in accordance with their respective terms.
Section 4.2 No Conflict or Violation. The execution and delivery by Sustainable Fuels Incorporated of this Agreement and the consummation of the transactions contemplated hereby do not and will not (a) conflict with or violate any order, judgment or decree of any Regulatory Authority or any Legal Requirement applicable to any of them is a party or (c) violate, conflict with or result in a breach of or constitute a default (or event that with the giving of notice or lapse of time or both, would become a default) under or give others any rights of termination, amendment, acceleration or cancellation of or result in the creation of any Lien on any of the assets or properties of any either of them pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or instrument to which either of them is a party or to which any of the Assets are subject or affected.
Section 4.3 Consents and Approvals. Neither the execution nor delivery of this Agreement by either of them nor the consummation of the transactions contemplated hereby requires any consent, waiver, approval, license, authorization or Permit of or filing with or notification to, any Person.
Section 4.4 Title to Personal Property Assets; Assets Sufficient for Extraction Business.
(a) Sustainable Fuels Incorporated has good and marketable title to all tangible and intangible personal property included in the Assets, free and clear of all Liens except for Permitted Encumbrances, including but not limited to the Extraction Technology.
(b) The Assets constitute all of the assets, tangible and intangible, of any nature whatsoever (other than the Excluded Assets) necessary to operate the Extraction Business.
Section 4.5 Absence of Litigation. There are no claims, actions, proceedings or investigations pending, or, to the Knowledge of Sustainable Fuels Incorporated, threatened against the Extraction Technology, the Extraction Business or any of the Assets, and in the past five years there have been no claims, actions, proceedings or investigations against either Sustainable Fuels Incorporated, the Extraction Business, or the Acquired Assets, and neither of them nor any of the Assets are subject to any order, writ, judgment, injunction, decree, determination or award that have not already been disclosed to them, respectively. Neither Sustainable Fuels Incorporated knows of any basis for any action, proceeding or investigation by any Regulatory Authority relating the Assets or the Extraction Technology that has not been disclosed to them.
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Section 4.6 Intellectual Property Assets.
(a) As used in this Agreement, the term “Intellectual Property Assets” means each of the following relating to or in connection with the Extraction Technology: (i) all fictitious business names and trade names, all registered and unregistered trademarks and service marks, and all trademark and service mark applications (collectively, “Marks”), (ii) all issued patents and reissues, divisions, continuations, and extensions of such patents, patents pending and applications for patents, patent disclosures docketed, and inventions and discoveries whether patentable or unpatentable (collectively, “Patents”), (iii) all copyrights in both published and unpublished works of authorship whether or not registered (collectively, “Copyrights”), and (iv) all know-how, trade secrets, confidential information, customer and supplier lists, software, technical information, data, database process technology, proprietary formulae, business and marketing plans, drawings, and blue prints (collectively, “Trade Secrets”); in each case owned, used or licensed by the contributing Parties of this agreement.
(b) The Extraction Technology does not have any Intellectual Property Assets, or any license or other contract or agreement relating thereto (including agreements with current or former employees, consultants or contractors pertaining to Marks, Patents and Copyrights).
(c) Sustainable Fuels Incorporated is the sole owners of or, to its Knowledge, possesses an adequate license or has the right to use without consideration, each Intellectual Property Asset necessary to conduct the Extraction Business, free and clear of all assignments, licenses, restrictions, Liens, charges or claims for infringement, and no such Intellectual Property Asset is subject to any outstanding order, decree, judgment, stipulation or charge. The Intellectual Property Assets are sufficient for the conduct of the Extraction Business as contemplated by the Parties. The rights of Sustainable Fuels Incorporated to the Intellectual Property Assets shall not be limited or otherwise affected by reason of the consummation of the transactions contemplated by this Agreement, whom shall maintain ownership and control of the Intellectual Property Assets, but give indefinite usage to the Company under the provisions of this Agreement.
(d) None of the Intellectual Property Assets are subject to any maintenance fees or Taxes or actions due within 90 calendar days after the Closing. To the Knowledge of Sustainable Fuels Incorporated, no Mark, Patent or Copyright owned or used by either of them has been infringed or challenged or threatened in any way. No Intellectual Property Asset is involved in any interference, reissue, reexamination, opposition, invalidation or cancellation proceeding and, to their Knowledge, no such proceeding is threatened. To their Knowledge, the use of the Intellectual Property Assets by them does not conflict with, infringe upon, violate or interfere with or constitute an appropriation of any right, title, interest or goodwill in any intellectual property asset of any other Person and in the past five years there have been no claims made, and neither of them has received, any notice of any claim or otherwise knows that any of the Intellectual Property Assets is invalid or conflicts with the asserted rights of any other Person.
Section 4.7 Material Contracts.
(a) If applicable, set forth on Exhibit D is a true, correct and complete listing of the following contracts or agreements to which Sustainable Fuels Incorporated is a party (each, a “Material Contract”) that relates to the Claims or the Extraction Technology.
(b) Sustainable Fuels Incorporated has delivered to the Company true and complete copies of all Material Contracts and neither of them is (and, to their Knowledge, no other party is) in breach of, in violation of or default under, any of the Material Contracts.
Section 4.8 Brokers. No broker, finder or investment banker is entitled to any brokerage, finders’ or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of SFI and Sustainable Fuels Incorporated.
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Section 4.9 Compliance with Laws; Permits; Licenses.
(a) Sustainable Fuels Incorporated is not, and has not been at any time in the past five years, in violation of any Legal Requirement or Governmental Order applicable to them or their business or by which any of the Assets is bound.
(b) If applicable, a list of each Permit that is held by SFI will be contained herein, and constitute all of the Permits that are required to be obtained to conduct them or the Extraction Business as contemplated to be conducted. All of such Permits are valid and in full force and effect and, to their Knowledge, they are currently and have been during the last three years, operating in compliance therewith. Neither of them has received any notice of any violation of any Permits and none of them has any Knowledge of any pending or threatened notice of violation or any event, occurrence or condition that exists or upon consummation of the transactions contemplated by this Agreement will exist that with the giving of notice or the lapse of time or both would give rise to a material default thereunder.
(c) There are no investigations, proceedings or sanctions pending or, to the Knowledge of Sustainable Fuels Incorporated, threatened before any Regulatory Authority that seek to limit, restrict, suspend, revoke or terminate any Permits or to impose any other remedy with respect to such licensure, and to their Knowledge no grounds exist for such limitation, restriction, suspension, revocation or termination.
Section 4.10 Books and Records. The books and records relating to the Claims and the Extraction Technology have been made available to the Company and set forth in all respects all material transactions affecting the Claims, the Extraction Technology and the Extraction Business, including all material items of income and expense, and such books and records are complete and correct and do not contain or reflect any material inaccuracies or discrepancies and have been properly kept and maintained in a manner consistent with sound business practices.
Section 4.11 Investment Representations.
(a) Sustainable Fuels Incorporated is acquiring the Shares for investment purposes only, solely for its own account and not with a view to the sale or other distribution thereof, and has no contract, understanding, agreement or arrangement with any Person to transfer any of the Shares, and neither of them has any present intention to enter into any such contract, understanding, agreement or arrangement, notwithstanding Sustainable Fuels Incorporated's sole right and initiative to sell, distribute, or assign to individuals or entities that hold an operational role within or for Sustainable Fuels Incorporated, or are defined as a beneficiary to Sustainable Fuels Incorporated members upon death or disability of any Sustainable Fuels Incorporated member.
(b) Sustainable Fuels Incorporated acknowledges that the Shares have not been registered under the Securities Act or any applicable state securities laws and, therefore, cannot be sold unless subsequently registered under the Securities Act and any applicable state securities laws or an exemption from such registration is available and that there are substantial restrictions on the transferability of the Shares under the Operating Agreement and that transfers of the Shares may be further restricted by applicable state securities laws, notwithstanding the provisions of Section 4.11.a. of this Agreement, which said exemptions and privileges shall gain the same right as the Parties under sections 3.2 and 3.4 of this Agreement. Sustainable Fuels Incorporated acknowledges that the availability of the exemptions relied upon by the Company in issuing the Shares to them are dependent upon the truth of their representations and warranties in this Agreement, and as set forth herein. Accordingly, it may be necessary for the Parties to submit a breakdown of the distribution and intent of assignment of said membership shares by the Closing date.
Section 4.12 Full Disclosure. No representation or warranty of Sustainable Fuels Incorporated in this Agreement contains any untrue statement of material fact or omits or will omit to state a material fact that is necessary to make the statements contained herein and therein not misleading.
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Section 4.13 Governmental Authorizations. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority is required on the part of Sustainable Fuels Incorporated or any of their respective affiliates in connection with the execution, delivery and performance by them of this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF VIVAKOR AND THE COMPANY
Each of Vivakor and the Company make the following representations and warranties as of the date hereof and as of the Closing Date to Sustainable Fuels Incorporated:
Section 5.1 Organization. Vivakor is a corporation, duly organized, validly existing and in good standing under the laws of the State of Nevada and has the requisite corporate power and authority to own or lease the properties and assets now owned or leased by it.
Section 5.2 Authority. Vivakor has the requisite power to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and all other Transaction Documents executed or to be executed by Vivakor or the Company pursuant to this Agreement and the consummation by Vivakor and the Company of the transactions contemplated hereby and thereby have been duly authorized. This Agreement and all other Transaction Documents executed or to be executed by Vivakor or the Company pursuant to this Agreement have been, at the time of their respective execution and delivery, duly executed and delivered by Vivakor and the Company. This Agreement constitutes and, upon execution and delivery by Vivakor and the Company, each of the Transaction Documents executed or to be executed by Vivakor the Company will constitute, a valid and binding obligation of Vivakor and the Company, Enforceable against Vivakor and the Company in accordance with its terms.
Section 5.3 No Conflict. The execution and delivery by Vivakor of this Agreement and the consummation of the transactions contemplated hereby do not and will not (i) violate or conflict with any provision of its certificate of formation, (ii) conflict with or violate any order, judgment or decree of any Regulatory Authority or any Legal Requirement applicable to Vivakor or (iii) violate, conflict with or result in a breach of or constitute a default (or an event that with the giving of notice or lapse of time or both, would become a default) under or give others any rights of termination, amendment, acceleration or cancellation of or result in the creation of any Lien on any of the assets or properties of Vivakor pursuant to any note, bond, mortgage, indenture, contract, agreement, lease, license, permit, franchise or instrument to which Vivakor is a party.
Section 5.4 Consents, Waivers and Approvals. Neither the execution and delivery of this Agreement by Vivakor nor the consummation of the transactions contemplated hereby by Vivakor or the Company require any consent, waiver, approval, license, authorization or Permit or filing with or notification to any Person.
Section 5.5 Absence of Litigation. There are no claims, actions, proceedings or investigations pending or, to the Knowledge of Vivakor, threatened against Vivakor; and, nor is Vivakor subject to any order, writ, judgment, injunction, decree, determination or award. Nor does Vivakor know of any basis for any action proceeding or investigation by any Regulatory Authority relating to Vivakor.
Section 5.6 Company Common Stock and Preferred Stock. Upon delivery of the Company Preferred Stock to Sustainable Fuels Incorporated and the Company Common Stock to Vivakor pursuant to and in accordance with the terms of this Agreement, each of them will acquire record and beneficial title to such shares free and clear of all Liens other than Permitted Encumbrances.
Section 5.7 Brokers. No broker, finder or investment banker is entitled to any brokerage, finders’ or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Vivakor.
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Section 5.8 Compliance with Laws; Permits; Licenses. Vivakor is not, and has not been at any time in the past three years, in violation of any Legal Requirement or Governmental Order applicable to its business.
Section 5.9 Books and Records. The books and records of Vivakor were made available to Sustainable Fuels Incorporated set forth in all respects all material transactions affecting VivaVentures Energy Group, Inc. or the Business, including all material items of income and expense, and such books and records are complete and correct and do not contain or reflect any material inaccuracies or discrepancies and have been properly kept and maintained in a manner consistent with sound business practices.
Section 5.10 Full Disclosure. No representation or warranty of Vivakor in this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact that is necessary to make the statements contained herein and therein not misleading.
Section 5.11 Governmental Authorizations. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority is required on the part of any of Vivakor or any of its respective affiliates in connection with the execution, delivery and performance by Vivakor of this Agreement.
ARTICLE VI
COVENANTS
Section 6.1 Conduct of Company Business After the Closing Date. Unless the Parties otherwise agrees in writing:
(a) Vivakor will contribute to the Company such amounts as SFI and Vivakor mutually agree are necessary to conduct the operation of the Business in the form of a loan;
(b) Each contribution will be evidenced by a Promissory Note; and
(c) All distribution or earnings or profits of the Company will be made in accordance with Section 6.2.
Section 6.2 Company Distributions. All dividends and distributions of Company earnings shall be made as follows (“Company Distributions”);
(a) First, twenty percent (20%) of all Company Distributions shall be paid to Vivakor or other lenders until the loan amount has been reduced to zero; and
(b) Second, after all Company expenses, reserves and capital expenditures, the distributions shall be made to the shareholders of the Company in proportion to their respective ownership of shares.
Section 6.3 Confidentiality. Unless expressly consented to in writing by the other parties, no party shall nor shall any such party permit any of its Affiliates, agents, representatives and employees to, directly or indirectly, disclose to any other Person, any trade secret, financial data, customer list, pricing or marketing policies or plans or other proprietary or confidential information relating to the other party, each of the parties’ Businesses, the Assets or the Assumed Obligations, except for such disclosures as may be required to comply with any Legal Requirement or Governmental Order. No party hereto nor its Affiliates shall disclose to any third party the financial terms of this Agreement, except for disclosures to their respective advisors, representatives or lenders, each of whom shall agree to keep such information confidential or disclosures as may be required to comply with any Legal Requirement or Governmental Order.
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Section 6.4 Regulatory and Other Authorizations, Consents.
(a) Each party hereto shall use its commercially reasonable efforts to obtain all approvals, certifications, waivers, authorizations, consents, orders and approvals of all third parties, Regulatory Authorities and officials that may be or become necessary for its execution and delivery of, and the performance of its obligations pursuant to, this Agreement and will cooperate fully with the other parties hereto in promptly seeking to obtain all such approvals, certifications, waivers, authorizations, consents, orders and approvals (collectively, the “Approvals”).
(b) Upon the request of any party, the other party(ies) shall provide to such requesting party such reasonably requested information, reports, documentation, signatures and testimony that may be required in connection with obtaining any of the Approvals referenced herein.
Section 6.5 Public Announcements. The parties hereto will consult with each other before issuing any press releases or otherwise making any public statements with respect to this Agreement and the transactions contemplated hereby and shall not issue any such press release or make any such public statement prior to the Closing without the prior written consent of the other, except that such approval shall not be required for a public statement to the extent any party is advised by its legal counsel that such disclosure is required pursuant to any Legal Requirement or Governmental Order.
Section 6.6 Transfer Taxes; Fees and Expenses. All transfer, documentary, sales, use, value-added, stamp and registration Taxes, all conveyance fees, recording fees, deed stamps, deed excise, mortgage or deed of trust recording, assignment or intangible Taxes and all other such Taxes and fees (including any penalties and interest) incurred by Vivakor, the Company, Sustainable Fuels Incorporated in connection with any of the Asset transfer, Assumed Obligations assumptions and Shares issuance transactions under this Agreement shall be borne by the Company.
ARTICLE VII
CONDITIONS TO CLOSING
Section 7.1 Conditions to Obligations of Sustainable Fuels Incorporated. The obligations of Sustainable Fuels Incorporated to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or waiver, at or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) All of the representations and warranties Vivakor contained in this Agreement (considered collectively), and each of the representations and warranties (considered individually), shall be true and correct as of the date of this Agreement and shall be true and correct in all material respects (except such representations as are qualified by materiality which shall be true and correct in all respects) as of the Closing Date; and (ii) all of the covenants and agreements contained in this Agreement to be complied with by Vivakor at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually) shall have been complied with in all material respects.
(b) No Order or Proceedings. No Regulatory Authority shall have enacted, issued, promulgated, enforced, entered, proposed or introduced any Legal Requirement or Governmental Order, and there shall have not commenced any legal proceeding or any threatened proceeding, that has, or would have, the effect of making the transactions contemplated by this Agreement illegal or otherwise restraining or prohibiting the consummation of such transactions.
(c) Deliveries. Vivakor and the Company shall have delivered to Sustainable Fuels Incorporated each of the following:
(i) a certificate or certificates representing the Company Series A Preferred Stock; request;
(ii) a proprietary rights agreement in such form as the Company may
(iii) the Bylaws duly executed by the Parties; and
(iv) such other documents as they may reasonable requested in connection with the transactions contemplated by this Agreement.
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(d) Consents. If applicable, all consents, authorizations or approvals will be referred to on Schedule 4.4, in each case in form and substance reasonable satisfactory to Sustainable Fuels Incorporated, shall have been obtained and no such consent, authorization, approval or arrangement shall have been revoked.
Section 7.2 Conditions to Obligations of SFI and Vivakor. The obligations of Vivakor to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment or waiver, at or prior to the Closing, of each of the following conditions:
(a) Representations and Warranties; Covenants. (i) All of the representations and warranties of SFI and Vivakor contained in this Agreement (considered collectively), and each of the representations and warranties (considered individually), shall be true and correct as of the date of this Agreement and shall be true and correct in all material respects (except such representations as are qualified by materiality, which shall be true and correct in all respects) as of the Closing Date; and (ii) all of the covenants and agreements contained in this Agreement to be complied with by either of them at or prior to the Closing (considered collectively), and each of these covenants and obligations (considered individually), shall have been complied with in all material respects.
(b) No Order or Proceedings. No Regulatory Authority shall have enacted, issued, promulgated, enforced, entered, proposed or introduced any Legal Requirement or Governmental Order, and there shall not have commenced any legal proceeding or any threatened proceeding, that has, or would have, the effect of making the transactions contemplated by this Agreement illegal or otherwise restraining or prohibiting the consummation of such transactions.
(c) Deliveries. SFI shall have delivered to the Company each of the following:
(i) an Assignment, Assumption and Bill of Sale, duly executed by SFI;
(ii) such documents and instruments as may be necessary to acknowledge indefinite usage of the Extraction Technology to the Company;
(iii) any forms required to comply with IRS reporting requirements;
(iv) a white paper from SFI regarding the technology and all lab books used to develop said technology;
(v) Patent assignment form assigning all rights and ownership to Vivakor; SFI;
(vi) a non-competition and non-solicitation agreement, duly executed by
(vii) such other documents as Vivakor or VivaVentures Energy Group, Inc. may reasonably request in connection with the transactions contemplated by this Agreement.
ARTICLE VIII
TERMINATION AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by the mutual written consent of the parties hereto;
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(b) by any of Sustainable Fuels Incorporated on the one hand or Vivakor on the other if any Regulatory Authority with jurisdiction over such matters shall have issued a Governmental Order restraining, enjoining or otherwise prohibiting the transactions contemplated hereby;
(c) by Sustainable Fuels Incorporated in the event of a material breach by Vivakor of any representation, warranty or covenant contained herein that has not been cured with 15 Business Days of receipt of written notice from them or is not capable of being cured by the Closing Date; or
(d) by Vivakor in the event of a material breach by Sustainable Fuels Incorporated of any representation, warranty or covenant contained herein that has not been cured with 15 Business Days of receipt of written notice from or is not capable of being cured by the Closing Date.
Section 8.2 Effect of Termination and Right to Proceed. In the event that this Agreement shall be terminated pursuant to Section 8.1, all further obligations of the parties under this Agreement shall terminate without further Liability on the part of any party (except as provided below). Notwithstanding anything contained herein to the contrary, included but not limited to, (a) no termination of this Agreement pursuant to Section 8.1 shall relieve a party for Liability as a result of such party’s breach of any representation, warranty or covenant set forth in this Agreement or any duty or obligation relating hereto prior to such termination and (b) such termination shall not constitute an election of remedies and the other parties may pursue whatever legal rights and remedies it may have at law or in equity against such party by reason of such breach or non-fulfillment. Any and all royalties paid to Sustainable Fuels Incorporated shall be deemed non- collectable and Sustainable Fuels will return the Vivakor Preferred Series B Stock to Vivakor.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Survival. All representations and warranties of the parties contained in this Agreement shall survive the Closing for a period of two (2) years. Notwithstanding the first sentence of this Section 9.1, any expiration of the survival period pursuant to such sentence shall not terminate or limit in any manner whatsoever any Damages any party has or may have for (i) fraud or (ii) knowing and intentional misrepresentations and knowing and intentional breaches of any provision of this Agreement. Notwithstanding the above provisions of this paragraph, any covenant, agreement, representation or warranty in respect of which indemnity may be sought under Section 9.2 shall survive the time at which it would otherwise terminate pursuant to the above provisions if notice of the inaccuracy or breach thereof giving rise to such right to indemnity shall have been given to the party against whom such indemnity may be sought prior to such time and then only with respect to the claim specified in such notice.
Section 9.2 Indemnification.
(a) Subject to the provisions of this Article IX, Sustainable Fuels Incorporated, jointly and severally, hereby indemnify Vivakor and the Company (including their officers, directors, employees, Related Persons and agents) from and agree to hold Vivakor and the Company harmless against any and all losses, Liabilities, claims, damages and out-of-pocket expenses (including reasonable legal expenses) (“Damages”) that Vivakor and the Company may suffer or incur insofar as such Damages arise out of or are based upon (i) any Liabilities of either or both of them other than the Assumed Obligations, (ii) the inaccuracy of any representation or warranty (or a third party claim that, if valid, would constitute an inaccuracy of any representation or warranty) or (iii) a breach of any covenant or agreement made or to be performed by any of them; provided that Vivakor or the Company shall give Sustainable Fuels Incorporated written notice in respect of such claim for Damages (“Claim”) and if any such Claim shall have been made in writing by Vivakor or the Company prior to the termination of the applicable indemnification obligation, such termination shall not affect the indemnification obligation in respect of the particular matter as to which such Claim was made. It is expressly understood and agreed that the limitations on indemnification set forth in this Article IX shall not apply to any claim arising out of or based on fraud, knowing and intentional misrepresentations or knowing and intentional breaches.
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(b) Subject to the provisions of this Article IX, effective as of the Closing, Vivakor and the Company hereby indemnifies Sustainable Fuels Incorporated (including each of their respective officers, directors, employees, Related Persons and agents) from and agrees to hold them harmless against any and all Damages that any of them may suffer or incur insofar as such Damages arise out of or are based upon the inaccuracy of any representation or warranty (or a third party claim that if valid, would constitute an inaccuracy of any representation or warranty) or a breach of any covenant or agreement made or to be performed by Vivakor or the Company; provided that they shall give Vivakor and the Company written notice in respect of such Claim and if any such Claim shall have been made in writing by Sustainable Fuels Incorporated prior to the termination of the applicable indemnification obligation, such termination shall not affect the indemnification obligation in respect of the particular matter as to which such Claim was made. It is expressly understood and agreed that the limitations on indemnification set forth in this Article I X shall not apply to any claim arising out of or based on fraud, knowing and intentional misrepresentations or knowing and intentional breaches.
Section 9.3 Procedure for Indemnification. The respective indemnification obligations of Sustainable Fuels Incorporated on the one hand and Vivakor and the Company on the other pursuant to Section 9.2 shall be conditioned upon compliance by Sustainable Fuels Incorporated on the one hand and Vivakor and the Company on the other with the following procedures for Claims:
(a) The party seeking indemnification under Section 8.2 (the “Aggrieved Party”) agrees to give notice in writing to the party(ies) from whom indemnity is sought (the “Indemnifying Party”) of the assertion of any Claim or the commencement of any suit, action or proceeding in respect thereof for which indemnity may be sought under Section 9.2. The Indemnifying Party may participate in and control the defense of any third party suit, action or proceeding at its own expense, provided that the Indemnifying Party agrees in writing to be responsible for the full amount of the Aggrieved Party’s Damages attributable to such suit, action or proceeding. Except as otherwise provided in Section 9.3(b), the Aggrieved Party shall not settle any Claim in respect of which indemnity may be sought hereunder without the consent of the Indemnifying Party.
(b) If the Indemnifying Party assumes the defense of any such Claim or action or proceeding in respect thereof, (i) it shall take all steps necessary in the defense or settlement thereof and shall hold the Aggrieved Party harmless from and against any and all Damages caused by or arising out of any settlement approved by the Indemnifying Party or any judgment rendered in connection with such Claim, action or proceeding and (ii) the Aggrieved Party agrees to cooperate and make available to the Indemnifying Party all books and records and such officers, employees and agents as are reasonably necessary and useful in connection with the defense. The Indemnifying Party shall not, in the defense of such claim, action or proceeding, consent to the entry of any judgment or enter into any settlement, except, in either event, with the prior consent of the Aggrieved Party unless the judgment or settlement (w) does not provide for any remedy against the Aggrieved Party other than the payment of money, (x) the Indemnifying Party promptly pays all amounts required thereunder, (y) includes as an unconditional term thereof the giving by the claimant or the plaintiff to the Aggrieved Party of a release from all Liability in respect of such claim or litigation and (z) such judgment or settlement could not be the basis of any claim or action by any third party (whether governmental or otherwise). If the Indemnifying Party assumes the defense of any such Claim or action or proceeding in respect thereof, the Aggrieved Party will have the right to participate in such litigation and to retain its own counsel at such Aggrieved Party’s own expense.
(c) If the Indemnifying Party does not assume the defense of any such Claim, action or proceeding, the Indemnifying Party agrees to (i) cooperate and make available to the Aggrieved Party (A) all such books and records that are in the possession or control of the Indemnifying Party and (B) such officers, employees and agents of the Indemnifying Party that are reasonably necessary and useful in connection with the defense and (ii) promptly grant consent to any reasonable settlement.
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ARTICLE X
MISCELLANEOUS
Section 10.1 No Third-Party Beneficiaries. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any Person other than the parties hereto and their respective heirs, permitted successors, permitted assigns or legal representatives any legal or equitable right, remedy or claim in respect of this Agreement or any provision herein contained, except to the extent expressly provided in this Agreement.
Section 10.2 Amendment; Waiver.
(a) This Agreement may not be amended, modified, supplemented or restated, nor may any provision of this Agreement be waived, other than through a written instrument adopted, executed and agreed to by the parties hereto.
(b) A waiver or consent, express or implied, to or of any breach or default by any party hereto in the performance by such party of its obligations hereunder is not a consent or waiver to or of any other breach or default in the performance by such party of the same or any other obligations of such party hereunder. Failure on the part of any party hereto to complain of any act of any other party hereto or to declare any other party hereto in default hereunder, irrespective of how long that failure continues, does not constitute a waiver by such party of its rights with respect to that default until the applicable statute-of-limitations period has run.
Section 10.3 Further Assurances. In connection with this Agreement and the transactions contemplated hereby, each party hereto shall execute and deliver all such future instruments and take such further action as may be reasonably necessary or appropriate to carry out the provisions of this Agreement and the intention of the parties as expressed herein. Without limiting the foregoing, if any of the Assets is not assignable, or if the Company is not vested with good title to any of the Assets, for any reason, the parties hereto shall cooperate with each other in any reasonable and lawful arrangements designed to provide the Company with the benefits and burdens of such Asset (or any right, benefit, obligation or duty arising thereunder, including the enforcement for the benefit of the Company of any and all rights of Sustainable Fuels Incorporated against a third party thereunder), notwithstanding the provisions of this agreement as otherwise delineated.
Section 10.4 Notices.
(a) All notices, requests or consents provided for or required to be given hereunder shall be in writing and shall be deemed to be duly given if personally delivered or mailed by certified mail, return receipt requested, or nationally recognized overnight delivery service with proof of receipt maintained, at the following addresses (or any other address that any such party may designate by written notice to the other parties):
| (i) | if to Sustainable Fuels Incorporated Parties, to the following address: | |
| Sustainable Fuels Incorporated, LLC | ||
| 10124 Marchant Ave. | ||
| Tustin, CA 92872-1450 | ||
| Tel: 714-742-6131 | ||
| Fax: | ||
| 16 |
| (ii) | if to Vivakor or the Company, to the following address: | |
| Vivakor and VivaVentures Energy Group, Inc. | ||
| 7700 Irvine Center Dr. | ||
| Irvine, CA 92618 | ||
| Tel:949-887-6890 | ||
| Fax: | ||
| with a copy (which shall not constitute notice) to: | ||
| Wilson & Oskam, LLP | ||
| 9110 Irvine Center Drive | ||
| Irvine, CA 92618 | ||
| Attention: Christopher Wilson, Esq. | ||
| Tel: (949) 752-1100 ext. 302 | ||
| Fax: (949) 752-1144 |
Any such notice shall, if delivered personally, be deemed received upon delivery; shall, if delivered by certified mail, be deemed received upon the earlier of actual receipt thereof or five Business Days after the date of deposit in the United States mail, as the case may be; and shall, if delivered by nationally recognized overnight delivery service, be deemed received the first Business Day after the date of deposit with the delivery service.
(b) Whenever any notice is required to be given by any Legal Requirement or this Agreement, a written waiver thereof, signed by the party entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice.
Section 10.5 Specific Performance. Each party acknowledges that the other parties would be irreparably damaged if any of the provisions of this Agreement are not performed in accordance with their specific terms, and that any MATERIAL breach of this Agreement by such party could not be adequately compensated in all cases by monetary damages alone. Therefore, to assure the other parties that they will obtain the bargained-for benefits of this Agreement, such party, in addition to any other right or remedy to which it may be entitled, shall also be entitled to obtain injunctive relief, including a decree of specific performance, and to obtain temporary, preliminary and permanent injunctive relief to enforce the provisions of this Agreement, without posting any bond or other undertaking and without the necessity of proving actual damages, except to the extent required by any court of competent jurisdiction.
Section 10.6 Entire Agreement; Supersedure. This Agreement, the other Transaction Documents and any other writings referred to herein or delivered pursuant hereto, constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and supersedes all prior contracts, agreements and understandings, whether oral or written, among the parties with respect to the subject matter hereof.
| 17 |
Section 10.7 Governing Law; Venue.
(a) THIS AGREEMENT IS GOVERNED BY AND SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF SUCH STATE.
(b) The parties hereto hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of Nevada and the federal courts of the United States of America located in Nevada, and appropriate appellate courts therefrom, over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby, and each party hereby irrevocably agrees that all claims in respect of such dispute or proceeding may be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable Law, any objection that they may now or hereafter have to the laying of venue of any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by Law. This consent to jurisdiction is being given solely for purposes of this Agreement and is not intended to, and shall not, confer consent to jurisdiction with respect to any other dispute in which a party to this Agreement may become involved. Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding of the nature specified in this subsection (b) by the mailing of a copy thereof in the manner specified by the provisions of Section 10.4. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
Section 10.8 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future Legal Requirements effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and enforceable.
Section 10.9 Waiver of Punitive and Exemplary Damage Claims. EACH PARTY, BY EXECUTING THIS AGREEMENT, WAIVES, TO THE FULLEST EXTENT ALLOWED BY LAW, ANY CLAIMS TO RECOVER PUNITIVE, EXEMPLARY OR SIMILAR DAMAGES NOT MEASURED BY THE PREVAILING PARTY’S ACTUAL DAMAGES IN ANY DISPUTE OR CONTROVERSY ARISING UNDER, RELATING TO OR IN CONNECTION WITH THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO, ANY ARBITRATION PROCEEDING.
Section 10.10 Fees and Expenses. Except as otherwise expressly provided in this Agreement, all fees and expenses incurred in connection with this Agreement and the transactions contemplated herein, shall be paid by the party incurring such expense; provided, however, that in any action or proceeding brought by one party hereto against the other party(ies) hereto in connection with this Agreement, the reasonable, documented out-of-pocket fees and expenses (including without limitation reasonable attorneys’ fees) of the prevailing party in such action or proceeding shall be paid by the losing party.
Section 10.11 Headings. The descriptive headings used herein are inserted for convenience of reference only, do not constitute a part of this Agreement, and shall not affect in any manner the meaning or interpretation of this Agreement.
Section 10.12 Counterparts. This Agreement may be executed in any number of counterparts (including facsimile counterparts), all of which together shall constitute a single instrument.
| 18 |
SIGNATURE PAGE TO CONTRIBUTION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date first written above.
| VIVAKOR, INC. | |||
| /s/ Matthew Nicosia | |||
| Title: | CEO | ||
| SUSTAINABLE FUELS INCORPORATED | |||
| By: | /s/ Ray D. Carpenter | ||
| Title: | President | ||
| 19 |
Exhibit 10.2
 |
PROJECT CHARTER |
Project Charter
For VIVAVENTURES WMS Process Water Recovery
April 9, 2020
| 1 |
Document Control
Document Information
| Information | |
| Document ID | WMS Water Recovery |
| Document Owner | Allan Mahoney |
| Issue Date | April 2nd, 2020 |
| Last Saved Date | April 2nd, 2020 |
| File Name | WMS 202 Charter |
Document History
| Version | Issue Date | Changes |
| [1.0] | April 2nd, 2020 | New issue |
Document Approvals
| Role | Name | Signature | Date |
| Project Sponsor | Chris Tesarski | ||
| Project Review Group | Chris Tesarski Audrey Tesarski | ||
| Project Manager | Allan Mahoney | ||
| Quality Manager | Pending | ||
| Procurement Manager | |||
| Communications Manager |
| 2 |
Table of Contents
| 1 | EXECUTIVE SUMMARY | 4 | |
| 2 | PROJECT DEFINITION | 4 | |
| 2.1 | HIGH LEVEL VISION | 4 | |
| 2.2 | OBJECTIVES | 4 | |
| 2.3 | OVERVIEW OF SCOPE | 5 | |
| 2.4 | PROCUREMENT ITEMS | 5 | |
| 2.5 | CALCULATION OF MATERIAL – PRODUCED WATER PROCESSING (FIELD FORMS) | 5 | |
| 3 | RESPONSIBILITIES | 5 | |
| 3.1 | SOLVAQUA | 5 | |
| 3.2 | CLIENT/REPRESENTATIVE | 5 | |
| 4 | PERFORMANCE | 6 | |
| 4.1 | SERVICE EXECUTION PERFORMANCE CRITERIA | 6 | |
| 4.2 | REVIEW PROCESS | 6 | |
| 4.3 | MAJOR DELIVERABLES | 6 | |
| 5 | PROJECT ORGANIZATION | 6 | |
| 5.1 | CUSTOMER | 6 | |
| 5.2 | KEY STAKEHOLDERS | 6 | |
| 5.3 | IDENTIFY KEY INTERNAL STAKEHOLDERS | 7 | |
| 6 | EQUIPMENT SPECIFICATIONS | 7 | |
| 6.1 | FODDER WMS SYSTEM DESCRIPTION AND FEATURES | 7 | |
| 7 | PROJECT CONSIDERATIONS | 8 | |
| 7.1 | KEY ASSUMPTIONS | 8 | |
| 7.2 | EQUIPMENT AND CHEMICAL PROVIDED | 9 | |
| 7.3 | ASSUMPTIONS | 9 | |
| 8 | APPENDIX | 9 | |
| 8.1 | SUPPORTING DOCUMENTATION | 9 | |
| 3 |
| 1 | Executive Summary |
It is estimated that well over 80 per cent of wastewater worldwide (over 95 per cent in some developing countries) is released into the environment without treatment (UNESCO, 2017, p. 10). A United-Nations backed study showed that annual treated wastewater in North America roughly equates to the volume of Niagara Falls; less than 4 percent is reused (Collins, 2013, para. 1).
The market for water and wastewater treatment technologies is likely to grow at a compound annual growth rate of 9% during the forecast period 2019 - 2024. One of the major driving factors of the market is the rapidly diminishing freshwater resources across the globe. However, lack of awareness on appropriate usage of water treatment techniques is likely to restrain the market ("Wastewater Growth Trends," 2019, para. 1). The demand for innovative treatments to enable reuse of water is on the rise as operators and municipalities seek the most cost-effective strategies to handle the increasing volumes of oily and organic wastewater and the effective recovery from a release of hydrocarbons to a waterway. It is sometimes the case where the most cost-effective strategy in the short-term is not always the most cost effective long-term. SOLVAQUA supports organizations in their short and long-term waste reduction goals by providing location specific and process specific solutions for the treatment of wastewater for reuse or repurposing.
The primary environmental benefit from our technology is to provide Clean Water for re-use in many sectors such as:
| • | Industrial |
| • | Oil & gas operations |
| • | Irrigation |
| • | Municipal |
| • | Reinjection |
| • | Agriculture |
| • | Recreation |
| • | Disaster Recovery |
| • | A preface for reintroduction into navigable water or for preparation of drinking water |
The use of our technology results in environmental benefits by enabling increased volumes of produced water for re-use in fracking or by providing a more effective injection fluid and by reducing the amount of fresh water used for industrial and oil & gas purposes.
Enabling the processing of industrial wastewaters, existing wastewater storage, polluted lakes, rivers, streams and storage sites (tailings ponds). Reuse of wastewater reduces the continued use of freshwater while wastewater is being discharged.
| 2 | Project Definition |
| 2.1 | High Level Vision |
Our vision is to provide an integrated and automated daily treatment process of wastewater for the recovery of water and reduction in waste. This processed fluid from SolvAQUA will undergo additional processing to allow for effective Secondary, Tertiary and Desalination processes. The By-Product Waste will be recycled, reused or repurposed.
| 2.2 | Objectives |
The objective in 2020 is for SolvAQUA to:
· Design, manufacture and sell 25,000+ bpd Wastewater Management Systems (WMS) for commercial processing of wastewater.
| 4 |
| 2.3 | Overview of Scope |
SolvAQUA will provide equipment and ongoing support utilizing an automated daily treatment process for the treatment of wastewater to recover water for reuse and provide a reduced by-product waste that can be recycled, reused, repurposed or as a reduced volume for disposal meeting regulatory requirements.
| 2.4 | Procurement Items |
SolvAQUA will provide processing equipment, chemical additives and service execution support for the processing of the fodder crop irrigation wastewater (wastewater).
| · | SolvAQUA Skid to process up to 25,000 barrels of wastewater per day. |
| · | Chemical additives for the processing of up to 25,000 barrels of wastewater per day. | |
| · | Service Technician to mobilize, setup processing equipment, initiate service execution and train local operators. |
| · | Service Technician to assess the competence of personnel. |
| · | Service Execution process documents are provided for daily operations and recording of predictive maintenance. |
| 2.5 | Calculation of Material – Produced Water Processing (Field Forms) |
WMS Volumes (21, 650 bpd)
| Chemical Additive |
Bulk Concentration |
Volume Dosed per month |
Final Concentration |
Minimum Volumes on site + contingency |
| NaOH pH | 50% | 650,000 bbl. | N/A | |
| MFD | 2.0% | 650,000 bbl. | 30 ppm | 20 x 264 gal Totes |
| Activator | 48% | 650,000 bbl. | 150 - 200 ppm | 40 x 264 gal Totes |
| Conditioner | 100% | 650,000 bbl. | 3 ppm | 1 x 275 gal tote |
| 3 | Responsibilities |
| 3.1 | SolvAQUA |
| · | SolvAQUA WMS Processing Skid, 25,000 bpd rated |
| · | Chemical Additives to process wastewater |
| · | Suction and Discharge hoses for WMS unit |
| · | Competent personnel to initiate service execution |
| · | SolvAQUA competent personnel to assess competence. |
| 3.2 | Client/Representative |
| · | Waste/Source fluid supply |
| · | Electrical Power |
| · | Crossovers to source fluid and settling tanks. |
| · | Settling Tanks |
| · | Clean water tanks |
| · | By-Product tanks |
| · | By-Product disposal |
| · | Onsite fluid testing |
| · | Personnel to operate WMS equipment and manage chemical additives. |
| 5 |
| 4 | Performance |
| 4.1 | Service Execution Performance Criteria |
| Criteria | Description |
|
SolvAQUA WMS Operation |
WMS processing unit will deliver a maximum of 25,000 bpd per unit with a <5% non-productive time. |
| Contingency Additives | No-less-than 30 days of chemical additives on site for ongoing operations and as a contingency volume. |
| PMITP | Preventive Maintenance Inspection and Test document provided with WMS unit. |
| Assessment of Competence | Operations personnel will be assessed based on agreed upon times between SolvAQUA and Client/Representative. |
| 4.2 | Review Process |
| · | Quarterly reviews with Client/Representative: |
| o | Service Execution performed (CEO) |
| o | Minor or Serious Non-Conformance (COO) |
| o | Major Non-Conformance (CEO) |
| o | Lessons Learned (COO) |
| · | Yearly Reviews with Client/Representative (CEO, COO) |
| 4.3 | Major Deliverables |
In order to meet the project requirements SolvAQUA must provide the equipment and infrastructure to process wastewater to meet project agreed upon requirements.
| Deliverable | Components | Description |
| Equipment | Wastewater Processed | Commercial unit. Initiate project. |
| Equipment | Wastewater Management System | WMS |
| Chemicals |
· pH Adjustment · NFD · Aluminum Sulfate · Conditoner Polymer |
Minimum 15 days chemical on site |
| Process Deliverables |
Documetation
Training Assessment |
· Equipment Manuals · Predictive Maintenance recommendations · 2 Years Spares List · Training and Competence process |
| 5 | Project Organization |
| 5.1 | Customer |
| Customer Group | Customer Representative |
| VIVAVENTURES Inc. | Matt Nicosia |
| SolvAQUA Inc. | Chris Tesarski Allan Mahoney |
| 6 |
| 5.2 | Key Stakeholders |
| Stakeholder / Group | Stakeholder Interest |
| TBD |
| 5.3 | Identify Key Internal Stakeholders |
Project Sponsor: SolvAQUA with Client
The Project Sponsor will be primarily responsible for:
| · | Leading the Project Governance Council as Chairman |
| · | Defining the vision, purpose and objectives of the project |
| · | Approving the requirements, timetable and resources |
| · | Approving the provision of funds and resources |
| · | Authorizing acceptance of the final solution delivered by the project |
Project Governance Council (To be determined)
The Project Governance Council will be primarily responsible for:
| · | Overseeing the progress of the project |
| · | Resolving all high-level risks, issues and change requests |
| · | Ensuring that the project team has everything it needs to deliver successfully |
Project Manager: Allan Mahoney
The Project Manager will be primarily responsible for:
| · | Delivering the project on time, within budget and to specification |
| · | Managing project staff, suppliers, customers and all other project stakeholders |
| · | Undertaking the activities required to initiate, plan, execute and close the project successfully |
Project Team/Leaders: (To be determined. Can be suppliers)
The Project Leaders will be primarily responsible for:
| · | Undertaking all tasks allocated by the Project Manager per the Project Plan |
| · | Reporting progress of the execution of tasks to the Project Manager on a frequent basis |
| · | Escalating risks and issues to be addressed by the Project Manager |
| 6 | Equipment Specifications |
| 6.1 | Fodder WMS System Description and Features |
| 7 |
The system consists of the following:
| · | Feed pump |
| · | Flow meter |
| · | Pipe mixers |
| · | Chemical injection pumps |
| · | Skid |
In the process, feed water will be injected into the pipe mixers using a feed pump. SolvAQUA proprietary chemicals such as NFD will be injected continuously to the pipe mixer. Aluminum Sulfate will be added to adjust the fully activate the nano-polymer forming a floc. A conditioner is added to bulk the floc. Both the TSS and organics present in the feed water will be entrapped, encapsulated/bonded. These bonded particles have flowed through static mixers to promote slow and gentle mixing with the polymers required to help the particles form bridges and agglomerate into much larger flocs. Once formed, the large flocs are easily removed by filtration, straining, floatation or sedimentation.
Housing
| · | 8’ x 10’ SeaCan |
| o | Class I Division II certified |
| · | Environmental containment pan |
| · | Internal structure to support mounted equipment |
| · | LED Lighting |
| · | Heated and cooled |
| · | Painted with epoxy paint |
Fluid Processing Equipment (Additional Details pending)
| · | Pump and Motor |
| · | VFD |
| · | PLC |
| · | Magnetic Flow Meter |
| · | Dosing Pumps and Motors |
| · | Static Mixers |
| · | Internal Additive Tanks |
| · | Chemical Mixing System |
| 8 |
Instrumentation/Control System
| · | Powered with Pending |
| · | Power cord |
| · | CIDII Enclosure for instrumentation |
| · | Internal power supplies |
| · | Installed PLC and VFD (PLC is expandable to support additional functions) |
| · | HMI Touchscreen Display |
| · | Cellular/Satellite modem w/ WIFI and GPS |
| · | Cellular/GPS/WIFI Combination Antenna |
| · | Satellite Antenna (Iridium System) |
| · | Programming logic to control system parameters |
| o | VFD Drive for main pump |
| o | Control of dosing pumps |
| o | Flowmeter input |
| o | Pressure inputs |
| o | Control of dosing pumps based on main pump operation as well as flowmeter readings |
| o | Data storage |
| · | Remote access troubleshooting capability w/ satellite/cellular connect is available (account data plan not included) | |
| · | Remote monitoring capability via private network (Through instrumentation provider – annual fee applies) |
| 7 | Project Considerations |
| 7.1 | Key Assumptions |
Within this project scope, it is assumed that:
| · | There may be additional secondary and tertiary processing based on wastewater test results |
| · | There are no permitting issues for the removal and disposal or reuse of the by-product, |
| · | Additive, Settling, Water and By-Product tanks will be supplied by the client |
| · | 25,000 bpd WMS will meet upper and lower end requirements for processing of wastewater. | |
| · | Client/Representative team will manage the wastewater processing as a stand-alone team 7 days of onsite training and monitoring. |
| · | Competence assessment process and remote monitoring will enable effective ongoing operation. |
| · | By-product disposal or reuse will be managed by the client. |
| o | The long-term internment (burial) in a secure landfill site approved for such by the appropriate state or federal agency. |
| 9 |
| 7.2 | Equipment and Chemical Provided & Valuation of Same |
| · | One 25,000 bpd WMS - $300,000 US |
o 5 units = $1,500,000 US
| · | 3 months of chemicals for 5 WMS = 9,750,000 bbl |
| o | Five units = ~$1,000,000 US |
| o | Payment & Deployment Schedule |
| · | Navajo Nation (2 systems) | Deployment Date will be July 1st, 2020 | 20% | |
| · | Mexico Industrial | Deployment Date will be August 1st, 2020 | 20% | |
| · | Kuwait Gulf war Oilspill Remediation | Deployment Date will be Sept 1st, 2020 | 20% | |
| · | Balance Due (Initial PO) | October 1st, 2020 | ||
| · | Regular Cashflow/Billing Cycle | November 1st, 2020 |
The above Payment & Deployment Schedule may be adjusted in writing by consent of both parties. However, any such adjustment shall not extend the balance due and payable from this initial Charter past December 31st, 2020.
| 7.3 | Assumptions: |
| · | One 25,00 bpd WMS unit is design, built, tested and installed by end of June 2020 |
| · | Chemical costs will stay consistent in 2020 |
| · | Monthly volumes required will be >95% efficiency |
| · | Client/Representative will manage operation of WMS steady state |
| 8 | Appendix |
| 8.1 | Supporting Documentation |
| · | US7750066 MFD Patent |
| 10 |
All correspondence and/or billing Statements and Invoices shall be emailed to:
| As to VIVAVENTURES: | matt@vivakor.com |
| As to SOLVAQUA: | ctesarski@solvaqua.com |
All correspondence and/or billing Statements and Invoices shall be delivered by hand to:
| VIVAVENTURES, INC. | SOLVAQUA INC. |
| a wholly owned subsidiary of VIVAKOR INC. | Suite 1050, 444 – 5th Ave SW |
| 8565 S. Eastern Ave., Suite 150 | Calgary, AB, Canada |
| Las Vegas, NV 89123 | T2P 2T8 |
(949) 281-2606
The undersigned have the authority to hereby bind and authorize the respective corporations for the above Charter and Purchase Order.
Executed on this 17th day of April, 2020.
On behalf of VIVAVENTURES INC.
/s/ Matt Nicosia
Name: Matt Nicosia
Title: CEO
On behalf of SOLVAQUA INC.
/s/
Name:
Title:
| 11 |
Exhibit 10.3
|
Letter of Clarification |
July 15th, 2020
Mr. Matt Nicosia
CEO, VIVAKOR Inc.
RE: Invoice/Operating Charter SOLV-VIV-001
With respect to the initial Agreement between Vivakor and solvAQUA; solvAQUA wishes to append such agreement with the following clarifications.
1. solvAQUA acknowledges Vivakor's key technology is the Remediation Processing Center (RPC) that separates hydrocarbons from dry soil. The RPC is currently being used in remediation projects in Vernal Utah to extract oil from the dry oil sands and in Kuwait to clean up large scale oil spills. Understanding that Vivakor wants to combine the solvAQUA technology to allow it to deal with remediation projects that have a combination of wet and dry opportunities both in existing locations and new opportunities globally which may include but not be limited to immediate projects on Native American lands; solvAQUA hereby grants to Vivakor an exclusive license to incorporate its technology platform into scenarios such as described above for a term of ONE YEAR. Upon successful installation and deployment of Vivakor initial TWO WMS UNITS such term shall be extended to FIVE YEARS.
In addition, understanding through its field operation activities and relationships, Vivakor may from time to time have the opportunity to deploy the technology for cleaning other waste streams such as, but not limited to: produced water, tank bottom sludge and mining water clean up; SUBJECT TO initial conditions being met as described above; solvAQUA shall grant to Vivakor a non-exclusive license to deploy the technology on a case by case basis for the same term as above.
2. Due to AHS (Alberta Health Services) and Government of Canada COVID 19 Guidelines and Restrictions; solvAQUA hereby exercises its rights under the terms of the invoice SOLV-VIV-001 to extend delivery of units to October 31st, 2020. Accordingly, solvAQUA again has the right to further adjust the timeline as per the above referenced Guidelines. Initial payment is due upon completion of the machinery.
We trust the above to be satisfactory and an accurate reflection of our discussions regarding same.
Chris Tesarski
CEO, solvAQUA Inc.
Exhibit 10.4
INTELLECTUAL PROPERTY LICENSE AGREEMENT
This Intellectual Property Agreement (the “Agreement”) is hereby entered into effective as of September 30, 2020 (the “Effective Date”), by and between, BGreen, LLC, a Utah limited liability company (“BGRE”, the “Licensor”) and Vivakor, Inc., a Nevada corporation (“Vivakor”, the “Licensee”). The Licensee and the Licensor may each be referred to herein as a “Party” and together as the “Parties.”
1. RECITALS
A. WHEREAS, Licensor is the owner of certain intellectual property related to a cavitation technology suitable to improve the viscosity of heavy crude, as described in Exhibit A, hereto (the “Cavitation Technology”), which Licensee is interested in licensing from Licensor for the purpose of developing commercially-viable applications using the intellectual property;
B. WHEREAS, the Parties are parties to a certain Letter of Intent dated February 20, 2020, under which the Parties agreed to joint development and commercialization of “Cavitation Technology” in Utah and other locations where VIVK operates its hydrocarbon extraction technology. (the “Letter of Intent”).
C. The Parties desire that Licensor grant an exclusive license to Licensee for applications and implementations involving the Cavitation Technology as set forth herein.
NOW, THEREFORE, in consideration of the promises and agreements set forth below and the other considerations cited herein, the Parties agree as follows.
2. DEFINITIONS
As used in this Agreement, the following terms shall be defined as set forth below:
| 2.1. | “Confidential Information” shall mean any and all information disclosed by a Party (the “Disclosing Party”) to the other party (the “Recipient”) hereunder that is clearly marked or identified as “confidential,” such as proprietary information relating to the Disclosing Party’s technology (including the Intellectual Property and any associated knowhow), products, processes, business information, or intellectual property rights. “Confidential Information” further includes the terms and conditions of this Agreement not otherwise made public by agreement of the parties as well as information arising or disclosed pursuant to this Agreement. Notwithstanding the foregoing, information will not be considered “Confidential Information” to the extent the Recipient can demonstrate by written record or other suitable physical evidence that: |
| a) | such specific information was lawfully in the Recipient’s possession or control prior to the time such information was disclosed to the Recipient by the Disclosing Party; |
| 1 |
| b) | such specific information was independently developed by one or more employees or other agents of the Recipient without reference to such Confidential Information; |
| c) | such specific information was lawfully obtained by the Recipient from a third party under no obligation of confidentiality to the Disclosing Party; or |
| d) | such specific information was, at the time it was disclosed or obtained by the Recipient, or thereafter became, publicly known otherwise than through a breach of the Recipient’s obligations hereunder. |
| 2.2. | “Improvements” shall mean inventions or other improvements which relate to or are based on the Inventions and which are within the scope of the then existing Intellectual Property. An Improvement shall be within the scope of a patent in the Intellectual Property if covered by a claim, either literally or under the doctrine of equivalents. |
| 2.3. | “Intellectual Property” shall mean: |
| a) | all issued patents, continuations, continuations-in-part, divisionals, and other patents or applications derived from the Cavitation Technology; |
| b) | all related knowhow and trade secrets relating to the Cavitation Technology; and |
| c) | all other trade secrets and intellectual property information related to the Cavitation Technology. |
| 2.4. | “Licensed Products” shall mean the cavitation device built from the licensed Intellectual Property in 2.3, |
| 2.5. | "New Invention(s)" shall mean an invention conceived or reduced to practice by Licensee or jointly by Licensee and Licensor which relates to or is based on the subject matter of the Intellectual Property or on work developed under the direction of Licensor, but which is outside the scope of the then-existing Intellectual Property. |
| 2.6. | “Net Profit” shall mean gross revenue minus cost of goods and marketing expense for the manufacture and sale of the cavitation device by the Licensee. |
| 2.7. | “Party” (and collectively, “Parties”) shall mean either or collectively the Licensor and/or Licensee, and all associated affiliates. Affiliates shall include a) any officer, director, and/or legal entity directly or indirectly controlled by, or controlling, a Party, b) an entity of which fifty percent or more of the voting stock is controlled or owned directly by a Party; c) an entity which owns fifty percent or more of the voting stock of a Party; and e) an entity the majority ownership of which is directly or indirectly common to the majority ownership of a Party. |
| 2.8. | “Sublicensee” shall mean third parties to whom the Licensee sublicenses the Intellectual Property pursuant to the terms of this Agreement to develop, manufacture, have manufactured, use, and sell the Licensed Products. |
| 2.9. | “Sublicensee Income” shall mean compensation or consideration of any kind received by Licensee from a Sublicensee, including without limitation cash, marketable securities, stock or shares, and any tangible or intangible assets. |
3. GRANT OF LICENSE
| 3.1. | Grant. Subject to the terms and conditions of this Agreement, Licensor grants and the Licensee hereby accept a worldwide, exclusive, non-transferable license in the Intellectual Property to develop, manufacture, have manufactured, use, market, import, have imported, offer for sale, and sell the Licensed Products. This license grant shall be for the lifetime of the Intellectual Property. |
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| 3.2. | Sublicense. The Licensee shall have the right to sublicense the Intellectual Property to third parties (hereinafter “Sublicensee”), subject to the prior written consent of Licensor, whose consent shall not be unreasonably withheld. The sublicense terms shall be commercially reasonable when compared to similar transactions conducted at arms-length, and no sublicense shall contain the right to grant further sublicenses without the prior written consent of Licensor. |
| 3.3. | Retention of Rights. Licensor shall retain the non-transferable right to make, use and practice the Intellectual Property for his own noncommercial purposes. The license granted hereunder shall not be construed to confer any rights upon Licensee by implication, estoppel or otherwise as to any technology or intellectual property other than the Intellectual Property. |
| 3.4. | Third Party Licenses. The parties recognize that Licensee may encounter patents held by third parties, and that licenses between Licensor or Licensee and such third parties may be necessary in order to enable the Licensee to develop, make or market certain Licensed Products. In that event, the Licensee have the right to enter into licensing agreements with such third parties, provided Licensor is consulted before hand, is reasonably satisfied that the third party does in fact hold a patent that limits Licensee’s rights in respect of the making, using and/or marketing the Licensed Products, and Licensor gives its written approval to such license, which approval shall not be unreasonably withheld. Any money received by Licensee in exchange for such cross-licensing shall be treated as consideration from Sublicensee for sublicensing. |
4. PAYMENTS FOR THE LICENSE
| 4.1 | Payments. All payments due to the Licensor for the License to the Intellectual Property are as follows: |
| 4.1.1. | Licensor shall participate in 50% of Net Profit. |
| 4.1.2. | Licensee shall, upon successfully improving and manufacturing a cavitation device with a 30 barrels per hour processing rate, Licensor shall make a payment to Licensor, which will be 1,000,000 shares of the Licensee’s common stock, issued to Licensor (the “Shares”). The Shares of the Licensee’s stock for payment will be subject to adjustment from time to time as follows: |
| (i) | If the Licensee at any time or from time to time after the date of this Agreement fixes a record date for the effectuation of a split or subdivision of the outstanding shares of its common stock or the determination of holders of common stock entitled to receive a dividend or other distribution payable in additional shares of common stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of common stock (hereinafter referred to as “Common Stock Equivalents”) without payment of any consideration by such holder for the additional shares of common stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend, distribution, split or subdivision if no record date is fixed), will be appropriately increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents. |
| (ii) | If the number of shares of Licensee’s common stock outstanding at any time after the date of this Agreement is decreased by a combination of the outstanding shares of common stock, then, following the record date of such combination, Shares will be appropriately decreased in proportion to such decrease in outstanding shares. |
| 4.1.3. | The Shares will be issued within 30 days upon the threshold being met. The shares will contain standard restrictive legends. |
| 4.1.4. | Licensee shall pay $5,000USD to purchase the first simple cavitation device that is in Licensee’s possession. In addition, this payment includes a 50% discount on engineering consultation from Licensor of up to 60 hours for the manufacturing, setup and operation of the first 3D cavitation plate. |
| 4.1.5. | Licensee shall pay Licensor for additional engineering support fees of up to $3,000USD per month for approximately 15-20 hours of offsite consultation, design or engineering. The first 3 months will be at a 50% discount. Travel or onsite consulting fees will be negotiated mutually in good faith as needed. Licensee shall notify, in writing, Licensor when engineering support is needed. If engineering support is not needed no such fee shall be paid. |
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| 4.1.6. | Licensor hereby grants Licensee a first right of refusal to purchase all devices and all Intellectual Property associated with the Cavitation Technology. |
| 4.1.7. | Licensee shall store one storage container containing machinery belonging to the Licensor for the Licensor for up to 12 months as both parties work together to improve, manufacture and commercialize various solutions. |
5. REPORTS AND RECORDS
| 5.1. | Record Retention. Licensee shall make and retain and shall cause its Sublicensee to make and retain, for a period of three (3) years following the period of each report required by the Article true and accurate records of the account containing all the data reasonably required for the full computation and verification of gross sales, gross revenues, and other information for use by Vivakor to calculate any amounts due and owing to the Parties. Such records shall be in accordance with generally accepted accounting principles consistently applied and shall be kept at Licensee’s principal place of business. The Licensee and any of their Sublicensee shall permit the inspection of such records by an independent certified public accountant chosen by Licensor and reasonably acceptable to Licensee during regular business hours upon five (5) business days’ written notice to Licensee, to the extent necessary to verify compliance with this Agreement. Such inspection shall not be made more than once each calendar year unless an error is discovered, or for other good cause. All costs of such inspection and copying shall be paid by Licensor, provided that if any such inspection shall reveal that an error has been made in an amount equal to 5% or more of any such payment due, such costs shall be paid by Licensee. |
6. DUE DILIGENCE IN COMMERCIALIZATION
| 6.1 | Reasonable Efforts. Licensee agree that they shall use its reasonable efforts and diligently endeavor to achieve the development, regulatory approval, and commercialization of the Licensed Products. Licensee may conduct such efforts itself or through a Sublicensee. |
| 6.2 | Termination. If, after a period of three (3) years from the Effective Date, the Licensee have not commercialized a Licensed Product, Licensor shall have the right, at its option to: (a) terminate the Agreement; or, (b) convert any or all of the rights granted to Licensee from exclusive to non-exclusive. |
| 6.3 | Status Reports. Licensee shall provide periodic Status Reports to Licensor, at least quarterly, indicating progress and problems to date in commercialization of the Licensed Products. Such Status Reports shall also include a forecast and schedule of major events required to market the Licensed Products. Licensor shall treat all such information as confidential. |
7. PATENT PROSECUTION
| 7.1. | Patent Prosecution Expenses. Beginning from the Effective Date and during the term of this Agreement and subject to Section 7.7, Licensor shall diligently prosecute and maintain, at the Licensee’s expense, any United States and foreign patents comprising the Intellectual Property, using patent counsel of the Licensee’s choice that is reasonably acceptable to Licensee. |
| 7.2. | Patent Prosecution Cooperation. The Parties agree to fully cooperate with one another and to keep each other fully informed regarding the preparation, filing, and prosecution of all patent applications which Licensor may file and prosecute pursuant to this Agreement. Licensee will also execute and deliver all documents which Licensor may deem necessary or desirable for the Intellectual Property. Licensor will also promptly provide copies of all documents received from any patent office, so as to keep Licensee informed of the continuing prosecution. The Parties agree that representatives of each Party shall meet periodically to review and keep one another fully informed as to the status of all Intellectual Property and all patent-related matters. Such representatives may meet in person or telephonically, as mutually agreed upon by the Parties. |
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| 7.3. | Protection of Licensed Products. Licensor will use reasonable efforts to amend any patent application to include claims reasonably requested by the Licensee to protect the Licensed Products. |
| 7.4. | Foreign Protection of Licensed Products. The Licensee will have the right to request that Licensor obtain or maintain patent protection on the Intellectual Property in foreign countries if possible or available. Licensee shall notify Licensor in writing of the countries in which it desires to obtain or maintain foreign patents not less than sixty (60) days prior to the deadline for any payment, filing, or action to be taken in connection therewith, and Licensee shall be responsible for all associated costs. Upon receipt of such request, Licensor will undertake the actions described in Section 7 with respect to each foreign country requested by Licensee and shall timely file any applicable patent applications. Licensee will be responsible for all costs associated with such a request. |
| 7.5 | Patent Marking. The Licensee and their Sublicensee shall mark all Licensed Products sold by it with appropriate patent markings indicating that the Licensed Products are protected by one or more of patents in the Intellectual Property, if applicable. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform to the patent laws and practices of the country of manufacture or sale. |
| 7.6 | Decision Not To file. If Licensor decides to take steps which would result in either not filing a patent application or the abandonment of a patent or patent application, it shall promptly give notice to Licensee of such decision, which notice shall in no event be less than thirty (30) days prior to the next deadline for payment, filing, or any other related action. Further, Licensor shall provide Licensee an opportunity to assume responsibility for such patent application or patent. |
| 7.7 | Decision Not To pay. At any time, upon providing sixty (60) days written notice, Licensee may discontinue making payments with regard to any patent application(s) and/or patent(s) within the Intellectual Property, and in such case, Licensee shall have no further rights under this Agreement and this license shall terminate with respect to those patent applications and/or patents. |
| 7.8 | Patent Extension. With respect to any issued patent in the Intellectual Property, Licensor will designate Licensee as its agent for obtaining an extension of such patent or governmental equivalent which extends the exclusivity of any of the patent subject matter where available in any country in the world, or if not feasible, at Licensee’s option, permit Licensee to file in Licensor’s name or diligently obtain such extension for the Licensee, or their Sublicensee at Licensee’s expense. Licensor agrees to provide reasonable assistance, at no out-of-pocket expense, to facilitate Licensee’s efforts to obtain any extension. If for any reason the Licensee fail to exercise diligent efforts to obtain any extension or determine that it will not seek such extension, the Licensee shall provide reasonable assistance, at no out-of-pocket expense, to facilitate Licensor’s efforts to obtain any such extension. |
8. INFRINGEMENT
| 8.1. | Notice of Infringement. The Parties shall promptly give written notice to each other of any apparent infringement discovered with respect to any patent issuing from the Intellectual Property. Such notice shall set forth the known facts of the apparent infringement in reasonable detail. Upon written notice to Licensor, the Licensee shall have the first right, but not the obligation, to bring any legal action with respect to such apparent infringement at its own expense and for its own benefit. In such event, Licensor agrees to cooperate with the Licensee and to join in such action as a party plaintiff if requested to do so by the Licensee and, at the Licensee’s request, to give the Licensee all needed information, assistance, and authority to file and prosecute such suit. The Licensee shall reimburse Licensor for all verified out-of-pocket expenses incurred by Licensor in providing such assistance, including attorneys’ fees, expenses, and expert witness fees incurred by Licensor. To ensure that no rights of Licensor are compromised in any such action, the Licensee shall not settle any such claim or action, or enter into any settlement agreement that admits that any third party product does not infringe the Intellectual Property or that any patent in the Intellectual Property is invalid or enforceable without Licensor’s prior written consent, which consent shall not be unreasonably withheld. If there is a recovery in such action (including a recovery as a result of a settlement), after recovery of all direct out-of-pocket expenses incurred by the Licensee and Licensor in connection with the action, the Licensee shall pay to Licensor an cash or cash equivalent received from any alleged infringer equivalent to the royalties which Licensor would have received if such alleged infringer had been a Sublicensee. |
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| 8.2 | Infringement of Third Party Rights. If the Licensee or Licensor receive notice of a claim or action by a third party alleging infringement of such third party’s rights in connection with the development, manufacture, use, marketing, or sale of a Licensed Product by the Licensee or their Sublicensee, the Licensee shall have the right to conduct the legal defense, but shall not enter into any disposition with respect thereto, or enter into any settlement agreement that admits that any Licensed Product infringes any third party right without Licensor’s prior written consent to such disposition, which consent shall not be unreasonably withheld. All costs of the Licensee’s defense, and any damages awarded or amounts paid in settlement in any such claim shall be the sole responsibility of the Licensee. Licensor shall cooperate with the Licensee if requested by the Licensee in its defense of such infringement claim or action, provided that Licensee shall reimburse Licensor for all out-of-pocket expenses, including attorneys’ fees, expenses, and expert witness fees incurred by Licensor in providing such cooperation. |
| 8.3 | Indemnification. Subject to the notification provisions of Section 8.4 below, the Licensee shall defend and hold harmless Licensor against a third party infringement claim or action which results from the development, manufacture, use, marketing, or sale of a Licensed Product by the Licensee or their Sublicensee, and indemnify Licensor against the cost of such defense undertaken by the Licensee, including attorneys’ fees and all other legal expenses, costs, expert witness fees, and damages awarded or amounts paid in settlement in any such claim or action. Such indemnification shall include attorneys’ fees for independent counsel retained by Licensor if Licensor deems such separate independent counsel to be necessary as a result of conflicts of interest with the Licensee, but only in connection with services rendered in connection with matters with respect to which the parties have adverse interests. The Licensee’s indemnification shall not include indemnification to the extent to which such infringement is directly caused by Licensor prior to the date of this Agreement. |
| 8.4 | Notification. In the event that any claim is asserted against Licensor or the Licensee (or any of their respective officers, directors, trustees, employees, agents, or representatives), or if any such person is made a party defendant in any action involving a matter which is the subject of Licensor’s indemnification as set forth above, or if either Party becomes aware of a claim or patent which might provide the basis for a third party’s claim of infringement against Licensee for the development, manufacture, use, marketing, or sale of a Licensed Product, then such Party shall give written notice to the other within thirty (30) days of having learned of such, or within ten (10) days of the receipt of a written complaint or formal pleading regarding the same. |
9. TERM AND TERMINATION OF AGREEMENT
| 9.1 | Term. The term of the license granted under this Agreement shall continue for the life of the Intellectual Property, unless terminated sooner under the provisions of this Agreement. |
| 9.2 | Termination by Licensor. In addition to any other rights of termination set forth in this Agreement, and subject to any applicable cure periods prescribed herein, Licensor may in his sole discretion terminate this Agreement in the event that: |
| a) | The Licensee fail to make payments when due of any amounts owed to Licensor under this Agreement and the Licensee does not correct such failure within thirty (30) business days after receipt of written notice of such failure is delivered to the Licensee; |
| b) | The Licensee or their Sublicensee have not commercialized a Licensed Product after a period of three (3) years from the Effective Date; |
| c) | The Licensee commit a breach of any other obligation of this Agreement or related Party agreement which is not cured (if capable of being cured) within thirty (30) days after receiving notice of such; |
| d) | The Licensee or their Sublicensee intentionally provide any materially false report, in which event such termination shall be effective thirty (30) days after written notice to Licensee; or, |
| e) | The Licensee become insolvent or a petition in bankruptcy is filed against the Licensee and is consented to, acquiesced, and remains undismissed for ninety (90) days; or Licensee makes a general assignment for the benefit of creditors, or a receiver is appointed for the Licensee, and the Licensee do not return to solvency before the expiration of said thirty (30) day period set by the notice, in which event such termination shall be effective thirty (30) days after written notice to the Licensee. |
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| 9.3 | Conversion to Non-Exclusive License. In addition to the provision set forth in Section 9.2 d) above, Licensor shall have the option, at its sole discretion, to convert the license set forth in this Agreement to a non-exclusive license if the Licensee or their Sublicensee have not commercialized a Licensed Product after a period of three (3) years from the Effective Date. |
| 9.4 | Termination by Licensee. The Licensee shall have the option to terminate this Agreement upon providing sixty (60) days’ written notice to Licensor. |
| 9.5 | Obligations on Termination. |
| 9.5.1. | Rights Termination. Upon termination of this Agreement and except as otherwise expressly provided herein, all of the rights and licenses granted to Licensee under the terms of this Agreement shall terminate. The Licensee shall assign any sublicenses granted under this Agreement to Licensor. All rights licensed or transferred by Licensor to the Licensee hereunder which are subject to termination shall revert to Licensor, and the Licensee agree to execute all instruments reasonably necessary and desirable to revest said rights in Licensor. |
| 9.5.2. | Regulatory Records. Upon termination, the Licensee shall transfer ownership and possession of all records and documents of Licensee filed with regulatory authorities relating to the Licensed Products. |
| 9.5.3. | Return of Confidential Material. Upon termination, the Licensee and their Sublicensee shall return all Confidential Information, including any knowhow relating to the Intellectual Property, transferred to the Licensee by Licensor. The Licensee and their Sublicensee shall maintain confidentiality and not use any such information for a period of five (5) years after termination of this Agreement. |
| 9.5.4. | Unsold Inventory. In the event this Agreement is terminated for any reason, the Licensee and their Sublicensee shall have the right to sell or otherwise dispose of their stock of any Licensed Products, subject to the obligation of the Licensee to pay Licensor the payments as provided in Section 4 of this Agreement. The Licensee shall immediately discontinue any additional production of the Licensed Products. |
| 9.5.5. | Sublicensee. In the event that the license granted to the Licensee under this Agreement is terminated, any sublicenses granted to Sublicensee shall remain in full force and effect, provided that the Sublicensee is not then in breach of its sublicense agreement, and the Sublicensee agrees to be bound to Licensor as a licensee under the terms and conditions of the agreement, in which case Licensor and Sublicensee shall enter into appropriate agreements or amendments to the sublicense agreements to substitute Licensor for the Licensee as the licensor. |
| 9.6. | Other Rights. Termination of this Agreement for any reason shall not release any Party hereto from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination, nor preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity which accrued or are based upon any event occurring prior to such termination, including, without limitation, Licensee’s obligation to pay all royalties or other payments and/or reimbursements specified in Section 4. The rights provided in. this Section shall be in addition and without prejudice to any other rights which the parties may have with respect to any breach or violations of the provisions of this Agreement. |
| 9.7 | Jointly Owned Improvements and New Inventions. |
| 9.7.1. | After termination of this Agreement, each Party shall have a perpetual right to make, have made, use, import, offer for sale, and sell all jointly owned Improvements and New Inventions, without the consent of and without accounting to the other Party. |
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| 9.7.2. | If after termination of this Agreement, either Party desires to apply for a patent on any jointly owned Improvement or New Invention, such Party shall advise the other Party in writing of its intent, and the other Party shall notify the first Party in writing within thirty (30) days of such notice whether it elects to join the first Party in seeking patent protection. If the other Party elects to not join in seeking patent protection, it shall promptly assign to the first Party its entire right, title and interest in and to the jointly owned Improvement or New Invention. If the other Party elects to join in seeking patent protection, the Parties shall jointly select patent counsel to prepare and prosecute the patent application, and all expenses incurred in connection with such filing and prosecution shall be shared equally by Licensee and Licensor, provided, the Party providing the original notice of intent to file the application shall have the primary responsibility for directing the patent prosecution. The Parties shall fully cooperate with one another and keep each other fully informed as to the preparation, filing and prosecution of all such patent applications. If at any time after the Parties have jointly filed such a patent application, either Party decides that it has no further interest in the application or any patent granted thereon, it may assign to the other Party its entire right, title and interest in and to the Improvement or New Invention that is the subject thereof, the application and any patent granted thereon, and shall thereupon be relieved of any liability for any of the above-mentioned expenses arising subsequent to its assignment. |
| 9.7.3. | In the event that after termination of this Agreement, either Party desires to bring any legal action against any third party for infringement of any jointly owned patent, the other Party agrees to cooperate as reasonably necessary in such action, including executing any papers necessary for pursuit of such legal action and joining as a Party to a lawsuit if necessary. Any recovery obtained for the patent infringement shall be retained by the Party initiating such action after pro rata reimbursement of each party's reasonable expenses incurred in bringing, participating in or cooperating in such action. If the other Party desires to participate in bringing any such action for infringement, the Parties shall agree in advance upon a reasonable allocation of fees, costs and recoveries. |
| 9.7.4. | In the event that after termination of this Agreement, the validity of any jointly owned patent is challenged in any forum or proceeding, each Party shall have the option of defending such challenge. If both Parties elect to defend, they shall share equally in the legal fees, costs and liabilities incurred in such defense. If either Party elects to not defend such patent, or decides at any time during the defense that it has no further interest in the patent, it may assign to the other Party its entire right, title and interest in the patent, and shall thereupon be relieved of any liability for any legal fees and costs incurred subsequent to its assignment. |
10. INDEMNIFICATION AND WARRANTIES
| 10.1 | Disclaimers. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR DISCLAIMS ALL WARRANTIES WHATSOEVER, WITH RESPECT TO THE INTELLECTUAL PROPERTY, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENT CLAIMS (ISSUED OR PENDING), OR THAT THE MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT(S) AND USE OF THE INTELLECTUAL PROPERTY WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL. OR CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. LICENSEE TAKES THE INTELLECTUAL PROPERTY “AS-IS,” “WITH ALL FAULTS,” AND “WITH ALL DEFECTS” AND EXPRESSLY WAIVES ALL RIGHTS TO MAKE ANY CLAIM WHATSOEVER AGAINST LICENSOR FOR WARRANTY OF ANY KIND RELATING TO THE INTELLECTUAL PROPERTY SUBJECT TO THE REPRESENTATIONS MADE HEREIN. IN NO CASE SHALL LICENSOR’S LIABILITY FOR DAMAGES OF ANY TYPE EXCEED THE TOTAL ROYALTIES WHICH HAVE ACTUALLY BEEN PAID TO LICENSOR BY LICENSEE AS OF THE DATE OF FILING OF THE ACTION AGAINST LICENSOR WHICH RESULTS IN A SETTLEMENT OR AWARD OF DAMAGES. |
| 10.2 | Indemnity. With the exception of infringement claims or actions covered by Section 8, Licensee shall defend, indemnify, and hold harmless Licensor from and against any and all liabilities, claims, suits, damages, and expenses of any nature related to a third party claim in connection with (i) the use by the Licensee or their Sublicensee of the Intellectual Property; (ii) the development, manufacture, use, marketing, sale, or other disposition of any Licensed Products by the Licensee or their Sublicensee, or any statement or breach of any representation or warranty made by the Licensee or their Sublicensee with respect thereto; or (iii) resulting from or arising out of the exercise by Licensee of this license or any sublicense granted by Licensee pursuant to this Agreement. In the event of such indemnification, Licensor shall reasonably cooperate with the Licensee in defending any such claims. Licensor shall be entitled to receive information regarding the status of any such matter, and shall be entitled to retain counsel on its own behalf at Licensee’s expense, in addition to counsel retained by Licensee to defend Licensor, if Licensor is named a party, and if Licensor deems such separate independent counsel to be necessary as a result of conflicts of interest with the Licensee, or if Licensor is not satisfied with the defense provided by the Licensee for any reason. |
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| 10.3 | Insurance. |
| 10.3.1. | The Licensee, at their sole cost and expense, shall purchase and maintain in effect and shall require their Sublicensee to purchase and maintain in effect comprehensive or commercial form general liability insurance (contractual liability and products liability included on a world-wide basis) insuring its and their activities in connection with clinical trials, marketing approvals, and covering all claims with respect to any Licensed Products manufactured or sold within the term of any license granted hereunder, and professional liability (errors and omissions), and workers’ compensation as required by law and automobile liability, which policies shall, if required by the Licensor in writing: (i) be in such form of coverage and written by such company licensed to conduct business in the State of California as Licensor shall reasonably approve, (ii) provide that such policy is primary and not excess or contributory with regard to other insurance Licensor may have, (iii) provide at least thirty (30) days’ notice to Licensor of cancellation, (iv) include Licensor as additional named insureds under Licensee’s general liability and automobile liability policies, and (v) have the following minimum limits: Comprehensive General Liability including products and completed operations coverage and contractual liability (minimum $1 million each occurrence, $20 million annual aggregate). In the event the Licensee cannot obtain such insurance, or cannot obtain such insurance at a reasonable price, it shall obtain insurance in an amount to reasonable to cover the Licensee in the event of a covered event, based on the then-current operations of the company. Such insurance shall be written to cover claims incurred, discovered, manifested or made during or after expiration of this Agreement. The Licensee shall have this insurance in place prior to beginning development on a Licensed Product and at such time will furnish a certificate of such insurance to Licensor within thirty (30) days thereafter. The Licensee shall obtain such additional insurance coverage as shall be reasonably requested by Licensor, and reasonably agreed to by the parties, provided that Licensor shall not request changes in such coverage more frequently than annually. |
| 10.3.2. | The Licensee expressly waive any right of subrogation that it may have against Licensor resulting from any liabilities, claims, suits, damages, and expenses of any nature for which Licensee has agreed to indemnify Licensor or hold Licensor harmless under this Section. |
| 10.4. | Representations and Warranties of Licensor. Licensor represents, warrants, and covenants to the Licensee as follows: |
| a) | Licensor warrants that Licensor has the rights, ownership, titles and interests, legal and equitable, necessary in the Intellectual Property to grant the Licensee the exclusive license and rights described herein. |
| b) | The license granted to the Licensee under this Agreement is the only license granted by Licensor with respect to the Intellectual Property and during the term of this Agreement Licensor shall not grant any third party rights inconsistent with the rights granted Licensee herein. |
| c) | There are no pending, and to the knowledge of Licensor as of the Effective Date, any threatened actions, claims, or proceedings in any way relating to the Intellectual Property. |
| 10.5 | Representations and Warranties of the Licensee. The Licensee represent, warrant, and covenant to Licensor as follows: |
| a) | The License is a corporation (Vivakor) and duly organized, validly existing and in good standing under the laws of the State of Nevada having full Corporate power to conduct each business as presently conducted, and to enter into and consummate the transactions contemplated by this Agreement. |
| b) | The execution, delivery and performance under this Agreement by the Licensee has been duly authorized by all required corporate action, do not constitute a breach, default or violation of any of the provisions of Licensee’s Articles of Incorporation, Bylaws or other charter documents, or any other agreement, law, or regulation to which it may be a party or by the terms of which it may be bound. |
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11. MISCELLANEOUS
| 11.1 | Choice of Law. This Agreement will be governed by the laws of the State of California. |
| 11.2 | Compliance with Laws and Regulations. The Licensee shall use reasonable efforts to comply with all foreign and United States federal, state and local laws and regulations applicable to the testing, production, transportation, packaging, labeling, export, sale and use of the Licensed Products. In particular, Licensee shall be responsible for assuring compliance with all U.S. export laws and regulations applicable to this license and the Licensee’s activities hereunder. The Licensee shall be responsible for all taxes, duties, and other governmental charges, however, designated, which are now or hereafter imposed by any such authority (a) by reason of the performance by the Licensee of their obligations under this Agreement, or the payment of any amounts by the Licensee to Licensor under this Agreement, (b) based on the Intellectual Property or Licensed Products, or (c) relating to the import of the Licensed Products into any such territory. Licensor agrees to use reasonable efforts to cooperate with Licensee at Licensee’s expense, in connection with any filings required by any governmental entity. |
| 11.3 | Notices. Any notice, report, request or other communication required or permitted to be given under this Agreement by a Party to the other parties shall be either hand-delivered (including delivery by courier), or mailed by first-class registered or certified mail (airmail if internationally), with return receipt requested, and addressed as follows: |
| To Licensee: | Vivakor, Inc. | |
| 2 Park Plaza, Suite 800 | ||
| Irvine, CA 92614 | ||
| Tel: 949-281-2606 | ||
| Fax: | ||
| With a copy to: | Law Offices of Craig V. Butler | |
| 300 Spectrum Center Drive, Suite 300 | ||
| Irvine, CA 92618 | ||
| Attn. Craig V. Butler | ||
| Fax: (949) 209-2545 | ||
| Email: cbutler@craigbutlerlaw.com | ||
| To Licensor: | BGreen, LLC | |
| 12123 Petersenbluff Dr | ||
| Riverton, UT 84065 | ||
| 801-502-3373 | ||
| With a copy to: | _____________________________ | |
| _____________________________ | ||
| _____________________________ |
Each Party may designate in writing a new address to which any notice may thereafter be given. Any notice sent by registered or certified mail shall be deemed to have been given at the time of the receipt thereof by the other Party or three (3) calendar days after the time of mailing, whichever is earlier.
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| 11.4 | Entire Agreement. This Agreement contains the entire agreement with respect to the subject matter hereof and supersedes any and all prior agreements, written or oral with respect thereto. |
| 11.5 | Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement shall not be modified or amended except pursuant to an instrument in writing executed and delivered on behalf of each Party to be bound. No delay on the part of any Party, in exercising any right hereunder shall operate as a waiver thereof. Neither any waiver on the part of any Party of any such right, nor any single or partial exercise of any such right shall preclude any further exercise thereof or the exercise of any other such right unless waived in writing. The rights and remedies hereunder provided are cumulative and except as otherwise provided herein are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence, or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the Parties) as to which there is no inaccuracy or breach. |
| 11.6 | Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. The parties may not assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other party. |
| 11.7 | Severability. If any term or provision in this Agreement or the application thereof shall be held invalid, void or unenforceable, the remainder of such term or provision shall remain in full force and effect, and the invalid, void, or unenforceable term or provision shall be reformed to the extent possible in order to give its intended effect and/or meaning. |
| 11.8 | Method of Dispute Resolution. In the event that there arises any disagreement or dispute between the Parties that cannot be amicably resolved and which relates to the interpretation, enforcement, or violation of the terms of this Agreement, then all suits and special proceedings hereunder be construed in accordance with and under and pursuant to the laws of the State of Utah and that in any action, special proceeding or other proceedings that may be brought arising out of, in connection with or by reason of this Agreement, the law of the State of Utah shall be applicable and shall govern to the exclusion of the law of any other forum, without regard to the jurisdiction on which any action or special proceeding may be instituted. If any legal action is filed by either party regarding this Agreement, the exclusive jurisdiction for such action shall be the state or federal courts sitting in and for the County of Salt Lake City, State of Utah. The Parties hereby consent to such exclusive jurisdiction and venue. |
| 11.9. | Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement. |
| 11.10 | Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, the Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. |
| 11.11 | Confidential Information. Except as expressly provided herein, the Parties agree that, for the term of this Agreement and for five (5) years thereafter, the Recipient shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except for the purposes contemplated by this Agreement any Confidential Information furnished to it by the Disclosing Party hereto pursuant to this Agreement. Each Party hereto may use or disclose Confidential Information disclosed to it by the other Party to the extent such use or disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, conducting clinical trials, or making a permitted sublicense or otherwise exercising its rights hereunder, provided that if a Party is required to make any such disclosure of another Party’s Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter Party of such disclosure and, save to the extent inappropriate in the case of patent applications, will use its best efforts to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise.) Except as expressly provided herein, each Party agrees not to disclose any terms of this Agreement to any third party without the consent of the other Party; provided disclosures may be made as required by securities or other applicable laws, or to actual or prospective investors or corporate partners, or to a Party’s accountants, attorneys and other professional advisors. |
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| 11.12 | Publicity. Unless required by federal and/or state law or regulation, no Party shall release any materials containing the name of another Party or any of its employees without the prior approval by an authorized representative of such Party, which approval shall not be unreasonably withheld. The Parties agree to make a mutually-agreed press release regarding this Agreement promptly following the Effective Date. Should a Party reject a proposed news release, the Parties agree to discuss the reasons for such rejection, and every effort shall be made to develop an appropriate informational news release. |
| 11.13 | Further Assurances. Each Party to this Agreement shall, at the request of the other, furnish and deliver such documents, or other further assurances as the requesting Party shall reasonably request as necessary or desirable to effect complete consummation of this Agreement and the transactions contemplated hereby. |
| 11.14 | Force Majeure. Neither Party shall lose any rights hereunder or be liable to the other party for damages or losses (except for payment obligations) on account of failure of performance by the defaulting party if the failure is caused by war, strike, fire, Act of God, earthquake, flood, lockout, embargo, governmental acts or orders or restrictions, where failure to perform is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the non-performing party and the non-performing party has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall any party be required to settle any labor dispute or disturbance. |
| 11.15 | Survival. The following obligations shall survive the termination of this Agreement: (a) the Licensee’s obligation to supply reports covering the time periods up to the date of termination; (b) Licensor’s right to receive payments and fees, accrued or accruable, from payments at the time of any termination; (c) The Licensee’s obligation to maintain records, and Licensor’s right to have those records inspected; (d) any cause of action or claim of either party, accrued or to accrue because of any action or omission by the other; (e) The Licensee’s obligations stated in Sections 5, 8, 9.5, 9.6, 10.1,10.2, 11.1, 11.3, 11.11, 11.12, 11.13, 11.14 of this Agreement; and (f) Licensee’s obligations to return all materials given to it by Licensor. |
[signature page follows]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set forth below:
| Licensor: | BGreen, LLC |
| a Utah limited liability company | |
| /s/ Brenner Adams | |
| By: Brenner Adams | |
| Its: Manager | |
| Licensee: | Vivakor, Inc. |
| a Nevada corporation | |
| /s/ Matt Nicosia | |
| By: Matt Nicosia | |
| Its: CEO |
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Exhibit A
Description of the Cavitation Technology
A system of motors, pumps, spinning plates or plate-like devices and blenders that are used to break down the long chain hydrocarbon of mostly oil based fluids to improve their American Petroleum Institute (“API”) rating with a target of 3 to 30 degrees of gravity.
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Exhibit 10.5
PATENT AND INTELLECTUAL PROPERTY LICENSE AGREEMENT
This Patent and Intellectual Property License Agreement (the “Agreement”) is hereby entered into effective as of July 22, 2020 (the “Effective Date”), by and between, Vivakor, Inc., a Nevada corporation (“Vivakor” or the “Licensee”) on the one hand, and CSS Nanotech, Inc., a Delaware corporation (“CSSN” or the “Licensor”). The Licensee and the Licensor may each be referred to herein as a “Party” and together as the “Parties.”
I. RECITALS
A. WHEREAS, Licensor is the owner of certain patents and intellectual property related to three-dimensional carbon nanotube materials known as “Nanosponge”, and its related microwave absorption technology having applications for the Vivakor Hydrocarbon Extraction Technology (VHET) of oil from soil matrixes containing hydrocarbons as well as other natural resources, as described in DEFINITIONS, hereto (the “Nanosponge Technology”);
B. WHEREAS, the Licensee is a company in the oil extraction/oil remediation business;
C. WHEREAS, the Parties entered into a Joint Venture Formation Agreement dated August 17, 2017, under which the Parties were going to form a joint venture, with CSSN contributing licenses, know-how and manpower for the Nanosponge Technology and other consideration, and Vivakor contributing Five Million (5,000,000) shares of its preferred stock and other consideration (the “JV Agreement”);
D. WHEREAS, the Parties now desire to terminate the JV Agreement, and enter into the instant License Agreement.
E. WHEREAS, the instant License Agreement shall set forth the relationship between the Parties going forward; and
F. The Parties desire that Licensor grant an exclusive license for applications and implementations involving the Nanosponge Technology, limited to the Licensed Field described elsewhere herein, to Licensee for Licensee to use and develop as it sees fit in its sole discretion in exchange for 5,000,000 shares of Series C-1 Preferred Stock (the “Preferred Stock”), and Vivakor’s previous payment to CSSN of Seventeen Thousand One Hundred Two Dollars and Sixty-One Cents ($17,102.61), as set forth herein.
G. WHEREAS, The Parties agree that there would be sale restrictions on any Vivakor Common Stock CSSN receives as a result of the conversion of the Preferred Stock, as delineated herein;
NOW, THEREFORE, in consideration of the promises and agreements set forth below and the other considerations cited herein, the Parties agree as follows.
II. DEFINITIONS
As used in this Agreement, the following terms shall be defined as set forth below:
2.1 “Confidential Information” shall mean any and all information disclosed by a Party (the “Disclosing Party”) to the other party (the “Recipient”) hereunder that is clearly marked or identified as “confidential,” such as proprietary information relating to the Disclosing Party’s technology (including the Intellectual Property and any associated knowhow), products, processes, business information, or intellectual property rights. “Confidential Information” further includes the terms and conditions of this Agreement not otherwise made public by agreement of the parties as well as information arising or disclosed pursuant to this Agreement. Notwithstanding, CSSN may disclose this Agreement for the sake of revealing to a strategic third party the limitations of the Licensed Field description of Nanosponge Technology under this Agreement, so not to hinder CSSN’s independent potential business dealings with other strategic third parties outside the Licensed Field of NanoSponge Technology described elsewhere herein. Notwithstanding the foregoing, information will not be considered “Confidential Information” to the extent the Recipient can demonstrate by written record or other suitable physical evidence including electronic written documents that:
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| a) | such specific information was lawfully in the Recipient’s possession or control prior to the time such information was disclosed to the Recipient by the Disclosing Party; |
| b) | such specific information was independently developed by one or more employees or other agents of the Recipient without reference to such Confidential Information; |
| c) | such specific information was lawfully obtained by the Recipient from a third party under no obligation of confidentiality to the Disclosing Party; or |
| d) | such specific information was, at the time it was disclosed or obtained by the Recipient, or thereafter became, publicly known otherwise than through a breach of the Recipient’s obligations hereunder. |
2.2 “Improvements” shall mean inventions or other improvements which relate to or are based on the Inventions (i) which are within the scope of the then existing Intellectual Property which is solely owned by CSSN; and (ii) which pertain uniquely to the Licensed Field. An Improvement shall be within the scope of a patent in the Intellectual Property if covered by a claim or the description of the invention, either literally or under the doctrine of equivalents.
2.3 “Intellectual Property” shall mean:
| a) | all issued patents, continuations, continuations-in-part, divisionals, and other patents or applications derived from the Nanosponge Technology which are solely owned by CSSN, and which pertain to the Licensed Field; |
| b) | all related knowhow and trade secrets relating to the Nanosponge Technology; and |
| c) | all other trade secrets and intellectual property information related to the Nanosponge Technology which pertains to the Licensed Field. |
2.4 “Licensed Products” shall mean any product, device, process, method, apparatus, kit or component part, or any part thereof, or any subject matter, where manufacture, use, or sale is covered, in whole or in part, either literally or under the doctrine of equivalents, by any issued or pending claim of one or more of the Intellectual Property pending or issued in the country of manufacture, use, or sale, within the Licensed Field.
2.5 "New Invention(s)" shall mean an invention conceived or reduced to practice by Licensees or jointly by Licensees and Licensor, where Licensee materially contributes to the conception and/or reduction to practice of the invention, which relates to or is based on the subject matter of the Intellectual Property or based on work developed under the direction of Licensor, and which is within the Licensed Field.
2.6 “Party” (and collectively, “Parties”) shall mean either or collectively the Licensor and/or Licensees, and all associated affiliates engaged in business related to the Licensed Field. Affiliates shall include a) any officer, director, and/or legal entity directly or indirectly controlled by, or controlling, a Party, b) an entity of which fifty percent or more of the voting stock is controlled or owned directly by a Party; c) an entity which owns fifty percent or more of the voting stock of a Party; and e) an entity the majority ownership of which is directly or indirectly common to the majority ownership of a Party.
2.7 “Sublicensee” shall mean third parties to whom the Licensees sublicenses the Intellectual Property pursuant to the terms of this Agreement to develop, manufacture, have manufactured, use, and sell the Licensed Products.
2.8 “Net Sublicensee Income” shall mean compensation or consideration of any kind received by Licensees from a Sublicensee, including without limitation cash, upfront fees, milestone payments, marketable securities, stock or shares, on-going royalties, and any tangible or intangible assets, less fifteen percent (15%) to assist in covering related internal costs and overhead expenses.
2.9 “Vivakor Hydrocarbon Extraction Technology (VHET)” shall mean the proprietary solvent based extraction process for the separation of petroleum out of oil sands and results in three outputs: the oil, “clean” sands, and the solvent used for the extraction process.
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2.10 “Nanosponge Technology” shall mean all Intellectual Property related to macroscale three-dimensional heteroatom doped carbon nanotube materials produced by chemical vapor deposition synthesis of carbon nanotubes (aka Nanosponge), and its application related to microwave absorbing heat exchange technology including but not limited to Patent No.: 10294133 Titled “METHODS OF SYNTHESIZING THREE-DIMENSIONAL HETEROATOM-DOPED CARBON NANOTUBE MACRO MATERIALS AND COMPOSITIONS THEREOF”, but limited to the Licensed Field. Nanosponge Technology shall also include the patent family related to U.S. Publication No. 20190387587, entitled “Dielectric Heating of Three-Dimensional Carbon Nanostructured Porous Foams as a Heat Exchanger for Volumetric Heating of Flowing Fluids,” and related PCT/US16/63705, but limited to the Licensed Field.
2.11 “Licensed Field” shall mean the limited field of use of Nanosponge Technology for the VHET process to extract petroleum (oil) from soil (sand) matrixes containing hydrocarbons as well as other natural resources including the on-site “cracking” of the said extracted heavy oils into lighter oils.
III. grant of license
3.1 Grant. Subject to the terms and conditions of this Agreement, Licensor grants and the Licensees hereby accept a worldwide, exclusive, non-transferable, irrevocable license in the Intellectual Property to develop, manufacture, have manufactured, use, market, import, have imported, offer for sale, and sell the Licensed Products within the License Field. This license grant shall be for the lifetime of the Intellectual Property, as determined on a patent-by-patent basis, i.e., the license grant, and any obligations pertaining thereto, with respect to each patent within the Intellectual Property, shall expire upon the expiration of each patent.
3.2 Sublicense. The Licensee shall have the right to sublicense the Intellectual Property to third parties (hereinafter “Sublicensee”), without the consent of the Licensor. The sublicense terms shall be commercially reasonable when compared to similar transactions conducted at arms length, and no sublicense shall contain the right to grant further sublicenses without the prior written consent of the Licensee. Any compensation, upfront fee and/or money received by Licensee in exchange for such sublicense shall belong to Licensee, subject to the provisions of Section 4.2.
3.3 Retention of Rights. Licensor shall retain the nontransferable right to make, use and practice the Intellectual Property within the Licensed Field for his own noncommercial purposes. The license granted hereunder shall not be construed to confer any rights upon Licensee by implication, estoppel or otherwise as to any technology or intellectual property other than the Intellectual Property.
3.4 Third Party Licenses. The parties recognize that Licensee may encounter patents held by third parties, and that licenses between Licensor or Licensee and such third parties may be necessary in order to enable the Licensee to develop, make or market certain Licensed Products. In that event, the Licensee has the right to enter into licensing agreements with such third parties, as necessary.
3.5 Non-Compete. Parties understand that the licensed Intellectual Property has applications outside of the Licensed Field granted under this Agreement. Licensee will not obstruct and/or compete with the Licensor in the development, manufacture and/or sale of any Licensed Product outside of the Licensed Field (scope) described as the NanoSponge Technology in this Agreement. Licensee agrees that manufacture, use, sale, offer for sale, or importation of nanosponge materials claimed in the Intellectual Property outside of the Licensed Field described under this Agreement is prohibited during the life of any issued patent within the Intellectual Property in any territory unless there is written consent or a grant from Licensor to otherwise do so. Notwithstanding the foregoing, Licensee shall remain obligated to maintain in confidence all trade secrets to which it was exposed during the term of the Agreement in the event the Agreement is terminated, and to not exploit those trade secrets for commercial gain outside the Licensed Field until the trade secrets are no longer secret, by virtue of being publicly disclosed by a third party not directly or indirectly receiving the trade secrets from the Licensee.
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IV. payments FOR THE LICENSE
4.1 Payments. The full payment due to the Licensor for the License to the Intellectual Property to Licensee is the Preferred Stock and cash payment referred to herein, both of which have already been issued to Licensor. As previously agreed by the Parties, the Preferred Stock will convert to Vivakor Common Stock on a 1-for-1 basis, subject to any stock splits, combinations, or recapitalizations that occur after the date of issuance. Additionally, any Vivakor common stock received upon the conversion of the Preferred Stock will be subject to the following sale restriction, and any certificates representing the Preferred Stock or Vivakor Common Stock received upon the conversion of the Preferred Stock contain the following legend:
After the date of conversion to Common Stock, in any 90 day period, the holder of the Common Stock may only sell a number of shares of Common Stock equal to ten percent (10%) of the ten-day average trade volume of Vivakor’s Common Stock as reported on its trading market immediately preceding the sale date.
4.2 Sublicense Compensation. Licensor will be compensated twenty percent (20%) of any Net Sublicensee Income received by Licensee from any Sublicensee.
4.3 Patent Reimbursements. Licensor will be reimbursed by Licensee for prior patent expenses that relate to the Intellectual Property, having a total reimbursement amount of twenty-seven thousand seven hundred forty dollars and twenty-six cents ($27,740.26), that Licensee agrees to pay toward patent expenses no later than December 31, 2020. Licensee will cover ongoing patent expenses that relate to any New Invention(s), or any Improvements of Intellectual Property or any other patent protection of Nanosponge Technology solely in the Licensed Field.
V. Due Diligence in ComMercialization
5.1 Reasonable Efforts. Licensee agrees that it shall use reasonable efforts and diligently endeavor to achieve the development, regulatory approval, and commercialization of the Licensed Products. Licensee may conduct such efforts itself or through a Sublicensee.
5.2 Termination. If, after a period of twenty years from the Effective Date, the Licensee has not commercialized a Licensed Product, Licensor shall have the right, at its option to: (a) terminate the Agreement; or, (b) convert any or all of the rights granted to Licensees from exclusive to non-exclusive.
5.3 Status Reports. Licensees shall provide periodic Status Reports to Licensor, at least quarterly, indicating progress and problems to date in commercialization of the Licensed Products. Such Status Reports shall also include a forecast and schedule of major events required to market the Licensed Products. Licensor shall treat all such information as confidential.
VI. Patent Prosecution
6.1 Patent Prosecution Expenses. Beginning from the Effective Date and during the term of this Agreement and subject to Section 6.7, Licensor shall diligently prosecute and maintain, at the Licensee’s expense, any United States and foreign patents comprising the Intellectual Property, using patent counsel of the Licensee’s choice that is reasonably acceptable to Licensor.
6.2 Patent Prosecution Cooperation. The Parties agree to fully cooperate with one another and to keep each other fully informed regarding the preparation, filing, and prosecution of all patent applications which Licensor may file and prosecute pursuant to this Agreement. Licensee will also execute and deliver all documents which Licensor may deem necessary or desirable for the Intellectual Property. Licensor will also promptly provide Licensee with copies of all documents received from any patent office, so as to keep Licensee informed of the continuing prosecution. The Parties agree that representatives of each Party shall meet periodically to review and keep one another fully informed as to the status of all Intellectual Property and all patent-related matters. Such representatives may meet in person or telephonically, as mutually agreed upon by the Parties.
6.3 Protection of Licensed Products. Licensor will use reasonable efforts to amend any patent application to include claims reasonably requested by the Licensee to protect the Licensed Products.
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6.4 Foreign Protection of Licensed Products. The Licensee will have the right to request that Licensor obtain or maintain patent protection on the Intellectual Property in foreign countries if possible or available. Licensee shall notify Licensor in writing of the countries in which it desires to obtain or maintain foreign patents not less than sixty (60) days prior to the deadline for any payment, filing, or action to be taken in connection therewith, and Licensee shall be responsible for all associated costs. Upon receipt of such request, Licensor will undertake the actions described in Section 6 with respect to each foreign country requested by Licensees and shall timely file any applicable patent applications. Licensee will be responsible for all costs associated with such a request.
6.5 Patent Marking. The Licensee and its Sublicensees, if any, shall mark all Licensed Products sold by it with appropriate patent markings indicating that the Licensed Products are protected by one or more of patents in the Intellectual Property, if applicable. All Licensed Products shipped to, imported into, sold or offered for sale in other countries shall be marked in such a manner as to conform to the patent laws and practices of the country of manufacture or sale.
6.6 Decision Not To file. If Licensor decides to take steps which would result in either not filing a patent application or the abandonment of a patent or patent application, it shall promptly give notice to Licensee of such decision, which notice shall in no event be less than thirty (30) days prior to the next deadline for payment, filing, or any other related action. Further, Licensor shall provide Licensee an opportunity to assume responsibility for such patent application or patent, including, but not limited to, the assignment of the patent to Licensee if requested by Licensee. To the extent there is a patent family, and Licensor’s decision to abandon relates to one or more patents and/or patent applications within the family, any assignment will be limited to those patents and/or patent applications that Licensor is interested in abandoning, but will not extend to those patents and/or patent applications in the patent family that Licensor wishes to maintain.
6.7 Decision Not To pay. At any time, upon providing sixty (60) days written notice, Licensee may discontinue making payments with regard to any patent application(s) and/or patent(s) within the Intellectual Property, and in such case, Licensee shall have no further rights under this Agreement and this license shall terminate with respect to those patent applications and/or patents.
6.8 Patent Extension. With respect to any issued patent in the Intellectual Property, Licensor will designate Licensee as its agent for obtaining an extension of such patent or governmental equivalent which extends the exclusivity of any of the patent subject matter where available in any country in the world, or if not feasible, at Licensee’s option, permit Licensee to file in Licensor’s name or diligently obtain such extension for the Licensee, or its Sublicensees at Licensee’s expense. Licensor agrees to provide reasonable assistance, at no out-of-pocket expense, to facilitate Licensees’ efforts to obtain any extension. If for any reason the Licensee fails to exercise diligent efforts to obtain any extension or determine that it will not seek such extension, the Licensee shall provide reasonable assistance, at no out-of-pocket expense, to facilitate Licensor’s efforts to obtain any such extension.
VII. Infringement
7.1 Notice of Infringement. The Parties shall promptly give written notice to each other of any apparent infringement discovered with respect to any patent within or issuing from the Intellectual Property. Such notice shall set forth the known facts of the apparent infringement in reasonable detail. Upon written notice to Licensor, the Licensee shall have the first right, but not the obligation, to cause the Licensor to bring any legal action with respect to such apparent infringement at its own expense and for its own benefit. In such event, Licensor agrees to cooperate with the Licensee and to file such action as a party plaintiff if requested to do so by the Licensee. The Licensee shall reimburse Licensor for all verified out-of-pocket expenses incurred by Licensor in providing such assistance, including attorneys’ fees, expenses, and expert witness fees incurred by Licensor, and pay an up-front retainer if such is required by patent litigation counsel. To ensure that no rights of Licensor are compromised in any such action, the Licensor reserves the right to not settle any such claim or action, or enter into any settlement agreement that admits that any third party product does not infringe the Intellectual Property or that any patent in the Intellectual Property is invalid or enforceable without Licensor’s prior written consent, which consent shall not be unreasonably withheld. If there is a recovery in such action (including a recovery as a result of a settlement), after recovery of all direct out-of-pocket expenses incurred by the Licensee and Licensor in connection with the action, the Licensee and Licensor shall be entitled to such recovery as follows: 100% to Licensee for any recovery based on any infringement within the Licensed Field of Use and 100% to Licensor for any recovery based on any infringement outside the Licensed Field of Use. In the event a determination cannot be made if the recovery is within or outside the Licensed Field of Use, the Licensor and Licensee will split the recovery 50/50, with the parties taking into consideration whether Licensor would have been entitled to any cash or cash equivalent received from any alleged infringer equivalent to the royalties which Licensor would have received if such alleged infringer had been a Sublicensee.
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7.2 Infringement of Third-Party Rights. If the Licensee or Licensor receive notice of a claim or action by a third party alleging infringement of such third party’s rights in connection with the development, manufacture, use, marketing, or sale of a Licensed Product by the Licensee or its Sublicensees, the Licensee shall have the right to conduct the legal defense, but shall not enter into any disposition with respect thereto, or enter into any settlement agreement that admits that any Licensed Product infringes any third party right without Licensor’s prior written consent to such disposition, which consent shall not be unreasonably withheld. All costs of the Licensee’s defense, and any damages awarded or amounts paid in settlement in any such claim shall be the sole responsibility of the Licensee. Licensor shall cooperate with the Licensee if requested by the Licensee in its defense of such infringement claim or action, provided that Licensee shall reimburse Licensor for all out-of-pocket expenses, including attorneys’ fees, expenses, and expert witness fees incurred by Licensor in providing such cooperation.
7.3 Indemnification. Subject to the notification provisions of Section 7 below, the Licensee shall defend and hold harmless Licensor against a third party infringement claim or action which results from the development, manufacture, use, marketing, or sale of a Licensed Product by the Licensee or their Sublicensees, and indemnify Licensor against the cost of such defense undertaken by the Licensee, including attorneys’ fees and all other legal expenses, costs, expert witness fees, and damages awarded or amounts paid in settlement in any such claim or action. Such indemnification shall include attorneys’ fees for independent counsel retained by Licensor if Licensor deems such separate independent counsel to be necessary as a result of conflicts of interest with the Licensees, but only in connection with services rendered in connection with matters with respect to which the parties have adverse interests. The Licensee’s indemnification shall not include indemnification to the extent to which such infringement is directly caused by Licensor prior to the date of this Agreement.
7.4 Notification. In the event that any claim is asserted against Licensor or the Licensee (or any of its respective officers, directors, trustees, employees, agents, or representatives), or if any such person is made a party defendant in any action involving a matter which is the subject of Licensor’s indemnification as set forth above, or if either Party becomes aware of a claim or patent which might provide the basis for a third party’s claim of infringement against Licensee for the development, manufacture, use, marketing, or sale of a Licensed Product, then such Party shall give written notice to the other within thirty (30) days of having learned of such, or within ten (10) days of the receipt of a written complaint or formal pleading regarding the same.
VIII. Term and Termination of agreement
8.1 Term. The term of the license granted under this Agreement shall continue for the life of the Intellectual Property, unless terminated sooner under the provisions of this Agreement. For the patents that are part of the Intellectual Property, such life shall be determined on a patent-by-patent basis based on the expiration date of each patent within the Intellectual Property. Notwithstanding the foregoing, any royalties due based on a sublicense shall only be due, with respect to activities taking place in a given country, during the period of time in which a valid patent in the given country is still in force and effect.
8.2 Termination by Licensor. In addition to any other rights of termination set forth in this Agreement including Section 5.2, and subject to any applicable cure periods prescribed herein, Licensor may in his sole discretion terminate this Agreement in the event that:
| a) | The Licensee commits a breach of any material obligation of this Agreement or related Party agreement which is not cured (if capable of being cured) within thirty (30) days after receiving notice of such, or within such extension of this thirty day period as the parties shall agree in writing; or, |
| b) | A petition in bankruptcy is filed against the Licensee and is consented to, acquiesced, and remains undismissed for ninety (90) days; or Licensee makes a general assignment for the benefit of creditors, or a receiver is appointed for the Licensee, and the Licensee do not return to solvency before the expiration of said sixty (60) day period set by the notice, in which event such termination shall be effective sixty (60) days after written notice to the Licensee. |
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8.3 Termination by Licensee. The Licensee shall have the option to terminate this Agreement upon providing sixty (60) days’ written notice to Licensor. Licensee shall not recover any prior payments, whether in cash or stock, in the event of termination.
8.4 Obligations on Termination.
8.4.1 Rights Termination. Upon termination of this Agreement and except as otherwise expressly provided herein, all of the rights and licenses granted to Licensee under the terms of this Agreement shall terminate. The Licensee shall assign any sublicenses granted under this Agreement to Licensor. All rights licensed or transferred by Licensor to the Licensee hereunder which are subject to termination shall revert to Licensor, and the Licensee agree to execute all instruments reasonably necessary and desirable to revest said rights in Licensor. Upon termination of the agreement based on Licensee’s bankruptcy or dissolution, all patent rights outlined in 10.1 herein shall revert to Licensor.
8.4.2 Regulatory Records. Upon termination, the Licensees shall transfer ownership and possession of all records and documents of Licensee filed with regulatory authorities relating to the Licensed Products.
8.4.3 Return of Confidential Material. Upon termination, the Licensee and their Sublicensees shall return all Confidential Information, including any knowhow relating to the Intellectual Property, transferred to the Licensee by Licensor. The Licensee and their Sublicensees shall maintain confidentiality and not use any such information for a period of five (5) years after termination of this Agreement.
8.4.4 Unsold Inventory. In the event this Agreement is terminated for any reason, the Licensee and their Sublicensees shall have the right to sell or otherwise dispose of their stock of any Licensed Products, subject to the obligation of the Licensee to pay Licensor that portion of any payments received from Sublicensees as provided in Section 4 of this Agreement. The Licensee shall immediately discontinue any additional production of the Licensed Products.
8.4.5 Sublicensees. In the event that the license granted to the Licensee under this Agreement is terminated, any sublicenses granted to Sublicensees shall remain in full force and effect, provided that the Sublicensee is not then in breach of its sublicense agreement, and the Sublicensee agrees to be bound to Licensor as a licensee under the terms and conditions of the agreement, in which case Licensor and Sublicensee shall enter into appropriate agreements or amendments to the sublicense agreements to substitute Licensor for the Licensee as the licensor.
8.4.6 Other Rights. Termination of this Agreement for any reason shall not release any Party hereto from any liability which, at the time of such termination, has already accrued to the other party or which is attributable to a period prior to such termination, nor preclude either party from pursuing any rights and remedies it may have hereunder or at law or in equity which accrued or are based upon any event occurring prior to such termination, including, without limitation, Licensee’s obligation to pay all royalties or other payments and/or reimbursements specified in Section 4. The rights provided in. this Section shall be in addition and without prejudice to any other rights which the parties may have with respect to any breach or violations of the provisions of this Agreement.
IX. Indemnification and Warranties
9.1 Disclaimers. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, LICENSOR DISCLAIMS ALL WARRANTIES WHATSOEVER, WITH RESPECT TO THE Intellectual Property, EITHER EXPRESS OR IMPLIED, INCLUDING WARRANTIES AS TO THE MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENT CLAIMS (ISSUED OR PENDING), OR THAT THE MANUFACTURE, USE OR SALE OF THE LICENSED PRODUCT(S) AND USE OF THE INTELLECTUAL PROPERTY WILL NOT INFRINGE ANY PATENT, COPYRIGHT, TRADEMARK, OR OTHER RIGHTS. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INDIRECT, INCIDENTAL. OR CONSEQUENTIAL LOSSES OR DAMAGES, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. LICENSEES TAKES THE Intellectual Property “AS-IS,” “WITH ALL FAULTS,” AND “WITH ALL DEFECTS” AND EXPRESSLY WAIVES ALL RIGHTS TO MAKE ANY CLAIM WHATSOEVER AGAINST LICENSOR FOR WARRANTY OF ANY KIND RELATING TO THE Intellectual Property SUBJECT TO THE REPRESENTATIONS MADE HEREIN. IN NO CASE SHALL LICENSOR’S LIABILITY FOR DAMAGES OF ANY TYPE EXCEED THE TOTAL ROYALTIES WHICH HAVE ACTUALLY BEEN PAID TO LICENSOR BY LICENSEES AS OF THE DATE OF FILING OF THE ACTION AGAINST LICENSOR WHICH RESULTS IN A SETTLEMENT OR AWARD OF DAMAGES.
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9.2 Indemnity. With the exception of infringement claims or actions covered by Section 7, Licensee shall defend, indemnify, and hold harmless Licensor from and against any and all liabilities, claims, suits, damages, and expenses of any nature related to a third party claim in connection with (i) the use by the Licensee or their Sublicensees of the Intellectual Property; (ii) the development, manufacture, use, marketing, sale, or other disposition of any Licensed Products by the Licensee or their Sublicensees, or any statement or breach of any representation or warranty made by the Licensee or their Sublicensees with respect thereto; or (iii) resulting from or arising out of the exercise by Licensee of this license or any sublicense granted by Licensee pursuant to this Agreement. In the event of such indemnification, Licensor shall reasonably cooperate with the Licensee in defending any such claims. Licensor shall be entitled to receive information regarding the status of any such matter, and shall be entitled to retain counsel on its own behalf at Licensee’s expense, in addition to counsel retained by Licensee to defend Licensor, if Licensor is named a party, and if Licensor deems such separate independent counsel to be necessary as a result of conflicts of interest with the Licensee, or if Licensor is not satisfied with the defense provided by the Licensee for any reason.
9.3 Insurance. The Licensee, at its sole cost and expense, shall purchase and maintain in effect and shall require their Sublicensees to purchase and maintain in effect comprehensive or commercial form general liability insurance (contractual liability and products liability included on a world-wide basis) insuring its and their activities in connection with developing, testing, marketing approvals, and covering all claims with respect to any Licensed Products manufactured or sold within the term of any license granted hereunder, and professional liability (errors and omissions), and workers’ compensation as required by law and automobile liability, which policies shall, if required by the Licensor in writing: (i) be in such form of coverage and written by such company licensed to conduct business in the State of California as Licensor shall reasonably approve, (ii) provide that such policy is primary and not excess or contributory with regard to other insurance Licensor may have, and (iii) provide at least thirty (30) days’ notice to Licensor of cancellation. In the event the Licensee cannot obtain such insurance, or cannot obtain such insurance at a reasonable price, it shall obtain insurance in an amount to reasonable to cover the Licensee in the event of a covered event, based on the then-current operations of the company. Such insurance shall be written to cover claims incurred, discovered, manifested or made during or after expiration of this Agreement. The Licensee shall have this insurance in place prior to beginning development on a Licensed Product and at such time will furnish a certificate of such insurance to Licensor within thirty (30) days thereafter. The Licensee shall obtain such additional insurance coverage as shall be reasonably requested by Licensor, and reasonably agreed to by the parties, provided that Licensor shall not request changes in such coverage more frequently than annually.
The Licensee expressly waives any right of subrogation that it may have against Licensor resulting from any liabilities, claims, suits, damages, and expenses of any nature for which Licensees has agreed to indemnify Licensor or hold Licensor harmless under this Section.
9.4 Representations and Warranties of Licensor. Licensor represents, warrants, and covenants to the Licensee as follows:
| a) | Licensor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware having full corporate power to conduct each business as presently conducted, and to enter into and consummate the transactions contemplated by this Agreement. |
| b) | Licensor warrants that Licensor has the rights, ownership, titles and interests, legal and equitable, necessary in the Intellectual Property to grant the Licensee the exclusive license and rights described herein. |
| c) | The license granted to the Licensee under this Agreement is the only license granted by Licensor with respect to the Intellectual Property within the Licensed Field and during the term of this Agreement Licensor shall not grant any third-party rights inconsistent with the rights granted Licensee herein. |
| d) | There are no pending, and to the knowledge of Licensor as of the Effective Date, any threatened actions, claims, or proceedings in any way relating to the Intellectual Property. |
9.5 Representations and Warranties of the Licensee. The Licensee represents, warrants, and covenants to Licensor as follows:
| a) | The Licensee is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada having full corporate power to conduct each business as presently conducted, and to enter into and consummate the transactions contemplated by this Agreement. |
| b) | The execution, delivery and performance under this Agreement by the Licensee has been duly authorized by all required corporate action, do not constitute a breach, default or violation of any of the provisions of Licensee’s Articles of Incorporation, Bylaws or other charter documents, or any other agreement, law, or regulation to which it may be a party or by the terms of which it may be bound. |
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X. OWNERSHIP OF LICENSED PRODUCTS, IMPROVEMENTS AND nEW INVENTIONS
10.1 Licensed Products. Licensed Products will be owned solely by the Licensee solely within the Licensed Field. Any Improvements and New Inventions will be owned solely by the Licensee and shall be free and clear of any ownership or other rights claimed by Licensor and shall not be part of the Intellectual Property and/or Nanosponge Technology. Furthermore, the Licensee will have the sole right to file any patent, copyright, or other intellectual property rights applications or registrations resulting from any such Improvements or New Inventions anywhere in the world. Notwithstanding, Licensee hereby irrevocably transfers and assigns to Licensor, completely and exclusively, and by virtue of the execution of this Agreement all the Licensees rights, title, and interest, including but not limited to, all intellectual property rights, if any, in and to the Improvements and New Inventions outside the Licensed Field described elsewhere herein. Without limiting the generality of the foregoing, and in the alternative, the Licensor hereby irrevocably transfers and assigns to the Licensee, completely and exclusively, and by virtue of the execution of this Agreement and without any other additional compensation, all of the Licensor’s rights, title, and interest, including, but not limited to, all intellectual property rights, if any, in and to the Improvements and New Inventions within the Licensed Field described elsewhere herein, except as provided in Section 8.4.1 herein. The Licensor acknowledges and agrees that, as a result of the foregoing provisions of this Section 10, all such Improvements and New Inventions hereby become the exclusive property of the Licensee solely within the Licensed Field described elsewhere herein, and, the Licensee will have the sole right to determine the treatment of any Improvements and New Inventions within the Licensed Field, including, without limitation, the rights to keep Improvements and New Inventions as trade secrets, to file and execute patent applications on Improvements and New Inventions, to use and disclose Improvements and New Inventions without prior patent application, to file registrations for any other intellectual property rights, and to transfer any intellectual property rights to any party the Licensee so choose, or to follow any other procedure that the Licensee deems appropriate. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement shall preclude Licensee from developing, manufacturing, marketing or distributing devices suitable to (i) extract hydrocarbons from certain material, and (ii) gold and other precious metals from sands and other sand-based ore bodies. Notwithstanding anything contained in this Agreement to the contrary, nothing in this Agreement shall preclude Licensor from developing, manufacturing, marketing or distributing devices suitable to applications outside the Licensed Field.
10.2 Cooperation between Parties for Patent Protection. In the event there are Improvements and/or New Inventions, the Parties agree that there may likely be applications discovered outside the Licensed Field, and that Licensor will have certain rights and interests outside the Licensed Field. Licensee further understands that such applications may have commercial significance in countries/regions in which Licensee has insufficient commercial opportunities to pursue patent protection. To help preserve Licensors potential interest in such countries/regions outside the Licensed Field, Licensee agrees to alert Licensor, in sufficient time before any applicable filing deadlines, into which countries/regions it intends to pursue patent protection on such Improvements and/or New Inventions. Should Licensor wish to pursue any patent protection or patent protection in specific countries/regions of insufficient interest to Licensee, Licensee shall assign Licensor its rights and full ownership to said Improvements and/or New Inventions in such countries/regions at Licensor’s expense, in exchange for an irrevocable, royalty-free, exclusive license within the Licensed Field, and participate fully in obtaining patent protection in such countries/regions. The same shall apply in the event there are inventions or Improvements and/or New Inventions for which Licensee does not wish to pursue patent protection.
10.3 Shared Compensation outside Licensed Field. Licensor will provide 50% compensation to Licensee if in the case there is any license deal to any New Invention made possible outside the Licensed Field by Licensor to any third-party.
XI. Miscellaneous
11.1 Choice of Law. This Agreement will be governed by the laws of the State of Nevada.
11.2 Compliance with Laws and Regulations. The Licensee shall use reasonable efforts to comply with all foreign and United States federal, state and local laws and regulations applicable to the testing, production, transportation, packaging, labeling, export, sale and use of the Licensed Products. In particular, Licensee shall be responsible for assuring compliance with all U.S. export laws and regulations applicable to this license and the Licensee’s activities hereunder. The Licensee shall be responsible for all taxes, duties, and other governmental charges, however, designated, which are now or hereafter imposed by any such authority (a) by reason of the performance by the Licensee of their obligations under this Agreement, or the payment of any amounts by the Licensee to Licensor under this Agreement, (b) based on the Intellectual Property or Licensed Products, or (c) relating to the import of the Licensed Products into any such territory. Licensor agrees to use reasonable efforts to cooperate with Licensee at Licensee’s expense, in connection with any filings required by any governmental entity.
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11.3 Waiver of Conflict of Interest. Daniel Hashim is an officer of both parties to this Agreement. Both parties agree to waive any actual or perceived conflicts of interest arising from his being an officer or director of both parties, and each party hereby agrees, and consents to, Dr. Hashim’s continuing in these roles or in other roles in which he may be engaged to participate, regardless of whether Dr. Hashim is engaged as an officer, director, employee, or independent consultant.
11.4 Notices. Any notice, report, request or other communication required or permitted to be given under this Agreement by a Party to the other parties shall be either hand-delivered (including delivery by courier), or mailed by first-class registered or certified mail (airmail if internationally), with return receipt requested, and addressed as follows:
| To Licensee: | Vivakor, Inc. | |
| 2 Park Plaza, Suite 800 | ||
| Irvine, CA 92614 | ||
| Tel: 949-281-2606 | ||
| Fax: | ||
| With a copy to: | Law Offices of Craig V. Butler | |
| 300 Spectrum Center Drive, Suite 300 | ||
| Irvine, CA 92618 | ||
| Attn. Craig V. Butler | ||
| Fax: (949) 209-2545 | ||
| Email: cbutler@craigbutlerlaw.com | ||
| To Licensor: | CSS Nanotech, Inc. | |
| 3511 Westbrook Blvd. | ||
| East Islip, NY 11730 | ||
| Attn. John C. Campo | ||
| Tel: 631-774-9703 | ||
| Email: johncampo@cssnanotech.com | ||
| daniel@cssnanotech.com |
Each Party may designate in writing a new address to which any notice may thereafter be given. Any notice sent by registered or certified mail shall be deemed to have been given at the time of the receipt thereof by the other Party or three (3) calendar days after the time of mailing, whichever is earlier.
11.5 Entire Agreement. This Agreement contains the entire agreement with respect to the subject matter hereof and supersedes any and all prior agreements, written or oral with respect thereto.
11.6 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement shall not be modified or amended except pursuant to an instrument in writing executed and delivered on behalf of each Party to be bound. No delay on the part of any Party, in exercising any right hereunder shall operate as a waiver thereof. Neither any waiver on the part of any Party of any such right, nor any single or partial exercise of any such right shall preclude any further exercise thereof or the exercise of any other such right unless waived in writing. The rights and remedies hereunder provided are cumulative and except as otherwise provided herein are not exclusive of any rights or remedies that any party may otherwise have at law or in equity. The rights and remedies of any party based upon, arising out of or otherwise in respect of any inaccuracy in or breach of any representation, warranty, covenant or agreement contained in this Agreement shall in no way be limited by the fact that the act, omission, occurrence, or other state of facts upon which any claim of any such inaccuracy or breach is based may also be the subject matter of any other representation, warranty, covenant or agreement contained in this Agreement (or in any other agreement between the Parties) as to which there is no inaccuracy or breach.
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11.7 Binding Effect; No Assignment. This Agreement shall be binding upon and inure to the benefit of the parties named herein and their respective successors and permitted assigns. The parties may not assign either this Agreement or any of its rights, interests, or obligations hereunder without the prior written approval of the other party.
11.8 Severability. If any term or provision in this Agreement or the application thereof shall be held invalid, void or unenforceable, the remainder of such term or provision shall remain in full force and effect, and the invalid, void, or unenforceable term or provision shall be reformed to the extent possible in order to give its intended effect and/or meaning.
11.9 Method of Dispute Resolution. In the event that there arises any disagreement or dispute between the Parties that cannot be amicably resolved and which relates to the interpretation, enforcement, or violation of the terms of this Agreement, such matters will be resolved in a United States District Court in the Central District of California. If no such jurisdiction exists, then any such dispute will be resolved in a state court located in the geographic region of the Central District of California.
11.10 Headings. The headings in this Agreement are for reference only and shall not affect the interpretation of this Agreement.
11.11 Construction. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, the Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
11.12 Confidential Information. Except as expressly provided herein, the Parties agree that, for the term of this Agreement and for five (5) years thereafter, the Recipient shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose except for the purposes contemplated by this Agreement any Confidential Information furnished to it by the Disclosing Party hereto pursuant to this Agreement. Each Party hereto may use or disclose Confidential Information disclosed to it by the other Party to the extent such use or disclosure is reasonably necessary in filing or prosecuting patent applications, prosecuting or defending litigation, complying with applicable governmental regulations or otherwise submitting information to tax or other governmental authorities, conducting clinical trials, or making a permitted sublicense or otherwise exercising its rights hereunder, provided that if a Party is required to make any such disclosure of another Party’s Confidential Information, other than pursuant to a confidentiality agreement, it will give reasonable advance notice to the latter Party of such disclosure and, save to the extent inappropriate in the case of patent applications, will use its best efforts to secure confidential treatment of such information prior to its disclosure (whether through protective orders or otherwise.) Except as expressly provided herein, each Party agrees not to disclose any terms of this Agreement to any third party without the consent of the other Party; provided disclosures may be made as required by securities or other applicable laws, or to actual or prospective investors or corporate partners, or to a Party’s accountants, attorneys and other professional advisors.
11.13 Publicity. Unless required by federal and/or state law or regulation, no Party shall release any materials containing the name of another Party or any of its employees without the prior approval by an authorized representative of such Party, which approval shall not be unreasonably withheld. The Parties agree to make a mutually-agreed press release regarding this Agreement promptly following the Effective Date. Should a Party reject a proposed news release, the Parties agree to discuss the reasons for such rejection, and every effort shall be made to develop an appropriate informational news release.
11.14 Further Assurances. Each Party to this Agreement shall, at the request of the other, furnish and deliver such documents, or other further assurances as the requesting Party shall reasonably request as necessary or desirable to effect complete consummation of this Agreement and the transactions contemplated hereby.
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11.15 Force Majeure. Neither Party shall lose any rights hereunder or be liable to the other party for damages or losses (except for payment obligations) on account of failure of performance by the defaulting party if the failure is caused by war, strike, fire, Act of God, earthquake, flood, lockout, embargo, governmental acts or orders or restrictions, where failure to perform is beyond the reasonable control and not caused by the negligence, intentional conduct or misconduct of the nonperforming party and the nonperforming party has exerted all reasonable efforts to avoid or remedy such force majeure; provided, however, that in no event shall any party be required to settle any labor dispute or disturbance.
11.16 Survival. The following obligations shall survive the termination of this Agreement: (a) the Licensees’ obligation to supply reports covering the time periods up to the date of termination; (b) Licensor’s right to receive payments and fees, accrued or accruable, from payments at the time of any termination; (c) The Licensees’ obligation to maintain records, and Licensor’s right to have those records inspected; (d) any cause of action or claim of either party, accrued or to accrue because of any action or omission by the other; (e) The Licensees’ obligations stated in Sections 3.5, 7, 8, 9.1, 9.2, 11.1, 11.3, 11.4, 11.12, 11.13, 11.14, 11.15, 11.16 of this Agreement; and (f) Licensee’s obligations to return all materials given to it by Licensor.
[signature page follows]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date set forth below:
| Licensor: | CSS Nanotech, Inc. |
| a Delaware corporation | |
|
/s/ John C.Campo | |
| By: John C. Campo | |
| Its: Chief Financial Officer | |
| Licensee: | Vivakor, Inc. |
| a Nevada corporation | |
| /s/ Matt Nicosia | |
| By: Matt Nicosia | |
| Its: Chief Executive Officer |
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Exhibit 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of September 24, 2020 (“Effective Date”), by and between Vivakor, Inc., a Nevada corporation (the “Company”), and Matthew Nicosia (the “Executive”).
WITNESSETH:
WHEREAS, Executive is currently employed with the Company and the Company desires to continue retaining the services of Executive, and Executive desires to remain employed by the Company, on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the Company and Executive, intending to be legally bound, hereby agree as follows:
1. Employment. The Company agrees to employ Executive as its Chief Executive Officer, and Executive accepts such employment and agrees to perform executive employment services for the Company, for the period and upon the other terms and conditions set forth in this Agreement.
2. Term. The initial term of Executive’s employment hereunder (the “Initial Term”) shall commence on the Effective Date, and shall continue until the earlier of (i) three (3) years after the Effective Date or (ii) the date this Agreement is terminated upon written notice by either party as set forth in Section 5 (Termination). Sections 6 (Compensation upon the Termination of Executive’s Employment) and 7 (Change of Control) of this Agreement shall govern the amount of any compensation to be paid to Executive upon termination of this Agreement and his employment. Notwithstanding anything to the contrary herein, the parties acknowledge and agree that the Company may only terminate Executive’s employment for Cause (as hereinafter defined). At the end of the Initial Term (if this Agreement is not terminated pursuant to Section 5 during the Initial Term), this Agreement will be automatically renewed for successive one-year terms (each a “Renewal Term”) unless either the Executive or Company gives written notice to the other party at least three months before the end of the then current term (either the Initial Term or any Renewal Term as applicable) that he/it elects not to renew this Agreement for any subsequent year. Any non-renewal of the Agreement by either party shall be deemed a termination pursuant to Section 5.5 and shall be subject to the severance compensation provisions of Section 6.3 related to termination under Section 5.5. The Initial Term and any applicable Renewal Term are referred to herein collectively as the “Term.”
| 3. | Position and Duties. |
3.1. Service with the Company. During the Term of this Agreement, Executive agrees to perform such executive employment duties as the Board of Directors of the Company (the “Board”) shall reasonably assign to him, as the Company’s Chief Executive Officer, from time to time.
3.2. Conflicting Duties. Executive hereby confirms that he is under no contractual commitments inconsistent with his obligations set forth in this Agreement. The Company agrees that Executive may, during the Term of this Agreement, perform services for any other corporation, firm, entity or person that is not otherwise inconsistent with the provisions of this Agreement or Executive’s fiduciary obligations to the Company.
| 4. | Compensation and Benefits. |
4.1. Base Salary. As compensation for all services to be rendered by Executive under this Agreement, the Company shall pay to Executive an annual salary of Fifty Thousand Dollars ($50,000) (the “Base Salary”), subject to potential increases as stated below. The Base Salary is payable in equal installments and will be paid every two weeks. The Base Salary will increase as follows: (i) upon the Company earning a total of at least $3,000,000 in Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) during any calendar year, the Base Salary will increase to $100,000 for all calendar years thereafter until if and when further increased pursuant to this Section 4.1; and (ii) for every $1,500,000 increase in EBITDA earned by the Company during any calendar year, the Base Salary will increase an additional $50,000 up to a maximum Base Salary of $350,000. Any increase to the Base Salary will be effective the first pay period of the Company after the Company reaches a particular EBITDA amount is achieved that triggers the increase. For example purposes only and not by way of limitation: (i) if on October 31, 2021 the Company reaches $3,000,000 in EBITDA earned during the 2021 calendar year, the Base Salary would increase to $100,000 commencing the Company’s first pay period after October 31, 2021; and (ii) if on November 15, 2022 the Company reaches $4,500,000 in EBITDA earned during the 2022 calendar year, the Base Salary would increase to $150,000 commencing the Company’s first pay period after November 15, 2022.
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4.2. Bonuses. The Company and Executive shall establish an annual bonus plan for Executive. Executive will be eligible to participate in such annual bonus plan during the term of this Agreement with goals (the “Annual Goals”) established and approved by the Board. Pursuant to this annual bonus plan, Executive shall be eligible for cash bonuses valued at one hundred percent of the then current Base Salary. At the conclusion of each calendar year during the Term, the Executive and Board shall determine the level of success achieved by the Executive against the Annual Goals. Bonuses will be determined and paid within thirty days of each calendar year during the Term. If Executive’s employment is terminated for any reason other than Cause or his voluntary resignation without Good Reason, he will be entitled to receive any bonus earned up to the date of termination as reasonably determined by the Board. Notwithstanding the foregoing, at any time the Base Salary is $200,000 or more, the Company will pay Executive a minimum annual bonus of that Base Salary within 90 days after the end of each calendar year. Any amounts paid as an annual bonus will not be included in the Base Salary calculation in the next year of employment.
4.3. Grant of Stock Options. Executive may be eligible for stock option or other grants under the Company’s current or future stock option plans as determined by the Board (or the Compensation Committee of the Board, if applicable) in its discretion. The Company hereby agrees to grants to Executive an incentive stock option to purchase five million (5,000,000) shares of the Company’s common stock at an exercise price equal to 110% of the fair market value of the Company’s Common Stock on the date of grant. The Company will grant that stock option to Executive within 5 days after the Effective Date. The Company will provide to the Executive an Option Agreement (with a cashless exercise component) under the Company’s then current Stock Option Plan. Vesting for that stock option will be as follows: 5,000,000 shares will cliff vest after five years of employment to the Company. In the event Executive is terminated without Cause (as defined in Section 5.3) or resigns for Good Reason (as defined in Section 5.5), one hundred percent (100%) of the then unvested shares subject to each Option Agreement will fully vest and become fully exercisable. Each Option Agreement will allow Executive to exercise the options provided by each Option Agreement for a period of ten (10) years following any termination of Executive’s employment.
4.4. Participation in Benefit Plans. Executive shall be included to the extent eligible thereunder in any and all plans of the Company providing general benefits for the Company’s executive employees, including, without limitation, medical, dental, vision, disability, life insurance, 401(k) plan, sick days, vacation, and holidays. Executive’s participation in any such plan or program shall be subject to the provisions, rules, and regulations applicable thereto. In addition, during the Term of this Agreement, Executive shall be eligible to participate in all non-qualified deferred compensation and similar compensation, bonus and stock plans offered, sponsored or established by Company on substantially the same or a more favorable basis as any other employee of Company. The Company will pay directly or reimburse Executive for supplemental disability coverage, in an amount approved by the Board (or its Compensation Committee, if applicable). The benefit plans described in this Section 4.3 are collectively referred to in this Agreement as “Benefit Plans.”
4.5. Business Expenses. In accordance with the Company’s policies established from time to time, the Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment of appropriate supporting documentation. In addition, the Company will reimburse or pay directly for Executive’s personal executive development expenses, in a maximum amount to be approved by the Board (or its Compensation Committee, if applicable).
4.6. Vacation. Executive shall be entitled to paid vacations. Executive will accrue four (4) weeks paid vacation time per year. Vacation accrual has a ceiling of 16 weeks of vacation. Unused vacation will be paid out to Executive upon any termination of employment. If any paid vacation time is unused for more than twelve (12) months and Executive requests a payout for any or all of such unused vacation time, the Company will pay to Executive the value of such unused vacation time (calculated pursuant to the then current Base Salary at the time a payout is requested) for which Executive requests a payout. Executive may request a payout of unused vacation time up to twice each calendar year during the Term of this Agreement.
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4.7. Indemnification. In addition to any rights Executive may have under the Company's charter or by-laws, the Company agrees to indemnify Executive and hold Executive harmless, both during the Term and thereafter, against all costs, expenses (including, without limitation, fines, excise taxes and attorneys' and accountants’ fees) and liabilities (other than settlements to which the Company does not consent, which consent shall not be unreasonably withheld) (collectively, "Losses") reasonably incurred by Executive in connection with any claim, action, proceeding or investigation brought against or involving Executive with respect to, arising out of or in any way relating to Executive's employment with the Company or Executive's service as a director of the Company; provided, however, that the Company shall not be required to indemnify Executive for Losses incurred as a result of Executive's intentional misconduct or gross negligence (other than matters where Executive acted in good faith and in a manner he reasonably believed to be in and not opposed to the Company's best interests). Executive shall promptly notify the Company of any claim, action, proceeding or investigation under this paragraph and the Company shall be entitled to participate in the defense of any such claim, action, proceeding or investigation and, if it so chooses, to assume the defense with counsel selected by the Company; provided that Executive shall have the right to employ counsel to represent him (at the Company's expense) if Company counsel would have a conflict of interest in representing both the Company and Executive. The Company shall not settle or compromise any claim, action, proceeding or investigation without Executive's consent, which consent shall not be unreasonably withheld; provided, however, that such consent shall not be required if the settlement entails only the payment of money (and no admission of guilt or wrong doing by Executive) and the Company fully indemnifies Executive in connection therewith. The Company further agrees to advance any and all expenses (including, without limitation, the fees and expenses of counsel) reasonably incurred by Executive in connection with any such claim, action, proceeding or investigation. The Company, as soon as reasonably possible, will obtain and maintain a policy of directors' and officers' liability insurance covering Executive and, notwithstanding the expiration or earlier termination of this Agreement, the Company shall maintain a directors' and officers' liability insurance policy covering Executive for a period of time following such expiration or earlier termination equal to the statute of limitations for any claim that may be asserted against Executive for which coverage is available under such directors' and officers' liability insurance policy. The provisions of this paragraph shall survive the termination of this Agreement for any reason.
| 5. | Termination. |
5.1. Disability. At the Company’s election, Executive’s employment shall terminate upon Executive’s becoming totally or permanently disabled for a period of at least six (6) consecutive months. For purposes of this Agreement, the term “totally or permanently disabled” or “total or permanent disability” means Executive’s inability on account of sickness or accident, whether or not job-related, to engage in regularly or to perform adequately his assigned duties under this Agreement. The Company may only make a determination that Executive is totally or permanently disabled or has a total or permanent disability upon receipt of such a determination from Executive’s regular, treating physician. Executive, or Executive’s authorized personal representative, will instruct Executive’s regular, treating physician to furnish to the Company such physician’s determination of whether Executive is totally or permanently disabled or has a total or permanent disability upon Executive’s, or Executive’s authorized personal representative’s, receipt of a written request from the Company, signed by any officer.
5.2. Death of Executive. Executive’s employment shall terminate immediately upon the death of Executive.
5.3. Termination for Cause. The Company may terminate Executive’s employment at any time for “Cause” (as hereinafter defined) immediately upon written notice to Executive. As used herein, the term “Cause” shall mean that Executive shall have (i) committed any act of fraud, embezzlement, or any other willful misconduct that is demonstrably and materially injurious to the Company, or (ii) violated any material written Company policy or rules of the Company (provided such policies and rules must be commercially reasonable) and such violation is not cured by Executive within 30 days following written notice thereof to Executive, or (iii) refused to follow the reasonable written directions given by the Board or its designee or breached any material covenant or obligation under this Agreement or any other written agreement with the Company and such refusal or breach is not cured by Executive within 30 days following written notice thereof to Executive. No act or failure to act by Executive shall be considered “willful” unless committed without good faith and without a reasonable belief that the act or omission was in the Company’s best interest.
5.4. Resignation. Executive’s employment shall terminate on the earlier of the date that is thirty (30) days following the written submission of Executive’s resignation to the Company or the date such resignation is accepted by the Company. Executive may resign at any time with or without Good Reason.
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5.5. Termination for Good Reason. Executive may terminate his employment under this Agreement at any time for “Good Reason” (as hereinafter defined). As used herein, the term “Good Reason” shall mean, without Executive’s written consent: (a) any reduction in Executive’s Base Salary; (b) a material reduction in Executive’s authority, duties or responsibilities, including without limitation, removing Executive as Chief Executive Officer; (c) relocation by the Company of Executive’s work site to a facility or location more than 15 miles from the Executive’s current principal work site for the Company; (d) imposition of a requirement that Executive report to anyone other than a Company officer or employee rather than directly to the Board; or (e) a material breach by the Company of any of its obligations under this Agreement or any other written agreement or covenant with Executive. A condition will not be considered “Good Reason” unless Executive gives the Company written notice of the condition within ninety (90) days after the condition comes into existence and the Company fails to remedy the condition within thirty (30) days after receiving Executive’s written notice. To resign for Good Reason, Executive must resign within three months (3) months after one of the foregoing conditions has come into existence without Executive’s consent and has not been remedied by the Company within its 30-day remedy deadline.
5.6. Termination Without Cause. The Company may terminate Executive’s employment at any time Without Cause on 30 days prior written notice. A termination “Without Cause” is a termination of Executive’s employment by the Company for any reason other than those set forth in subsections (5.1) (Disability), (5.2) (Death), or (5.3) (For Cause) of this Section.
5.7. Surrender of Records and Property. Upon termination of his employment with the Company, Executive shall deliver promptly to the Company all credit cards, computer equipment, cellular telephone, records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof, that are the property of the Company and that relate in any way to the business, strategies, products, practices, processes, policies or techniques of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents that in whole or in part contain any trade secrets or confidential information of the Company that in any of these cases are in his possession or under his control, and Executive shall also remove all such information from any personal computers that he owns or controls. Executive may retain a copy of this Agreement and any other agreement between the Executive and the Company (or any of its affiliates).
| 6. | Compensation upon the Termination of Executive’s Employment. |
6.1. In the event that Executive’s employment is terminated by Company pursuant to Section 5.3 (Termination for Cause) or by Executive pursuant to Section 5.4 (Resignation) without Good Reason, then: (i) Executive shall be paid a pro rata amount of Executive’s then current Base Salary through the date his employment is terminated; and (ii) all unpaid bonuses and accrued and unpaid compensation (including any accrued and unused vacation time) shall be paid to the Executive.
6.2. In the event Executive’s employment is terminated pursuant to Section 5.2 (Death), then: (i) Executive’s beneficiary or a beneficiary designated by Executive in writing to the Company, or in the absence of such beneficiary, Executive’s estate, shall be paid Executive’s then current Base Salary through the end of the month in which his death occurs; ; and (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned but unpaid bonus payments shall be paid to the Executive’s beneficiary or in the absence of such beneficiary, Executive’s estate.
6.3. In the event Executive’s employment is terminated by the Executive pursuant to Section 5.5 (Termination for Good Reason), by the Company pursuant to Section 5.1 (Disability), or by the Company pursuant to Section 5.6 (Termination Without Cause), or by the Company pursuant to Section 2 electing for any reason to not renew this Agreement, then: (i) Executive shall be paid Executive’s then current Base Salary through the date his employment is terminated and for any accrued and unused vacation time; and (ii) the Company shall pay to Executive, as a severance allowance, the amounts described in Sections 6.3.1. through 6.3.4. (together the “Severance Payments”), and the Company shall pay no other compensation or benefits of any kind.
6.3.1. Company shall pay to Executive the Executive’s then current monthly Base Salary multiplied by two (2), not to exceed $150,000, for a period of twelve (12) months beginning upon Executive’s satisfaction of the Conditions (the “Severance Period”), paid on the Company’s regular paydays throughout the Severance Period.
6.3.2. Company shall pay for Executive’s benefit for outplacement services for Executive for twelve (12) months with an outplacement firm selected by Executive.
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6.3.3. Company shall pay for Executive’s benefit, if Executive elects to continue Executive’s health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) following the termination of Executive’s employment, Executive’s monthly premium (including any premiums related to Executive’s eligible dependents) under COBRA until the earliest of (a) the close of the Severance Period, (b) the expiration of Executive’s continuation of coverage under COBRA, or (c) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment.
6.3.4. Company shall pay to Executive upon the earlier of (a) the date that is sixty (60) days after termination of Executive’s employment and (b) Executive’s satisfaction of the Conditions (defined below), any amounts payable under any Company bonus plans in which Executive is eligible to participate as of the date of the termination of his employment, after pro rating any applicable targets, quotas, and bonus payments as of the termination date, regardless when such bonus may be due under the bonus plan.
6.3.5. Company shall amend, immediately prior to the effectiveness of the termination of Executive’s employment, each Option Agreement (a) to make 100% of the then unvested shares subject to each Option Agreement fully vested and fully exercisable, (b) to terminate any rights the Company may have to repurchase unvested shares and (c) to permit Executive to exercise the options provided by each Option Agreement for a period of ten (10) years following the termination of Executive’s employment.
Notwithstanding anything herein to the contrary, the Company shall begin COBRA payments as soon as necessary for Executive to continue coverage, even if Executive has yet to meet the Conditions (as defined below); provided that this obligation shall not extend more than sixty (60) days from the date of termination of Executive’s employment.
6.4. Conditions. The Company’s obligation to pay the Severance Payments will not apply unless (a) Executive has complied with Section 5.6 (Surrender of Records and Property), (b) Executive has resigned as a member of the Board and the boards of directors of any Company subsidiaries, if applicable, and (c) Executive has executed the Company’s standard release agreement (the “Release”) that includes (i) a full mutual release of all claims by both parties and (ii) non-disparagement of either party by the other (collectively, clauses (a) through (c) of this Section 6.4 are the “Conditions”). The Company will deliver the Release (executed by the Company) to Executive within ten (10) days of termination of Executive’s employment. If the Company has failed to deliver the Release by the time Executive has complied with all other provision of Section 6.4, then the Severance Payments will commence as scheduled if the Executive has complied with all other provisions of Section 6.4. The Executive and the Company must both comply to satisfy the Conditions within sixty (60) days of termination of Executive’s employment.
| 7. | Change of Control. |
7.1. Definition of Change of Control. As used herein, a “Change of Control” shall means: (a) the sale, transfer, or other disposition of all or substantially all of the Company’s assets, (b) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction, or (c) the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company. A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
7.2. Change of Control Bonus. In the event of a Change of Control, the Company shall, within thirty (30) days after occurrence of the Change of Control, pay Executive a lump sum amount equal to Executive’s then current annual Base Salary multiplied by two (2).
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7.3. Vesting Acceleration. In the event of a Change of Control, and notwithstanding the provisions of any Option Agreement to the contrary, immediately prior to such Change of Control, one hundred percent (100%) of the then unvested shares subject to each Option Agreement will fully vest and become fully exercisable, and any Company rights of repurchase of unvested shares with respect thereto will fully lapse, as of the closing date of the Change of Control. The Company shall also amend each Option Agreement to permit Executive to exercise the options provided by each Option Agreement for a period of ten (10) years following the termination of Executive’s employment.
7.4. Benefit Plans Following a Change of Control. In the event of a Change of Control following which the Company (or the surviving entity) continues to employ Executive and the Company (or the surviving entity) offers benefit plans that are less favorable to Executive and Executive’s eligible dependents than the Benefit Plans Executive and Executive’s dependents had immediately prior to the Change of Control, the Company (or the surviving entity) will reimburse Executive for any expenses he incurs to independently acquire additional coverage under a third-party plan to cover such deficit in benefits for up to a one (1) year period.
7.5. Severance Payments Following a Change of Control. In the event of a Change of Control following which the Company (or the surviving entity) continues to employ Executive, in the event Executive’s employment is terminated by the Executive pursuant to Section 5.5 (Termination for Good Reason) or by the Company (or the surviving entity) pursuant to Section 2 electing for any reason to not renew this Agreement, the Company (or the surviving entity) shall pay the Severance Payments to Executive in accordance with Section 6.3 above.
| 8. | Successors. |
8.1. The Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, acquisition, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations of the Company under this Agreement and agree expressly to perform the obligations of the Company under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.
8.2. Executive’s Successors. The terms of this Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees.
| 9. | Other Provisions. |
9.1. Code Section 409A. For purposes of Section 409A Internal Revenue Code, as amended (“Section 409A”), Executive hereby elects to receive, and the Company hereby agrees to pay, each amount payable under this Agreement at the times, and on the terms and conditions, set forth herein. Notwithstanding the foregoing, if Section 409A would impose any additional tax on payments within the first six (6) months following Executive’s Separation from Service (as defined in Section 409A), such payments shall be delayed to the minimum extent necessary to avoid such additional tax. Any delayed payments shall be paid in a lump sum on the first day of the seventh (7th) month after Executive’s Separation from Service.
9.2. Governing Law; Venue. This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law provisions of any jurisdiction. Any dispute arising under or related to this Agreement will be resolved exclusively in federal or state court in Orange County, California and the parties hereby consent to such jurisdiction and venue.
9.3. Prior Agreements. This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes all prior agreements and understanding with respect to such subject matter, and the parties hereto have made no agreements, representations, or warranties relating to the subject matter of this Agreement which are not set forth herein.
9.4. Withholding Taxes and Right of Offset. The Company may withhold from all payments and benefits under this Agreement all federal, state, city, or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
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9.5. No Duty to Mitigate. Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that Executive may receive from any other source.
9.6. Amendments. No amendment or modification of this Agreement shall be deemed effective unless made in writing signed by Executive and the Company.
9.7. Headings; Interpretation. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement. As used in this Agreement, unless the context expressly indicates otherwise, the word “or” is inclusive and means “and/or” and the word “including” (or any variation of that word) means “including without limitation” or a phrase of equivalent meaning.
9.8. No Waiver. No term or condition of this Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
9.9. Severability. To the extent any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted from this Agreement and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect.
9.10. Survivability. Sections 6, 7, 8, and 9 of this Agreement shall survive the termination of this Agreement and the termination of Executive’s employment with the Company.
9.11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Executive Employment Agreement as of the day and year set forth above.
| “Company”: |
Vivakor, Inc., a Nevada corporation | ||
|
| |||
| /s/ Tyler Nelson | |||
| By: Tyler Nelson | |||
| Title: Chief Financial Officer | |||
| “Executive”: |
/s/ Matthew Nicosia |
||
| Matthew Nicosia, an individual | |||
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Exhibit 10.7
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into as of September 24, 2020 (“Effective Date”), by and between Vivakor, Inc., a Nevada corporation (the “Company”), and Tyler Nelson (the “Executive”).
WITNESSETH:
WHEREAS, Executive is currently employed with the Company and the Company desires to continue retaining the services of Executive, and Executive desires to remain employed by the Company, on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein, the Company and Executive, intending to be legally bound, hereby agree as follows:
1. Employment. The Company agrees to employ Executive as its Chief Financial Officer, and Executive accepts such employment and agrees to perform executive employment services for the Company, for the period and upon the other terms and conditions set forth in this Agreement.
2. Term. The initial term of Executive’s employment hereunder (the “Initial Term”) shall commence on the Effective Date, and shall continue until the earlier of (i) three (3) years after the Effective Date or (ii) the date this Agreement is terminated upon written notice by either party as set forth in Section 5 (Termination). Sections 6 (Compensation upon the Termination of Executive’s Employment) and 7 (Change of Control) of this Agreement shall govern the amount of any compensation to be paid to Executive upon termination of this Agreement and his employment. Notwithstanding anything to the contrary herein, the parties acknowledge and agree that the Company may only terminate Executive’s employment for Cause (as hereinafter defined). At the end of the Initial Term (if this Agreement is not terminated pursuant to Section 5 during the Initial Term), this Agreement will be automatically renewed for successive one-year terms (each a “Renewal Term”) unless either the Executive or Company gives written notice to the other party at least three months before the end of the then current term (either the Initial Term or any Renewal Term as applicable) that he/it elects not to renew this Agreement for any subsequent year. Any non-renewal of the Agreement by either party shall be deemed a termination pursuant to Section 5.5 and shall be subject to the severance compensation provisions of Section 6.3 related to termination under Section 5.5. The Initial Term and any applicable Renewal Term are referred to herein collectively as the “Term.”
| 3. | Position and Duties. |
3.1. Service with the Company. During the Term of this Agreement, Executive agrees to perform such executive employment duties as the Board of Directors of the Company (the “Board”) shall reasonably assign to him, as the Company’s Chief Financial Officer, from time to time.
3.2. Conflicting Duties. Executive hereby confirms that he is under no contractual commitments inconsistent with his obligations set forth in this Agreement. The Company agrees that Executive may, during the Term of this Agreement, perform services for LBL Professional Consulting, Inc. (“LBL”), or any other corporation, firm, entity or person that is not otherwise inconsistent with the provisions of this Agreement or Executive’s fiduciary obligations to the Company.
The Company acknowledges that Executive is the Chief Executive Officer of LBL and sits on LBL’s board of directors. Executive and Company acknowledge and agree to the following in this matter:
| (a) | Executive will not be permitted to participate in any discussion, including LBL board meetings, regarding any Company stock that LBL may own at any time. | |
| (b) | Executive’s Chief Financial Officer services performed for the Company are governed by and reported under this Agreement, and Executive is not acting in any manner as a representative for LBL in his executive services to Company as its Chief Financial Officer. | |
| (c) | During the Term of this Agreement, LBL will not compensate Executive for any service hours that he provides to the Company as such services and compensation are governed by this Agreement. | |
| (d) | Executive may continue to act as the Chief Executive Officer of LBL and may continue to assist in managing LBL. |
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| 4. | Compensation and Benefits. |
4.1. Base Salary. As compensation for all services to be rendered by Executive under this Agreement, the Company shall pay to Executive an annual salary of Fifty Thousand Dollars ($50,000) (the “Base Salary”), subject to potential increases as stated below. The Base Salary is payable in equal installments and will be paid every two weeks. The Base Salary will increase as follows: (i) upon the Company earning a total of at least $3,000,000 in Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”) during any calendar year, the Base Salary will increase to $100,000 for all calendar years thereafter until if and when further increased pursuant to this Section 4.1; and (ii) for every $1,500,000 increase in EBITDA earned by the Company during any calendar year, the Base Salary will increase an additional $50,000 up to a maximum Base Salary of $350,000. Any increase to the Base Salary will be effective the first pay period of the Company after the Company reaches a particular EBITDA amount is achieved that triggers the increase. For example purposes only and not by way of limitation: (i) if on October 31, 2021 the Company reaches $3,000,000 in EBITDA earned during the 2021 calendar year, the Base Salary would increase to $100,000 commencing the Company’s first pay period after October 31, 2021; and (ii) if on November 15, 2022 the Company reaches $4,500,000 in EBITDA earned during the 2022 calendar year, the Base Salary would increase to $150,000 commencing the Company’s first pay period after November 15, 2022.
4.2. Bonuses. The Company and Executive shall establish an annual bonus plan for Executive. Executive will be eligible to participate in such annual bonus plan during the term of this Agreement with goals (the “Annual Goals”) established and approved by the Board. Pursuant to this annual bonus plan, Executive shall be eligible for cash bonuses valued at one hundred percent of the then current Base Salary. At the conclusion of each calendar year during the Term, the Executive and Board shall determine the level of success achieved by the Executive against the Annual Goals. Bonuses will be determined and paid within thirty days of each calendar year during the Term. If Executive’s employment is terminated for any reason other than Cause or his voluntary resignation without Good Reason, he will be entitled to receive any bonus earned up to the date of termination as reasonably determined by the Board. Notwithstanding the foregoing, at any time the Base Salary is $200,000 or more, the Company will pay Executive a minimum annual bonus of that Base Salary within 90 days after the end of each calendar year. Any amounts paid as an annual bonus will not be included in the Base Salary calculation in the next year of employment.
4.3. Participation in Benefit Plans. Executive shall be included to the extent eligible thereunder in any and all plans of the Company providing general benefits for the Company’s executive employees, including, without limitation, medical, dental, vision, disability, life insurance, 401(k) plan, sick days, vacation, and holidays. Executive’s participation in any such plan or program shall be subject to the provisions, rules, and regulations applicable thereto. In addition, during the Term of this Agreement, Executive shall be eligible to participate in all non-qualified deferred compensation and similar compensation, bonus and stock plans offered, sponsored or established by Company on substantially the same or a more favorable basis as any other employee of Company. The Company will pay directly or reimburse Executive for supplemental disability coverage, in an amount approved by the Board (or its Compensation Committee, if applicable). The benefit plans described in this Section 4.3 are collectively referred to in this Agreement as “Benefit Plans.”
4.4. Business Expenses. In accordance with the Company’s policies established from time to time, the Company will pay or reimburse Executive for all reasonable and necessary out-of-pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment of appropriate supporting documentation. In addition, the Company will reimburse or pay directly for Executive’s personal executive development expenses, in a maximum amount to be approved by the Board (or its Compensation Committee, if applicable).
4.5. Vacation. Executive shall be entitled to paid vacations. Executive will accrue four (4) weeks paid vacation time per year. Vacation accrual has a ceiling of 16 weeks of vacation. Unused vacation will be paid out to Executive upon any termination of employment. If any paid vacation time is unused for more than twelve (12) months and Executive requests a payout for any or all of such unused vacation time, the Company will pay to Executive the value of such unused vacation time (calculated pursuant to the then current Base Salary at the time a payout is requested) for which Executive requests a payout. Executive may request a payout of unused vacation time up to twice each calendar year during the Term of this Agreement.
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4.6. Indemnification. In addition to any rights Executive may have under the Company's charter or by-laws, the Company agrees to indemnify Executive and hold Executive harmless, both during the Term and thereafter, against all costs, expenses (including, without limitation, fines, excise taxes and attorneys' and accountants’ fees) and liabilities (other than settlements to which the Company does not consent, which consent shall not be unreasonably withheld) (collectively, "Losses") reasonably incurred by Executive in connection with any claim, action, proceeding or investigation brought against or involving Executive with respect to, arising out of or in any way relating to Executive's employment with the Company or Executive's service as a director of the Company; provided, however, that the Company shall not be required to indemnify Executive for Losses incurred as a result of Executive's intentional misconduct or gross negligence (other than matters where Executive acted in good faith and in a manner he reasonably believed to be in and not opposed to the Company's best interests). Executive shall promptly notify the Company of any claim, action, proceeding or investigation under this paragraph and the Company shall be entitled to participate in the defense of any such claim, action, proceeding or investigation and, if it so chooses, to assume the defense with counsel selected by the Company; provided that Executive shall have the right to employ counsel to represent him (at the Company's expense) if Company counsel would have a conflict of interest in representing both the Company and Executive. The Company shall not settle or compromise any claim, action, proceeding or investigation without Executive's consent, which consent shall not be unreasonably withheld; provided, however, that such consent shall not be required if the settlement entails only the payment of money (and no admission of guilt or wrong doing by Executive) and the Company fully indemnifies Executive in connection therewith. The Company further agrees to advance any and all expenses (including, without limitation, the fees and expenses of counsel) reasonably incurred by Executive in connection with any such claim, action, proceeding or investigation. The Company, as soon as reasonably possible, will obtain and maintain a policy of directors' and officers' liability insurance covering Executive and, notwithstanding the expiration or earlier termination of this Agreement, the Company shall maintain a directors' and officers' liability insurance policy covering Executive for a period of time following such expiration or earlier termination equal to the statute of limitations for any claim that may be asserted against Executive for which coverage is available under such directors' and officers' liability insurance policy. The provisions of this paragraph shall survive the termination of this Agreement for any reason.
| 5. | Termination. |
5.1. Disability. At the Company’s election, Executive’s employment shall terminate upon Executive’s becoming totally or permanently disabled for a period of at least six (6) consecutive months. For purposes of this Agreement, the term “totally or permanently disabled” or “total or permanent disability” means Executive’s inability on account of sickness or accident, whether or not job-related, to engage in regularly or to perform adequately his assigned duties under this Agreement. The Company may only make a determination that Executive is totally or permanently disabled or has a total or permanent disability upon receipt of such a determination from Executive’s regular, treating physician. Executive, or Executive’s authorized personal representative, will instruct Executive’s regular, treating physician to furnish to the Company such physician’s determination of whether Executive is totally or permanently disabled or has a total or permanent disability upon Executive’s, or Executive’s authorized personal representative’s, receipt of a written request from the Company, signed by any officer.
5.2. Death of Executive. Executive’s employment shall terminate immediately upon the death of Executive.
5.3. Termination for Cause. The Company may terminate Executive’s employment at any time for “Cause” (as hereinafter defined) immediately upon written notice to Executive. As used herein, the term “Cause” shall mean that Executive shall have (i) committed any act of fraud, embezzlement, or any other willful misconduct that is demonstrably and materially injurious to the Company, or (ii) violated any material written Company policy or rules of the Company (provided such policies and rules must be commercially reasonable) and such violation is not cured by Executive within 30 days following written notice thereof to Executive, or (iii) refused to follow the reasonable written directions given by the Board or its designee or breached any material covenant or obligation under this Agreement or any other written agreement with the Company and such refusal or breach is not cured by Executive withing 30 days following written notice thereof to Executive. No act or failure to act by Executive shall be considered “willful” unless committed without good faith and without a reasonable belief that the act or omission was in the Company’s best interest.
5.4. Resignation. Executive’s employment shall terminate on the earlier of the date that is thirty (30) days following the written submission of Executive’s resignation to the Company or the date such resignation is accepted by the Company. Executive may resign at any time with or without Good Reason.
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5.5. Termination for Good Reason. Executive may terminate his employment under this Agreement at any time for “Good Reason” (as hereinafter defined). As used herein, the term “Good Reason” shall mean, without Executive’s written consent: (a) any reduction in Executive’s Base Salary; (b) a material reduction in Executive’s authority, duties or responsibilities, including without limitation, removing Executive as Chief Financial Officer; (c) relocation by the Company of Executive’s work site to a facility or location more than 15 miles from the Executive’s current principal work site for the Company; (d) imposition of a requirement that Executive report to anyone other than the Company’s Chief Executive Officer or directly to the Board; or (e) a material breach by the Company of any of its obligations under this Agreement or any other written agreement or covenant with Executive. A condition will not be considered “Good Reason” unless Executive gives the Company written notice of the condition within ninety (90) days after the condition comes into existence and the Company fails to remedy the condition within thirty (30) days after receiving Executive’s written notice. To resign for Good Reason, Executive must resign within three months (3) months after one of the foregoing conditions has come into existence without Executive’s consent and has not been remedied by the Company within its 30-day remedy deadline.
5.6. Termination Without Cause. The Company may terminate Executive’s employment at any time Without Cause on 30 days prior written notice. A termination “Without Cause” is a termination of Executive’s employment by the Company for any reason other than those set forth in subsections (5.1) (Disability), (5.2) (Death), or (5.3) (For Cause) of this Section.
5.7. Surrender of Records and Property. Upon termination of his employment with the Company, Executive shall deliver promptly to the Company all credit cards, computer equipment, cellular telephone, records, manuals, books, blank forms, documents, letters, memoranda, notes, notebooks, reports, data, tables, calculations or copies thereof, that are the property of the Company and that relate in any way to the business, strategies, products, practices, processes, policies or techniques of the Company, and all other property, trade secrets and confidential information of the Company, including, but not limited to, all documents that in whole or in part contain any trade secrets or confidential information of the Company that in any of these cases are in his possession or under his control, and Executive shall also remove all such information from any personal computers that he owns or controls. Executive may retain a copy of this Agreement and any other agreement between the Executive and the Company (or any of its affiliates).
| 6. | Compensation upon the Termination of Executive’s Employment. |
6.1. In the event that Executive’s employment is terminated by Company pursuant to Section 5.3 (Termination for Cause) or by Executive pursuant to Section 5.4 (Resignation) without Good Reason, then: (i) Executive shall be paid a pro rata amount of Executive’s then current Base Salary through the date his employment is terminated; and (ii) all unpaid bonuses and accrued and unpaid compensation (including any accrued and unused vacation time) shall be paid to the Executive.
6.2. In the event Executive’s employment is terminated pursuant to Section 5.2 (Death), then: (i) Executive’s beneficiary or a beneficiary designated by Executive in writing to the Company, or in the absence of such beneficiary, Executive’s estate, shall be paid Executive’s then current Base Salary through the end of the month in which his death occurs; ; and (ii) all accrued and unpaid compensation (including any accrued and unused vacation time) and earned but unpaid bonus payments shall be paid to the Executive’s beneficiary or in the absence of such beneficiary, Executive’s estate.
6.3. In the event Executive’s employment is terminated by the Executive pursuant to Section 5.5 (Termination for Good Reason), by the Company pursuant to Section 5.1 (Disability), or by the Company pursuant to Section 5.6 (Termination Without Cause), or by the Company pursuant to Section 2 electing for any reason to not renew this Agreement, then: (i) Executive shall be paid Executive’s then current Base Salary through the date his employment is terminated and for any accrued and unused vacation time; and (ii) the Company shall pay to Executive, as a severance allowance, the amounts described in Sections 6.3.1. through 6.3.4. (together the “Severance Payments”), and the Company shall pay no other compensation or benefits of any kind.
6.3.1. Company shall pay to Executive the Executive’s then current monthly Base Salary multiplied by two (2), not to exceed $150,000, for a period of twelve (12) months beginning upon Executive’s satisfaction of the Conditions (the “Severance Period”), paid on the Company’s regular paydays throughout the Severance Period.
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6.3.2. Company shall pay for Executive’s benefit for outplacement services for Executive for twelve (12) months with an outplacement firm selected by Executive.
6.3.3. Company shall pay for Executive’s benefit, if Executive elects to continue Executive’s health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) following the termination of Executive’s employment, Executive’s monthly premium (including any premiums related to Executive’s eligible dependents) under COBRA until the earliest of (a) the close of the Severance Period, (b) the expiration of Executive’s continuation of coverage under COBRA, or (c) the date when Executive becomes eligible for substantially equivalent health insurance coverage in connection with new employment.
6.3.4. Company shall pay to Executive upon the earlier of (a) the date that is sixty (60) days after termination of Executive’s employment and (b) Executive’s satisfaction of the Conditions (defined below), any amounts payable under any Company bonus plans in which Executive is eligible to participate as of the date of the termination of his employment, after pro rating any applicable targets, quotas, and bonus payments as of the termination date, regardless when such bonus may be due under the bonus plan.
Notwithstanding anything herein to the contrary, the Company shall begin COBRA payments as soon as necessary for Executive to continue coverage, even if Executive has yet to meet the Conditions (as defined below); provided that this obligation shall not extend more than sixty (60) days from the date of termination of Executive’s employment.
6.4. Conditions. The Company’s obligation to pay the Severance Payments will not apply unless (a) Executive has complied with Section 5.6 (Surrender of Records and Property), (b) Executive has resigned as a member of the Board and the boards of directors of any Company subsidiaries, if applicable, and (c) Executive has executed the Company’s standard release agreement (the “Release”) that includes (i) a full mutual release of all claims by both parties and (ii) non-disparagement of either party by the other (collectively, clauses (a) through (c) of this Section 6.4 are the “Conditions”). The Company will deliver the Release (executed by the Company) to Executive within ten (10) days of termination of Executive’s employment. If the Company has failed to deliver the Release by the time Executive has complied with all other provision of Section 6.4, then the Severance Payments will commence as scheduled if the Executive has complied with all other provisions of Section 6.4. The Executive and the Company must both comply to satisfy the Conditions within sixty (60) days of termination of Executive’s employment.
| 7. | Change of Control. |
7.1. Definition of Change of Control. As used herein, a “Change of Control” shall means: (a) the sale, transfer, or other disposition of all or substantially all of the Company’s assets, (b) any merger, consolidation or other business combination transaction of the Company with or into another corporation, entity or person, other than a transaction in which the holders of at least a majority of the shares of voting capital stock of the Company outstanding immediately prior to such transaction continue to hold (either by such shares remaining outstanding or by their being converted into shares of voting capital stock of the surviving entity) a majority of the total voting power represented by the shares of voting capital stock of the Company (or the surviving entity) outstanding immediately after such transaction, or (c) the direct or indirect acquisition (including by way of a tender or exchange offer) by any person, or persons acting as a group, of beneficial ownership or a right to acquire beneficial ownership of shares representing a majority of the voting power of the then outstanding shares of capital stock of the Company. A transaction shall not constitute a Change of Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.
7.2. Change of Control Bonus. In the event of a Change of Control, the Company shall, within thirty (30) days after occurrence of the Change of Control, pay Executive a lump sum amount equal to Executive’s then current annual Base Salary multiplied by two (2).
7.3. Benefit Plans Following a Change of Control. In the event of a Change of Control following which the Company (or the surviving entity) continues to employ Executive and the Company (or the surviving entity) offers benefit plans that are less favorable to Executive and Executive’s eligible dependents than the Benefit Plans Executive and Executive’s dependents had immediately prior to the Change of Control, the Company (or the surviving entity) will reimburse Executive for any expenses he incurs to independently acquire additional coverage under a third-party plan to cover such deficit in benefits for up to a one (1) year period.
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7.4. Severance Payments Following a Change of Control. In the event of a Change of Control following which the Company (or the surviving entity) continues to employ Executive, in the event Executive’s employment is terminated by the Executive pursuant to Section 5.5 (Termination for Good Reason) or by the Company (or the surviving entity) pursuant to Section 2 electing for any reason to not renew this Agreement, the Company (or the surviving entity) shall pay the Severance Payments to Executive in accordance with Section 6.3 above.
| 8. | Successors. |
8.1. The Company’s Successors. Any successor to the Company (whether direct or indirect and whether by purchase, merger, acquisition, consolidation, liquidation or otherwise) to all or substantially all of the Company’s business and/or assets shall assume the obligations of the Company under this Agreement and agree expressly to perform the obligations of the Company under this Agreement in the same manner and to the same extent as the Company would be required to perform such obligations in the absence of a succession.
8.2. Executive’s Successors. The terms of this Agreement and all rights of Executive hereunder shall inure to the benefit of, and be enforceable by, Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributes, devisees and legatees.
| 9. | Other Provisions. |
9.1. Code Section 409A. For purposes of Section 409A Internal Revenue Code, as amended (“Section 409A”), Executive hereby elects to receive, and the Company hereby agrees to pay, each amount payable under this Agreement at the times, and on the terms and conditions, set forth herein. Notwithstanding the foregoing, if Section 409A would impose any additional tax on payments within the first six (6) months following Executive’s Separation from Service (as defined in Section 409A), such payments shall be delayed to the minimum extent necessary to avoid such additional tax. Any delayed payments shall be paid in a lump sum on the first day of the seventh (7th) month after Executive’s Separation from Service.
9.2. Governing Law; Venue. This Agreement is made under and shall be governed by and construed in accordance with the laws of the State of California without reference to conflicts of law provisions of any jurisdiction. Any dispute arising under or related to this Agreement will be resolved exclusively in federal or state court in Orange County, California and the parties hereby consent to such jurisdiction and venue.
9.3. Prior Agreements. This Agreement contains the entire agreement of the parties relating to the subject matter hereof and supersedes all prior agreements and understanding with respect to such subject matter, and the parties hereto have made no agreements, representations, or warranties relating to the subject matter of this Agreement which are not set forth herein.
9.4. Withholding Taxes and Right of Offset. The Company may withhold from all payments and benefits under this Agreement all federal, state, city, or other taxes as shall be required pursuant to any law or governmental regulation or ruling.
9.5. No Duty to Mitigate. Executive shall not be required to mitigate the amount of any payment contemplated by this Agreement, nor shall any such payment be reduced by any earnings that Executive may receive from any other source.
9.6. Amendments. No amendment or modification of this Agreement shall be deemed effective unless made in writing signed by Executive and the Company.
9.7. Headings; Interpretation. All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement. As used in this Agreement, unless the context expressly indicates otherwise, the word “or” is inclusive and means “and/or” and the word “including” (or any variation of that word) means “including without limitation” or a phrase of equivalent meaning.
9.8. No Waiver. No term or condition of this Agreement shall be deemed to have been waived nor shall there be any estoppel to enforce any provisions of this Agreement, except by a statement in writing signed by the party against whom enforcement of the waiver or estoppel is sought. Any written waiver shall not be deemed a continuing waiver unless specifically stated, shall operate only as to the specific term or condition waived, and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived.
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9.9. Severability. To the extent any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted from this Agreement and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect.
9.10. Survivability. Sections 6, 7, 8, and 9 of this Agreement shall survive the termination of this Agreement and the termination of Executive’s employment with the Company.
9.11. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Executive Employment Agreement as of the day and year set forth above.
| “Company”: |
Vivakor, Inc., a Nevada corporation | ||
|
| |||
| /s/ Matthew Nicosia | |||
| By: Matthew Nicosia | |||
| Title: Chief Executive Officer | |||
| “Executive”: |
/s/ Tyler Nelson |
||
| Tyler Nelson, an individual | |||
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Exhibit 21.1
Subsidiaries
| · | VivaVentures Management Company, Inc., a Nevada corporation, wholly owned; |
| · | VivaSphere, Inc., a Nevada corporation, wholly owned; |
| · | VivaVentures Oil Sands, Inc., a Utah corporation, wholly owned; |
| · | RPC Design and Manufacturing LLC, a Utah limited liability company, wholly owned; |
| · | VivaVentures Energy Group, Inc., a Nevada Corporation; 99.5% owned; and |
| · | Vivakor Middle East Limited Liability Company, a Qatar limited liability company; approximately 49% ownership. |
Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors
Vivakor, Inc.
We consent to the use of our report dated November 6, 2020 with respect to the consolidated balance sheets of Vivakor, Inc. as of December 31, 2019 and 2018 and the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the two years in the period ended December 31, 2019 and the related notes, included herein and to the reference to our firm under the heading “Experts” in the prospectus.
/s/ Hall & Company CPAs
Irvine, California
November 6, 2020