Form 8-K Veritas Farms, Inc. For: May 11
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 11, 2021
| Veritas Farms, Inc. |
| (Exact name of registrant as specified in charter) |
| Nevada | 333-210190 | 90-1254190 | ||
| (State or other Jurisdiction of Incorporation) |
(Commission File Number) | (IRS Employer Identification No.) |
| 1512 E. Broward Blvd., Suite 300, Fort Lauderdale, FL | 33301 | |
| (Address of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code: (561) 288-6603
| (Former name or former address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of Company under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ☐ | Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
As used in this Current Report on Form 8-K, and unless otherwise indicated, the terms “the Company,” “Veritas Farms,” “we,” “us” and “our” refer to Veritas Farms, Inc. and its subsidiary.
Item 1.01 Entry into a Material Definitive Agreement.
Securities Purchase Agreement
General
On May 11, 2021 (the “Effective Date”), the Company entered into a Securities Purchase Agreement (the “SPA”) with The Cornelis F. Wit Revocable Living Trust, of which Cornelis F. Wit is trustee (the “Purchaser”), an existing shareholder, pursuant to which the Company contemporaneously sold to the Purchaser an aggregate of (a) 2,000,000 shares of its Series A Convertible Preferred Stock having the rights, preferences, powers, restrictions and limitations set forth below (the “Series A Preferred Shares”); and (b) 1,000,000 shares of its Series B Convertible Preferred Stock having the rights, preferences, powers, restrictions and limitations set forth below (the “Series B Preferred Shares,” and together with the Series A Preferred Shares, collectively, the “Preferred Shares”) in exchange for (i) the payment of $2,000,000 (including $302,500 principal plus accrued but unpaid interest in bridge financing provided by the Purchaser to the Company during April 2021); and (ii) the surrender of 2,000,000 units (the “Units”), each Unit consisting of two shares of common stock and one warrant to purchase an additional share of common stock in accordance with the terms of the subscription agreements for the purchase of the Units entered into by the Purchaser and the Company in September and October 2020. As a result of the transaction and the voting rights accorded the Preferred Shares as set forth below, the Purchaser now holds approximately 88% of the voting power of the Company and accordingly, a “Change in Control” has occurred.
Series A Preferred Shares
A total of 4,000,000 shares of the Company’s authorized but undesignated and unissued shares of preferred stock have been designated as the Series A Preferred Shares, with the following rights, preferences, powers, restrictions and limitations:
Stated Value. The Series A Preferred Shares have a stated value of $1.00 per share (“Stated Value”).
Ranking. In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series A Preferred Shares rank (a) junior to the Company’s Series B Shares; and (b) senior to (i) the Company’s common stock, par value $0.001 per share (the “Common Stock”) and any other class or series of stock (including other series of Preferred Stock) of the Company (collectively, “Junior Stock”).
Dividends. From and after the date of the issuance of Series A Preferred Shares, dividends at the rate per annum of 8%, compounded annually, accrue daily on the Stated Value (the “Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Company shall be under no obligation to pay such Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) shares of Series B Preferred Shares; and (b) Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series A Preferred Shares then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred Share in an amount at least equal to the sum of (a) the amount of the aggregate Accruing Dividends then accrued on such Series A Preferred Shares and not previously paid; and (b) (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per Series A Preferred Share as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock; and (B) the number of shares of Common Stock issuable upon conversion of a Series A Preferred Share, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per Series A Preferred Share determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the Stated Value of the Series A Preferred Shares; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series A Preferred Shares shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series A Preferred Share.
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Liquidation Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any Deemed Liquidation Event, (as defined) (collectively, a “Liquidation Event”), the holders of Series A Preferred Shares shall be entitled to receive, after payment to all holders of Series B Preferred Shares of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares, but prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Stock by reason of their ownership thereof, an aggregate amount per share equal to the Stated Value of the Series A Preferred Shares and the accrued but unpaid dividends thereon. After the payment to all holders of Series B Preferred Shares of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares and to all holders of the Series A Preferred Shares the full liquidation preference hereunder, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Shares and Junior Stock, pro rata, on an “as converted basis,” determined immediately prior to such Liquidation Event, and the Series A Preferred Shares shall not be entitled to participate in such distribution of the remaining assets of the Company.
Conversion. Each Series A Preferred Share is convertible into Common Stock at the option of the holder thereof at a conversion rate of $0.05 per share of Common Stock. The conversion rate is subject to adjustment in the event of stock splits, stock dividends, other recapitalizations and similar events, as well as in the event of issuance by the Company of shares of Common Stock or securities exercisable for, convertible into or exchangeable for Common Stock at an effective price per share less than the conversion rate then in effect (other than certain customary exceptions).
Voting. The Series A Preferred Shares shall vote on an “as converted” basis together with holders of Series B Preferred Shares and holders of Common Stock as a single class on all matters brought to a vote of shareholders. Certain matters, including actions which would have a material adverse effect on the rights of holders of Series A Preferred Shares of approval of holders of a majority of the then issued and outstanding Series A Preferred Shares voting as a separate class.
Series B Preferred Shares
A total of 1,000,000 shares of the Company’s authorized but undesignated and unissued shares of preferred stock have been designated as the Series B Preferred Shares, with the following rights, preferences, powers, restrictions and limitations:
Stated Value. The Series B Preferred Shares have a stated value of $1.00 per share (“Stated Value”).
Ranking. In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series B Preferred Shares rank senior to the (a) Series A Preferred Shares; (b) the Company’s Common Stock and any other class or series of Junior Stock.
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Dividends. From and after the date of the issuance of Series B Preferred Shares, dividends at the rate per annum of 8%, compounded annually, accrue daily on the Stated Value (the “Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Company shall be under no obligation to pay such Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) shares of Series B Preferred Shares; and (b) Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series B Preferred Shares then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Preferred Share in an amount at least equal to the sum of (a) the amount of the aggregate Accruing Dividends then accrued on such Series B Preferred Shares and not previously paid; and (b) (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per Series B Preferred Share as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock; and (B) the number of shares of Common Stock issuable upon conversion of a Series B Preferred Share, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per Series B Preferred Share determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the Stated Value of the Series B Preferred Shares; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series B Preferred Shares shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series B Preferred Share.
Liquidation Preference. In the event of a Liquidation Event, the holders of Series B Preferred Shares shall be entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Stock (including Series A Preferred Shares), a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Shares and the amount of the accrued but unpaid dividends on the Series B Preferred Shares. After the payment to all holders of Series B Preferred Shares of such liquidation preference and to all holders of the Series A Preferred Shares their full liquidation preference, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Shares and Junior Stock other than Series A Preferred Shares, pro rata, on an “as converted basis,” as applicable.
Conversion. Each Series A Preferred Share is convertible into Common Stock at the option of the holder thereof at a conversion rate of $0.20 per share of Common Stock. The conversion rate is subject to adjustment in the event of stock splits, stock dividends, other recapitalizations and similar events, as well as in the event of issuance by the Company of shares of Common Stock or securities exercisable for, convertible into or exchangeable for Common Stock at an effective price per share less than the conversion rate then in effect (other than certain customary exceptions).
Voting. The Series A Preferred Shares shall vote together with holders of Series B Preferred Shares and holders of Common Stock as a single class on all matters brought to a vote of shareholders. Each Series B Preferred Share shall entitle the holder thereof to such number of votes as equal the number of shares of Common Stock then issuable upon conversion of the Series B Share multiplied by 50. Certain matters, including actions which would have a material adverse effect on the rights of holders of Series B Preferred Shares of approval of holders of a majority of the then issued and outstanding Series B Preferred Shares voting as a separate class.
The Preferred Shares were issued to the Purchaser pursuant to the exemptions from registration under the Securities Act of 1933, as amended (the “Securities Act”) afforded by Section 4(a)(2) thereof and Regulation D thereunder.
Other Rights Accorded the Purchaser
Pursuant to the SPA, the Purchaser and the Company agreed to fix the number of members of the board of directors of the Company at five (5), three of whom shall be designated by the Purchaser and two of whom shall be “independent” and acceptable to the Purchaser. In addition, the Purchaser has been accorded certain registration rights under the Securities Act with respect to the shares of Common Stock issuable upon conversion of the Preferred Shares and ongoing financial and other information rights with respect to the Company.
The above descriptions of the SPA and the terms of the rights, preferences, powers, restrictions and limitations of the Preferred Shares are only summaries and are qualified in their entirety by reference to the complete text of the SPA and the Amendment to the Company’s Articles of Incorporation filed as Exhibits 10.1 and 10.2 to this Current Report.
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Changes in Management
General
In accordance with the terms of the SPA, on the Effective Date Dr. Bao T. Doan and Marc J. Horowitz stepped down from the board of directors. In addition, Alexander M. Salgado stepped down as Chief Executive Officer and a director of the Company, and from any and all other positions he held with the Company and its subsidiary, and entered into a Separation Agreement (the “Salgado Separation Agreement”) and a Consulting Agreement to assist with transition (the “Salgado Consulting Agreement”) with the Company and Michael Pelletier entered into a Separation Agreement (the “Pelletier Separation Agreement”) and a Consulting Agreement (the “Pelletier Consulting Agreement”) with the Company pursuant to which he stepped down as an employee of the Company and from any and all other positions he held with the Company and its subsidiary, except pursuant to the Pelletier Consulting Agreement he will continue to serve as Chief Financial Officer for an interim period in order to transition to his successor.
Appointment of New Directors and Executive Officers
On the Effective Date, Stephen E. Johnson, Kuno D. van der Post and Craig J. Fabel were elected and appointed as the Purchaser’s designees on the board of directors. In addition, Mr. Johnson was appointed as Chief Executive Officer and President of the Company, and Ramon Pino, was appointed as Executive Vice President of Finance, Treasurer and Secretary of the Company.
The following is a brief description of the background and business experience of Mr. Johnson, Dr. van der Post, Mr. Fabel and Mr. Pino.
Stephen E. Johnson, age 56. Prior to joining the Company, since November 2019, Mr. Johnson is a member of New World Angels, a Florida-based angel investment group that provides seed funding and venture capital to qualified early-stage and start-up companies, and since April 2021 is a director with Frontier BPM, a global software application service provider delivering powerful, cost-effective life sciences applications and data management services. From October 2019 to September 2020, Mr. Johnson was Chief Revenue Officer of Anju Software, Inc., a private healthcare company offering software and services to the pharmaceutical and Contract Research Organizations. From June 2017 to October, 2019, Mr. Johnson served as Chief Executive Officer, and from June 2010 to October 2019, as President, and from April 2008 to June 2017 as Chief Operating Officer, and from September 2006 to April 2008 as Executive Vice President, National Sales, of OmniComm Systems, Inc., a company delivering software and services to the pharmaceutical/healthcare industry (OTCQX:OMCM); OmniComm was acquired by Anju Software, Inc., a private company, in October 2019 and contemporaneously therewith filed a Certification and Notice of Termination of Registration with the SEC). Mr. Johnson assisted with the transition of OmniComm to Anju under a one year agreement after the acquisition in 2019. From 2000 to August 2006, Mr. Johnson served as East Coast and Central U.S. Sales Manager for Oracle Corporation, a supplier of software for enterprise information management, within its Clinical Applications Division. Mr. Johnson received his B.S. in Microbiology from the University of Massachusetts.
Kuno D. van der Post, age 53. Prior to joining the Company, from September 2020 to present, Dr van der Post serves as the Chief Commercial Officer for ActiGraph LLC, a medical grade device company servicing the global life science research market. From October 2019 to June 2020, Dr. van der Post was Chief Commercial Officer of Anju Software, Inc., a private healthcare company offering software and services to the pharmaceutical and Contract Research Organizations. From June 2017 to October, 2019, Dr. van der Post served as the Chief Commercial Officer, and from June 2013 until June 2017, as Senior Vice President of Business Development, of OmniComm Systems, Inc., a company delivering software and services to the pharmaceutical/healthcare industry (OTCQX:OMCM); OmniComm was acquired by Anju Software, Inc., a private company, in October 2019 and contemporaneously therewith filed a Certification and Notice of Termination of Registration with the SEC). Dr. van de Post transitioned from OmniComm to Anju after the acquisition in 2019. Dr. van der Post has been working in both the preclinical and clinical development arena for over 14 years. Prior to joining OmniComm Systems, from October 2009 to September 2012, Dr. van der Post worked for the Health Sciences Global Business Unit of Oracle Corporation, supplier of software for enterprise information management, as Sales Director, Latin America and prior to that as European Channel Sales Director, and from March 2007 to September 2009 Dr. van der Post worked for Medidata Solutions, Inc. as Area Sales Director. Dr. van der Post obtained his PhD degree from the University of Liverpool (UK) and his Master of Science degree from University of Salford (UK). We believe that Dr. van der Post’s business experience will make him a valuable member of our board of directors.
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Craig J. Fabel, age 50. Prior to joining the Company, from April 2012 to present, Craig Fabel is Chief Executive Officer of Silverback Companies LLC, providing advisory services and investments with early-stage emerging companies and is the holding company for an Amazon marketing agency called Etail Partners. Etail Partners is the exclusive marketing and sales agency of global brands on Amazon. From May 2019 to present, Mr. Fabel serves as the Chief Executive Officer of Oingo Products LLC, sales and marketing of consumer branded disposable gloves and hand sanitizer products. From January 2018 to April 2019, Mr. Fabel served as President and a Director of the Board of Green Roads World, a leading CBD manufacturer and sales company. From January 2009 to December 2012, Mr. Fabel served as National Sales Manager of Invacare Supply Company, a healthcare distribution and sales company to the homecare market. From January 2008 to December 2009, Mr. Fabel served as Director of Business Development for AOM Healthcare Solutions (subsidiary of Owens & Minor, Nasdaq:OMI), a company delivering products and services for the diabetic patient market. February 2004 to January 2008, Mr. Fabel served as Founder and Chief Executive Officer of PulseMD Corporation, a software and services company providing advanced electronic medical record software and data integration. From July 2001 to January 2004, Mr. Fabel served as Managing Partner of Alternergy Partners, a company providing advisory services for private investors and Venture Capital of early-stage companies. From September 1999 to June 2001, Mr. Fabel was with FoundryOne Corporation, an accelerator/incubator for the commercialization of intellectual property developed by leading technology research companies. From 1992 to 1999, Mr. Fabel held sales and management roles for PSS World Medical, a national medical distributor. Mr. Fabel received his B.S. in Marketing from Florida State University. We believe that Mr. Fabel’s diverse business experience will make him a valuable member of our board of directors.
Ramon Pino, age 32. Prior to joining the Company, from October 2019 to January 2021, Mr. Pino was Vice President and Controller of Anju Software, Inc., a private healthcare company offering software and services to the pharmaceutical and Contract Research Organizations. From January 2018 to October 2019, Mr. Pino served as Controller, and from January 2015 to December 2017, as Accounting Manager, of OmniComm Systems, Inc., a company delivering software and services to the pharmaceutical/healthcare industry (OTCQX:OMCM; OmniComm was acquired by Anju Software, Inc., a private company, in October 2019 and contemporaneously therewith filed a Certification and Notice of Termination of Registration with the SEC). Mr. Pino transitioned from OmniComm to Anju after the acquisition in 2019. Mr. Pino holds a Bachelor of Science degree in Accounting from the University of Central Florida and a Master of Accounting degree from Florida International University.
There will be no grant or award to Mr. Johnson, in connection with his appointment as a director of the Company.
The Company will compensate Dr. van der Post and Mr. Fabel, and all other non-employee directors, for their service on the board of directors with an annual grant of stock options under the 2017 Incentive Stock Plan to purchase 100,000 shares of Common Stock of the Company, at a per share exercise price equal to the closing price of the Common Stock on the grant date, with 25% of the shares subject to the options vesting every ninety (90) days following the grant date subject to the director’s continuous service to the Company, with a term of ten (10) years.
Each of Mr. Johnson, Dr. van der Post, Mr. Fabel and Mr. Pino (a) has no family relationship with any director or other executive officer of the Company or any person nominated or chosen by the Company to become a director or executive officer; and (b) is not a party to any related person transaction with the Company.
Thomas E. Vickers, a director of the Company since October 2020, and Kellie Newton, a director of the Company since April 2019, continue to serve as members of the board of directors. In addition, as of the Effective Date, Thomas E. Vickers, will be elected Chairman of the Board of Directors. Mr. Vickers will receive $3,000 monthly for his service as Chairman of the Board.
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Director Independence
The Company’s Board of Directors has determined that each of our four non-employee directors, Thomas E. Vickers, Kuno D. van der Post, Kellie Newton and Craig Fabel, is “independent” within the meaning of the applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) and the listing standards of the Nasdaq Stock Market and the NYSE American. Moreover, our board of directors has determined that Mr. Vickers qualifies as an “audit committee financial expert” as the term is defined by the applicable rules and regulations of the SEC and the listing standards of the Nasdaq Stock Market and the NYSE American, based on his education and extensive financial and accounting experience as a principal financial officer, principal accounting officer and controller for 10 years.
Appointment of Committee Members
As of the Effective Date, the following directors will serve as members of the following board committees:
Audit Committee:
Mr. Vickers, Chairman
Ms. Newton
Mr. Fabel
Compensation Committee:
Mr. Vickers, Chairman
Ms. Newton
Mr. Van der Post
Nominating and Corporate Governance Committee:
Ms. Newton, Chairman
Mr. Vickers
Mr. Fabel
Mr. Van der Post
Employment Agreements
The Company and Mr. Johnson intend to enter into an employment agreement for Mr. Johnson’s service as Chief Executive Officer and President which will provide for an annual base salary of $225,000, subject to periodic review for increases, and an award of stock options to purchase 450,000 shares of the Company’s Common Stock under our 2017 Stock Incentive Plan, with a per share exercise price equal to the closing price of the Common Stock on the grant date, which options will vest ratably over three (3) years subject to Mr. Johnson’s continuous service to the Company, with a term of ten years. Mr. Johnson will be eligible to participate in the standard employee benefit plans generally available to executive employees of the Company, including health insurance, life and disability insurance, 2017 Stock Incentive Plan, 401(k) plan, and paid time off and paid holidays. The Company will also reimburse Mr. Johnson for his documented business expenses incurred in connection with his employment pursuant to the Company’s standard reimbursement expense policy and practices.
Subject to the Board of Director’s determination, Mr. Johnson will also be eligible to receive an incentive performance bonus based upon the Company’s performance with respect to applicable performance targets as determined by the Board of Directors.
The Company and Mr. Pino intend to enter into an employment agreement for Mr. Pino’s service as Executive Vice President – Finance, Treasurer and Secretary which will provide for an annual base salary of $190,000, subject to periodic review for increases, and an award of stock options to purchase 385,000 shares of the Company’s Common Stock under our 2017 Stock Incentive Plan, with a per share exercise price equal to the closing price of the Common Stock on the grant date, which options will vest ratably over three (3) years subject to Mr. Pino’s continuous service to the Company, with a term of ten years. Mr. Pino will be eligible to participate in the standard employee benefit plans generally available to executive employees of the Company, including health insurance, life and disability insurance, 2017 Stock Incentive Plan, 401(k) plan, and paid time off and paid holidays. The Company will also reimburse Mr. Pino for his documented business expenses incurred in connection with his employment pursuant to the Company’s standard reimbursement expense policy and practices.
Subject to the Board of Director’s determination, Mr. Pino will also be eligible to receive an incentive performance bonus based upon the Company’s performance with respect to applicable performance targets as determined by the Board of Directors.
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Salgado Separation and Consulting Agreements
Pursuant to the Salgado Separation Agreement and Salgado Consulting Agreement entered into by Mr. Salgado with the Company effective as of the Effective Date, the Company agreed to pay Mr. Salgado a severance equal to two years’ of his base salary and the continuation of vested stock options to purchase 1,250,000 shares held by Mr. Salgado for a period of three-years in consideration for Mr. Salgado’s resignation from all officers and Board positions held with the Company and its subsidiary. The Separation Agreement additionally contains, among other things, customary releases, confidentiality, and non-disparagement provisions. In addition, on the Effective Date the Company entered into a Consulting Agreement with Mr. Salgado for a term of three months pursuant to which Mr. Salgado will provide consulting services in order to transition to his successor in exchange for a monthly consulting fee of $16,666.66. The foregoing descriptions of the Salgado Separation Agreement and the Salgado Consulting Agreement are only summaries and are qualified in their entirety by reference to the complete texts of the Separation Agreement and the Consulting Agreement, which are filed as Exhibits 10.3 and 10.4 to this Current Report on Form 8-K.
Pelletier Separation and Consulting Agreements.
Pursuant to the Pelletier Separation Agreement entered into by Mr. Pelletier with the Company effective May 14, 2021, and the Pelletier Consulting Agreement entered into by Mr. Pelletier with the Company as of the Effective Date, the Company agreed to pay Mr. Pelletier a severance equal to six months of his base salary and the continuation of vested stock options to purchase 16,667 shares held by Mr. Pelletier for a period of three months from the expiration or termination of his severance period. The Separation Agreement additionally contains, among other things, customary releases, confidentiality, and non-disparagement provisions. In addition, on the Effective Date the Company entered into a Consulting Agreement with Mr. Pelletier for a term of three months pursuant to which Mr. Pelletier will continue to serve as the Company’s Chief Financial Officer in order to transition to his successor in exchange for a monthly consulting fee of $12,000. The foregoing descriptions of the Pelletier Separation Agreement and the Pelletier Consulting Agreement are only summaries and are qualified in their entirety by reference to the complete texts of the Separation Agreement and the Consulting Agreement, which are filed as Exhibit 10.5 and 10.6 to this Current Report on Form 8-K.
Item 3.02 Unregistered Sales of Equity Securities.
The disclosure set forth under Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 5.01 Changes in Control of Registrant.
The disclosure set forth under Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
The disclosure set forth under Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
The disclosure set forth under Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
On May 11, 2021, the Company issued a press release announcing it having entered into the Securities Purchase Agreement and the related change in the Company’s Chief Executive Officer. A copy of the press release dated is attached hereto as Exhibit 99.1.
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In accordance with General Instruction B.2 of Form 8-K, the information furnished pursuant to this Item 7.01, and including Exhibit 99.1 furnished herewith, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), nor shall it be deemed incorporated by reference in this Current Report on Form 10-K or in any subsequent filing under the Exchange Act or any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
| (d) | Exhibits |
| * | Furnished but not filed. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: May 12, 2021 | VERITAS FARMS, INC. | |
| By: | /s/ Michael Pelletier | |
| Michael Pelletier, Chief Financial Officer | ||
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Exhibit 10.1
Execution Version
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of May 11, 2021 (the “Effective Date”), is made by and between VERITAS FARMS, INC., a Nevada corporation (the “Company”) and The Cornelis F. Wit Revocable Living Trust (the “Purchaser”). The Company and the Purchaser are sometimes referred to herein individually, as a “Party” and collectively, as the “Parties.”
RECITALS
WHEREAS, the Company wishes to sell to the Purchaser an aggregate of (a) 2,000,000 shares of its Series A Convertible Preferred Stock having the rights, preferences, powers, restrictions and limitations set forth in the Certificate of Designation attached as Exhibit A hereto (the “Series A Preferred Shares”); and (b) 1,000,000 shares of its Series B Convertible Preferred Stock having the rights, preferences, powers, restrictions and limitations set forth in the Certificate of Designation attached as Exhibit B hereto (the “Series B Preferred Shares,” and together with the Series A Preferred Shares, collectively, the “Preferred Shares”) and the Purchaser wishes to Purchase the Preferred Shares from the Company, all on and subject to the terms and conditions set forth herein; and
WHEREAS, the Company and the Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration pursuant to Section 4(a)2 of and Regulation D promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Securities Act”).
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy are hereby acknowledged, the Parties agree as follows:
ARTICLE I
CONSIDERATION
1.1 Sale and Purchase of Preferred Shares. On and subject to the terms and conditions set forth in this Agreement, at Closing (as hereinafter defined), the Company and shall sell the Preferred Shares to the Purchaser and the Purchaser shall purchase and acquire the Preferred Shares from the Company at a purchase price of $1.00 per Preferred Share (the “Purchase Price”).
1.2 Payment of the Purchase Price. The Purchase Price for the Shares shall be payable by the Purchaser to the Company in full at Closing (a) by conversion of the principal amount and accrued but unpaid interest on that certain Secured Convertible Promissory Note dated April 8, 2021 in the original principal amount of $124,000 (the “Note”) made by the Company in favor of the Purchaser; (b) by delivery and exchange of 2,000,000 Units (the “Units”), each consisting of (i) two shares of the Company’s common stock, par value $0.001 (the “Common Stock”); and (i) one common stock purchase warrant (the “Warrants”), by the Purchaser’s exercise of the exchange rights granted to the Purchaser under those certain Subscription Agreements between the Company and the Purchaser dated September 14, 2020 and October 13, 2020 (the “2020 Subscription Agreements”) pursuant to which the Units were issued for an aggregate purchase price of $1,000,000; and (c) the balance by wire transfer in immediately available funds to such bank account as may be designated by the Company.
1.3 Closing. The closing of the purchase and sale of the Preferred Shares provided for in this Agreement (the “Closing”) shall be consummated by electronic or other exchange of documents contemporaneously with the execution of this Agreement on the Effective Date.
1.4 Board Composition at Closing. At Closing, the Company’s board of directors shall consist of five (5) directors, (a) three of whom , Stephen E. Johnson, Kuno D. van der Post and Craig Fabel, are designees of Purchaser and (b) two of whom Thomas E. Vickers and Kellie Newton are current members of the Company’s board of directors. All other current members of the board of directors shall have resigned at Closing.
1.5 Closing Deliveries by the Company. At Closing, the Company shall deliver (or cause to be delivered) to the Purchaser:
(a) Certificates in the name of the Purchaser for the Preferred Shares purchased hereunder;
(b) evidence in form and substance reasonably satisfactory to the Purchaser that the composition of the Company’s board of directors be comprised at Closing as provided in Section 1.4;
(c) evidence, in form and substance reasonably satisfactory to the Purchaser, that the working capital deficiency of the Company is no greater than $2,000,000;
(d) a Separation Agreement between the Company and Alexander Salgado, in the form attached hereto as Exhibit C, duly executed by the parties thereto;
(e) a Consulting Agreement between the Company and Alexander Salgado, in the form attached hereto as Exhibit D, duly executed by the parties thereto;
(f) a Separation Agreement between the Company and Michael Pelletier, in the form attached hereto as Exhibit E, duly executed by the parties thereto;
(g) a Consulting Agreement between the Company and Michael Pelletier, in the form attached hereto as Exhibit F, duly executed by the parties thereto;
(h) an amendment to the Employment Agreement between the Company and Dave Smith, in the form attached hereto as Exhibit G, duly executed by the parties thereto;
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(i) a copy of the minutes of meeting or written consent duly executed by each director of the Company, providing the valid adoption of resolutions of the Company’s board of directors approving this Agreement and each other transaction agreement provided for in this Agreement to which the Company is a party, and the consummation of the transactions contemplated hereby and thereby;
(j) a copy of the Current Report on Form 8-K, in form and substance satisfactory to the Purchaser, disclosing the transactions contemplated in this Agreement, as provided in Section 3.3;
(k) waivers, in form and substance satisfactory to the Purchaser, duly executed by each I-Bankers Direct, LLC. and WestPark Capital, Inc., of fees and commission with respect to the transactions contemplated by this Agreement.
(l) copies of all material consents, authorizations, filings, licenses, approvals, and notice required or otherwise reasonably requested by the Purchaser in connection with the execution, delivery and performance by the Company or the validity and enforceability of, this Agreement; and
(m) such other documents as may be necessary to effect the consummation of the transactions contemplated by this Agreement.
1.6 Closing Deliveries by the Purchaser. At Closing, the Purchaser shall deliver (or cause to be delivered) to the Company:
(a) The Note, for cancellation;
(b) The certificates representing the 4,000,000 shares of common stock 2,000,000 Warrants comprising the Units, accompanied by a stock power or powers duly executed in blank, a warrant assignment or assignments or other instruments of transfer in form and substance reasonably satisfactory to the Company;
(c) The balance of the Purchase Price, as provided in Section 1.2(b);
(d) copies of all consents, authorizations, filings, licenses, approvals, and further assurances, if any, required or otherwise reasonably requested by the Company in connection with the execution, delivery and performance by the Purchaser or the validity and enforceability of this Agreement; and
(e) such other documents as may be necessary to effect the consummation of the transactions contemplated by this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
2.1 Representations and Warranties of the Company. Except as set forth in the SEC Reports (as hereinafter defined), which shall be deemed a part hereof, the Company hereby makes the following representations and warranties to the Purchaser:
(a) SEC Reports. The Company has timely (including within any additional time periods provided by Rule 12b-25 under the Exchange Act) filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC since January 1, 2018, pursuant to the Securities Act and the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) including all exhibits thereto and financial statements, notes and schedules included or incorporated by reference therein and all amendments thereto (collectively, the “SEC Reports”). As of their respective filing dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC promulgated thereunder, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. All material agreements to which the Company and its Subsidiary (as hereinafter defined) are a party or to which any of their respective property or assets are subject that are required to be filed as Exhibits to the SEC Reports are included as a part of, or specifically identified in, the SEC Reports.
(b) Organization, Good Standing and Qualification.
(i) The Company is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of Nevada, with the requisite corporate power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify could be reasonably expected to result in a material adverse effect on the business, assets (including intangible assets), liabilities, financial condition, property, prospects or results of operations of the Company and the Subsidiary (as hereinafter defined), taken as a whole (a “Material Adverse Effect”).
(ii) The Company has one subsidiary, 271 Lake Davis Holdings, LLC (the “Subsidiary”). The Company directly owns all the membership interests of the Subsidiary free and clear of any lien, charge, security interest, encumbrance, right of first refusal or other restriction The Subsidiary is duly formed, validly existing and in good standing under the laws of the State of Delaware, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted. The Subsidiary is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify could be reasonably expected to result in a Material Adverse Effect. The Subsidiary is not in violation of any of the provisions of its certificate of organization, operating agreement or other organizational or charter documents (each as amended through the date hereof). Other than the foregoing, the Company (a) does not own or hold (of record, beneficially or otherwise) nor has the Company ever owned or held, directly or indirectly, any equity interests, debt securities or any other security or interest in any other Person (as hereinafter defined) or the right to acquire any such security or interest: (b) is not, nor has it ever been, a partner or member of any partnership, limited liability company or joint venture; and (c) does not have any obligation to make any investment in any Person.
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(c) Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by this Agreement and the other transaction agreements to which it is a party (collectively, the “Transaction Agreements”), and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery by the Company of this Agreement and the other Transaction Agreements to which it is a party and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company or its stockholders in connection therewith. This Agreement and the other Transaction Agreements to which the Company is a party have been duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and (ii) as limited by general principles of equity that restrict the availability of equitable remedies. The Company is not in violation of any of the provisions of its Amended and Restated Articles of Incorporation or bylaws (each as amended through the date hereof).
(d) Capitalization; Subsidiary.
(i) As of the date of this Agreement, the authorized capital stock of the Company consists of (i) 200,000,000 shares of Common Stock, par value $0.001; and (ii) 5,000,000 shares of preferred stock, par value $0.001 per share. No shares of capital stock of the Company are entitled to preemptive or similar rights, nor is any holder of capital stock of the Company entitled to statutory preemptive or similar rights arising out of any agreement or understanding with the Company.
(ii) All issued and outstanding shares of the Company’s Common Stock (A) have been duly authorized and validly issued and are fully paid and nonassessable; and (B) were issued in compliance with all applicable state and federal laws concerning the issuance of securities. There are no shares of preferred stock issued and outstanding.
(iii) There are no outstanding options, warrants, rights (including conversion and rights of first refusal and similar rights) to subscribe to, calls, or commitments of any character whatsoever relating to securities, rights or obligations convertible into or exchangeable for, or giving any individual, corporation, partnership, trust, limited liability company, association or other entity (any of the foregoing, a “Person”) any right to subscribe for or acquire any shares of capital stock of the Subsidiary, or contracts, commitments, understandings, or arrangements by which the Subsidiary is or may become bound to issue additional shares of capital stock of the Subsidiary, or securities or rights convertible or exchangeable into shares of capital stock of the Subsidiary.
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(iv) Except as set forth in the SEC Reports or as set forth on Schedule 2.1(d)(iv) attached hereto, there are no outstanding options, warrants, rights (including conversion and rights of first refusal and similar rights) to subscribe to, calls, or commitments of any character whatsoever relating to, or securities, rights or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire any shares of capital stock of the Company, or contracts, commitments, understandings, or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company, or securities or rights convertible or exchangeable into shares of capital stock of the Company. The issue and sale of the Preferred Shares will not obligate the Company to issue Common Stock or other securities to any Person (other than the Purchaser) and will not result in a right of any holder of Company securities to adjust the exercise, conversion, exchange or reset price under such securities.
(e) Issuance of the Preferred Shares and Conversion Shares. The Preferred Shares are duly authorized, and when issued and paid for in accordance with the terms hereof, and the shares of Common Stock issuable upon conversion of the Preferred Shares (the “Conversion Shares”) will be duly and validly issued, fully paid and nonassessable, and free and clear of all liens, encumbrances and rights of first refusal of any kind (collectively, “Liens”). Based in part upon the representations of the Purchaser set forth in Section 2.2 of this Agreement, (i) the Preferred Shares will be issued in compliance with all applicable federal and state securities laws; and (ii) no registration under the Securities Act is required for the offer and sale of the Preferred Shares by the Company to the Purchaser under this Agreement. The Company has reserved from its duly authorized capital stock the maximum number of Common Stock issuable upon conversion of the Preferred Shares.
(f) No Conflicts. The execution, delivery and performance by the Company of this Agreement and the other Transaction Agreements to which it is a party, and the consummation by the Company of the transactions contemplated hereby do not and will not (i) conflict with or violate any provision of the Company’s Amended and Restated Articles of Incorporation or bylaws (each as amended through the date hereof); (ii) conflict with, or constitute a default (or an event which with notice or lapse of time, or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time, or both) of, any agreement, credit facility, indenture or instrument (evidencing a Company or Subsidiary debt or otherwise) to which the Company or the Subsidiary is a party or by which any property or asset of the Company or any Subsidiary is bound or affected; (iii) result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or the Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or any Subsidiary is bound or affected, or (iv) conflict with, or result in or constitute any violation of, or result in the termination, suspension or revocation of, any Authorization (as hereinafter defined applicable to the Company or the Subsidiary, or to any of their respective properties or assets, or to any of the Preferred Shares, or result in any other impairment of the rights of the holder of any such Authorization, except in the case of each of clauses (ii), (iii) and (iv), as could not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect. The business of the Company and the Subsidiary is conducted in compliance in all material respects with all laws, ordinances or regulations of any governmental authority. As used herein, “Authorization” means any registration (including any registration under the Securities Act) or filing with, or any notification to, or any approval, permission, consent, ratification, waiver, authorization, order, finding of suitability, permit, license, franchise, exemption, certification or similar instrument or document of or from, any U.S. court, arbitral tribunal, arbitrator, administrative or regulatory agency or commission or other governmental or regulatory authority, agency or governing body, domestic or foreign, including without limitation any trading market (each, a “Governmental Entity”), or any other person, or under any statute, law, ordinance, rule, regulation or agency requirement of any Governmental Entity,
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(g) Filings, Consents and Approvals. The Company is not required to obtain any consent, waiver, Authorization or order of, give any notice to, or make any filing or registration with, any court or other U.S. or foreign federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of this Agreement, other than filings which may be required under federal and state securities laws, including Form D and any blue sky filings.
(h) Litigation; Proceedings. Except as set forth in the SEC Reports or Schedule 2.1(h) attached hereto, there is no action, suit, inquires, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company or any of its properties (including for these purposes the Subsidiary) before or by any court, arbitrator, governmental or administrative agency, or regulatory authority (U.S. federal, state, county, local or foreign), which if adversely determined, could reasonably be expect to have a Material Adverse Effect nor is the Company aware of any reasonable basis therefor. Neither the Company nor the Subsidiary nor, to the Company’s knowledge, any of its officers, directors or any of its employees is a party or is named as subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality (in the case of officers, directors or employees, such as would affect the Company). There is no action, suit, proceeding or investigation by the Company or the Subsidiary pending or which the Company or the Subsidiary intends to initiate, which if adversely determined, could reasonably be expected to have a Material Adverse Effect. The foregoing includes, without limitation, actions, suits, proceedings or investigations pending or threatened in writing (or any basis therefor known to the Company) involving the prior employment of any of the Company’s employees, their services provided in connection with the Company’s business, any information or techniques allegedly proprietary to any of their former employers or their obligations under any agreements with prior employers.
(i) No Default or Violation. Neither the Company nor any Subsidiary (i) is in material default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a material default), nor has the Company or any Subsidiary received written notice of a claim that it is in material default under or is in material violation of any indenture, loan or credit agreement or any other agreement or instrument to which it is a party or by which it or any of its properties is bound, (ii) is not in violation in any material respect of any order of any court, arbitrator or governmental body, or (iii) is not in violation in any material respect of any statute, rule or regulation of any governmental authority, which in each instance could not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect.
(j) Brokers Fees. No fees or commissions will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person, including but not limited to I-Bankers Direct, LLC. and WestPark Capital, Inc., with respect to the transactions contemplated by this Agreement.
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(k) Intellectual Property.
(i) Each of the Company and the Subsidiary owns or possesses sufficient legal rights to its respective Intellectual Property (as defined below) necessary for its business as now conducted and as presently proposed to be conducted. To the knowledge of the Company, all such Intellectual Property rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property rights of the Company or the Subsidiary. To the Company’s knowledge, no product or service marketed or sold (or proposed to be marketed or sold) by the Company or the Subsidiary violates or will violate any license or infringes or will infringe any intellectual property rights of any other party. Other than with respect to commercially available software products under standard end-user object code license agreements, there are no outstanding options, licenses, agreements, claims, encumbrances or shared ownership interests of any kind relating to the Intellectual Property, nor is the Company or the Subsidiary bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other Person. Neither the Company nor any Subsidiary has received any communications alleging that the Company or the Subsidiary, as the case may be, has violated, or by conducting its business, would violate any of the patents, trademarks, service marks, trade names, copyrights, trade secrets, mask works or other proprietary rights or processes of any other Person. For purposes of this Agreement, “Intellectual Property” means all patents, patent applications, trademarks, trademark applications, service marks, service mark applications, trade names, copyrights, trade secrets, domain names, mask works, technology, information and proprietary rights and processes, similar or other intellectual property rights, subject matter of any of the foregoing, tangible embodiments of any of the foregoing, licenses in, to and under any of the foregoing (and all goodwill associated therewith), and any and all such cases that are necessary, owned or used by the Company or the Subsidiary in the conduct of its respective businesses as now conducted and as presently proposed to be conducted.
(ii) All material licenses or other agreements under which the Company or the Subsidiary is granted Intellectual Property (excluding licenses to use software utilized in the Company’s or such Subsidiary’s internal operations and which is generally commercially available) are in full force and effect and, to the Company’s knowledge, there is no material default by any party thereto. The Company has no reason to believe that the licensors under such licenses and other agreements do not have and did not have all requisite power and authority to grant the rights to the Intellectual Property purported to be granted thereby.
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(iii) All licenses or other agreements under which the Company or the Subsidiary has granted rights to Intellectual Property to others (including all end-user agreements) are in full force and effect, there has been no material default by the Company or the Subsidiary thereunder and, to the Company’s knowledge, there is no material default of any provision thereof relating to Intellectual Property by any other party thereto.
(iv) Each of the Company and the Subsidiary has taken all steps required in accordance with commercially reasonable business practice to establish and preserve their ownership in their owned Intellectual Property and to keep confidential all material technical information developed by or belonging to the Company or such Company which has not been patented or copyrighted.
(l) Regulatory Permits. Each of the Company and the Subsidiary possesses all material certificates, authorizations and permits issued by the appropriate U.S. federal, state or foreign regulatory authorities materially necessary to conduct its business (“Permits”) and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Permit.
(m) FDA Compliance. The Company and its Subsidiary, and the manufacture, marketing and sales of their products, comply with any and all applicable requirements of the applicable FDA (Food and Drug Administration) laws to which the Company or the Subsidiary is subject. Notwithstanding the foregoing, the Parties acknowledge the products of the Company’s and its Subsidiary’s Goods contain, or are derived from, hemp in accordance with the Parties’ understanding of Section 7606 of the Agricultural Act of 2014 (Pub. L. 113-79) and applicable provisions of the Agriculture Improvement Act of 2018 (collectively, the “Farm Bill”), though there remains uncertainties as to whether any other federal, state or local law may or may not conflict with, or be superseded by, the Farm Bill. Each party further acknowledges and agrees that such currently existing uncertainties under federal, state and local laws, including the Food, Drug and Cosmetic Act, concerning hemp are subject to change at any time in the sole discretion of the applicable authority, and each Party hereby: (i) agrees that the representations, warranties, guaranties and covenants contained in this Agreement shall not be deemed to be breached by virtue of such products containing hemp in accordance with the Farm Bill; and (ii) to the extent allowable by law, waives any defenses to the enforcement of the Agreement based on an “illegality of purpose” theory or related defenses.
(n) Insurance. Except as set forth on Schedule 2.1(n) hereto, the Company and the Subsidiary are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which the Company and the Subsidiary are engaged in their locality. Neither the Company nor the Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost.
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(o) Title. The Company and its Subsidiary have good and marketable title (a) in fee simple with respect to the real property described as owned by them in the SEC Reports; and (b) to all personal property owned by each of them that is material to its respective business, in each case free and clear of all Liens, except for Liens that do not materially affect the value of such real or personal property and do not interfere with the use made and proposed to be made of such real or personal property by the Company or the Subsidiary. Any real property and facilities held under lease by the Company and the Subsidiary is held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiary are in material compliance with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and buildings by the Company or the Subsidiary, as the case may be.
(p) Financial Statements. As of their respective filing dates, as applicable, the financial statements of the Company included in the SEC Reports (the “Financial Statements”) complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. The Financial Statements have been prepared in accordance with U.S. generally accepted accounting principles consistently applied (“GAAP”), during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto; or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company and its consolidated Subsidiary as of and for the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).
(q) Material Changes. Since the date of the latest audited Financial Statements included within the SEC Reports and except as set forth or contemplated herein or in the Schedules hereto, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect; (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice; and (B) liabilities that would not be required to be reflected in the Company’s financial statements pursuant to GAAP or that would not be required to be disclosed in filings made with the SEC; (iii) the Company has not altered its method of accounting; (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock; and (v) the Company has not issued any equity securities. The Company does not have pending before the SEC any request for confidential treatment of information.
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(r) Off-Balance Sheet Arrangements. There is no transaction, arrangement or other relationship between the Company and an unconsolidated or other off-balance sheet entity that is required to be disclosed by the Company in its SEC Reports filings and is not so disclosed or that otherwise would be reasonably expected to result in a Material Adverse Effect. There are no such transactions, arrangements or other relationships with the Company that may create contingencies or liabilities that are not otherwise disclosed by the Company in its SEC Reports filings.
(s) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports or as contemplated in this Agreement or the other Transaction Agreements, none of the officers or directors of the Company and its Subsidiary and, to the knowledge of the Company, none of the employees of the Company or its Subsidiary is presently a party to any transaction with the Company or its Subsidiary (other than for services as employees, officers and directors) which would be required to be disclosed by the Company pursuant to Item 404 under Regulation S-K under the Exchange Act, including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case other than for (i) payment of salary for services rendered; (ii) reimbursement for expenses incurred on behalf of the Company or its Subsidiary; and (iii) other employee benefits, including stock option agreements, whether or not issued, under any stock option plan of the Company.
(t) Internal Accounting Controls. The Company and the Subsidiary maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain asset accountability; (iii) access to assets is permitted only in accordance with management’s general or specific authorization; and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including its Subsidiary, is made known to the certifying officers by others within those entities. To the Company’s knowledge, except as set forth in its most recently filed Annual Report on Form 10-K (the “2020 Form 10-K”), there are no material weaknesses in the Company’s internal control over financial reporting. Since the filing of the Company’s 2020 Form 10-K, there have been no significant changes in the Company’s internal control over financial reporting (as such term is defined in Item 308(c) of Regulations S-K under the Exchange Act) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal control over financial reporting.
(u) Registration Rights. Except as set forth in the SEC Reports, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company.
(v) Investment Company. The Company is not, and after giving effect to the sale of the Preferred Shares and the application of the net proceeds therefrom, will not be, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
(w) Foreign Corrupt Practices. Neither the Company nor its Subsidiary nor any of the Company’s directors, officers, employees or agents have, directly or indirectly, made, offered, promised or authorized any payment or gift of any money or anything of value to or for the benefit of any “foreign official” (as such term is defined in the U.S. Foreign Corrupt Practices Act of 1977, as amended (the “FCPA”)), foreign political party or official thereof or candidate for foreign political office for the purpose of (i) influencing any official act or decision of such official, party or candidate; (ii) inducing such official, party or candidate to use his, her or its influence to affect any act or decision of a foreign governmental authority; or (iii) securing any improper advantage, in the case of (i), (ii) and (iii) above in order to assist the Company or any of its affiliates in obtaining or retaining business for or with, or directing business to, any person. Neither the Company nor any of its directors, officers, employees or agents have made or authorized any bribe, rebate, payoff, influence payment, kickback or other unlawful payment of funds or received or retained any funds in violation of any law, rule or regulation. The Company further represents that it has maintained and has caused its Subsidiary and affiliates to maintain, systems of internal controls (including, but not limited to, accounting systems, purchasing systems and billing systems) to ensure compliance with the FCPA or any other applicable anti-bribery or anti-corruption law. Neither the Company, or, to the Company’s knowledge, any of its officers, directors or employees have violated in any material respect any provision of the FCPR nor are the subject of any allegation, voluntary disclosure, investigation, prosecution or other enforcement action related to the FCPA or any other anti-corruption law.
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(x) OFAC. Neither the Company nor its Subsidiary nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or Person acting on behalf of the Company or its Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not directly or indirectly use the proceeds of the sale of the Preferred Shares, or lend, contribute or otherwise make available such proceeds to the Subsidiary, joint venture partner or other Person or entity, towards any sales or operations in Cuba, Iran, Syria, Sudan, Myanmar or any other country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.
(y) Environmental Matters. Neither the Company nor its Subsidiary has any liabilities under any Environmental Law, nor, to the Company’s knowledge, do any factors exist that are reasonably likely to give rise to any such liability, materially affecting any of the properties owned or leased by the Company or the Subsidiary. Neither the Company nor the Subsidiary has violated in any material respect any Environmental Law applicable to it now or previously in effect. As used herein, “Environmental Law” means any federal, state, provincial, local or foreign law, statute, code or ordinance, principle of common law, rule or regulation, as well as any permit, order, decree, judgment or injunction issued, promulgated, approved or entered thereunder, relating to pollution or the protection, cleanup or restoration of the environment or natural resources, or to the public health or safety, or otherwise governing the generation, use, handling, collection, treatment, storage, transportation, recovery, recycling, discharge or disposal of hazardous materials.
(z) Labor Relations; Employee Matters. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company or its Subsidiary which could reasonably be expected to result in a Material Adverse Effect. To the Company’s knowledge, no employee intends to terminate employment with the Company or is otherwise likely to become unavailable to continue as an Employee, nor does the Company have a present intention to terminate the employment of any of the foregoing. Each current and former employee, consultant and officer of the Company has executed an agreement with the Company regarding confidentiality and proprietary information substantially in the form or forms delivered to the counsel for the Purchaser (the “Confidential Information Agreements”). No current or former employee has excluded works or inventions from his or her assignment of inventions pursuant to such Confidential Information Agreement. Each current and former officer of the Company and the Subsidiary has executed a non-competition and non-solicitation agreement substantially in the form or forms delivered to counsel for the Purchaser. To the Company’s knowledge, no employee is in violation of any agreement covered by this Section 2.1(z). The employment of each employee of the Company is terminable at the will of the Company except for Dave Smith or Alexander Salgado. Except as contemplated by the Transaction Agreements or as required by law, upon termination of the employment of any such employees or upon a change of control of the Company, no severance or other payments will become due. The Company has no policy, practice, plan or program of paying severance pay or any form of severance compensation in connection with the termination of employment services.
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(aa) Taxes. Each of the Company and the Subsidiary has prepared in good faith and duly and timely filed all tax returns required to be filed by it and such returns are complete and accurate in all material respects, except for tax returns that would not reasonably be expected to have a Material Adverse Effect; and each of the Company and the Subsidiary has paid all taxes required to have been paid by it, except for taxes which it reasonably disputes in good faith or the failure of which to pay has not had or would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor the Subsidiary has knowledge of a tax deficiency which has been or might be asserted or threatened against it which could reasonably be expected to result in a Material Adverse Effect.
2.2 Representations and Warranties of the Purchaser. The Purchaser hereby represents and warrants to the Company as follows:
(a) Organization and Good Standing. The Purchaser is duly incorporated, formed or organized, validly existing and in good standing under the laws of the State of its incorporation, formation or organization, with the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted.
(b) Authorization; Enforcement. The Purchaser has all necessary power and authority (corporate or otherwise) to execute and deliver this Agreement and the Investor’s Rights Agreement and to carry out its provisions. All action on the Purchaser’s part required for the lawful execution and delivery of this Agreement and the Investor’s Rights Agreement has been taken. Upon its execution and delivery, this Agreement and the Investors’ Rights Agreement will be valid and binding obligations of the Purchaser, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors’ rights; and (ii) as limited by general principles of equity that restrict the availability of equitable remedies.
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(b) Securities Law Representations and Covenants. The Purchaser represents and warrants to and covenants with the Company as follows:
(i) Investment Intent. The Purchaser is acquiring the Preferred Shares and the Conversion Shares (collectively, the “Securities”) for the Purchaser’s own account. The Purchaser is acquiring the Securities for investment purposes only and not with a view to or for distributing or reselling the Securities or any part thereof or interest therein in violation of securities laws, however, each Purchaser has the right at all times to sell or otherwise dispose of all or any part of the Securities pursuant to an effective registration statement under the Securities Act and in compliance with applicable state securities laws or under an exemption from such registration.
(ii) Status. The Purchaser is an “accredited investor” as defined in Rule 501(a) under the Securities Act.
(iii) Experience of the Purchaser. The Purchaser has such knowledge, sophistication and experience in business and financial matters so as to be capable of evaluating the merits and risks of the prospective investment in the Securities and has so evaluated the merits and risks of such investment.
(iv) Ability of the Purchaser to Bear Risk of Investment. The Purchaser is able to bear the economic risk of an investment in the Securities and, at the present time, is able to afford a complete loss of such investment.
(v) Access to Information. The Purchaser acknowledges that he, she or it has been afforded (i) the opportunity to ask such questions as Purchaser has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the issuance of the Preferred Shares and the merits and risks of investing in the Company; (ii) access to publicly available information about the Company and the Company’s financial condition, results of operations, business, properties, management and prospects sufficient to enable the Purchaser to evaluate the investment; and (iii) the opportunity to obtain such additional publicly available information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment and to verify the accuracy and completeness of the information contained herein.
(vi) Exemption from Registration. The Purchaser understands that the Securities are being offered and sold to him, her or it in reliance on an exemption from the registration requirements of the United States federal and applicable state securities laws pursuant to Section 4(a)(2) of the Securities Act and Regulation D under the Securities Act and that the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of the Purchaser set forth herein in order to determine the applicability of such exemptions.
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(c) Legends. The Purchaser understands that the certificates evidencing the Preferred Shares and the Conversion Shares will bear the following or similar legends for as long as required by the Securities Act and applicable state securities laws:
“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE. NO SUCH TRANSFER MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED PURSUANT TO AN EXEMPTION UNDER THE SECURITIES ACT.
ARTICLE III
REGISTRATION RIGHTS; AND OTHER AGREEMENTS
3.1 Registration.
(a) Within sixty (60) days of the Effective Date, the Company shall prepare and file with the SEC a Registration Statement on Form S-1 (the “Registration Statement”) covering the resale of the Conversion Shares (also referred to herein as, the “Shares”) by the Purchaser. The Company shall use its commercially reasonable best efforts to have the Registration Statement declared effective within ninety (90) days after the Registration Statement is filed, and shall use its commercially reasonable best efforts to keep such Registration Statement continuously effective under the Securities Act until all Shares covered by such Registration Statement have been sold or are capable of public sale pursuant to Rule 144 under the Securities Act without restrictions or limitations as to volume or manner of sale (the “Effectiveness Period”).
(c) The Company shall notify the Purchaser, which notice shall, pursuant to clauses (iii) through (iv) hereof, be accompanied by an instruction to suspend the use of the Registration Statement until the requisite changes have been made and which notice shall be made by public dissemination of information (by filing a Current Report on Form 8-K or otherwise) as promptly as reasonably possible (and, in the case of (i)(A) below, not less than one trading day prior to such filing) and (if requested by the Purchaser) confirm such notice in writing no later than one trading day following the day (i)(A) when a Registration Statement or any supplement or post-effective amendment to a Registration Statement is proposed to be filed; (B) when the SEC notifies the Company whether there will be a “review” of such Registration Statement and whenever the Commission comments in writing on such Registration Statement; and (C) with respect to a Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the SEC or any other Federal or state governmental authority for amendments or supplements to a Registration Statement or for additional information; (iii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement covering the Shares or the initiation of any proceedings for that purpose; and (iv) any statement made in a Registration Statement or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to a Registration Statement or other documents so that, in the case of a Registration Statement, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
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(d) Once the SEC has declared the Registration Statement effective, the Company shall use its commercially reasonable efforts to maintain the effectiveness of such Registration Statement during the Effectiveness Period and shall use its commercially reasonable efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Shares for sale in any jurisdiction, at the earliest practicable moment.
(e) The Company shall promptly deliver to the Purchaser, without charge, as many copies of the prospectus comprising a portion of the Registration Statement, each amendment or supplement thereto as the Purchaser may reasonably request in connection with resales of the Shares by the Purchaser.
(f) Upon learning that a prospectus that is part of the Registration Statement contains a material misstatement or omission that causes other statements made therein to be materially inaccurate, as promptly as reasonably possible, the Company shall notify the Purchaser to cease selling Shares and shall prepare a supplement or amendment, including a post effective amendment, to the Registration Statement or a supplement to the related prospectus, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The Purchaser agrees to cease selling Shares immediately upon notice from the Company that the prospectus related to the Shares is not current and not to resume selling Shares until notified by the Company that the Purchaser may do so.
3.2 Registration Expenses. All fees and expenses incident to the performance of or compliance with the registration rights under this Agreement by the Company shall be borne by the Company whether or not any Shares are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses with respect to filings required to be made with any trading market on which the Common Stock is then listed for trading); (ii) fees and disbursements of counsel for the Company; (iii) fees and disbursements of the Company’s accountants and Independent Registered Public Accounting Firm; and (iv) fees and expenses of all other persons retained by the Company in connection with its obligations under this Article III. In no event shall the Company be responsible for any broker or similar commissions of the Purchaser or any legal fees or other costs of the Purchaser.
3.3 Transaction Disclosure; Notices. The Company shall, by 8:30 a.m. Eastern time on the Business Day following the Effective Date, file a Current Report on Form 8-K, reasonably acceptable to Purchaser, disclosing the transactions contemplated by this Agreement and make such other filings and notices in the manner and time required by the SEC.
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3.4 Board Composition; Right to Designate Directors. Immediately following the Closing, the Company’s board of directors will be comprised of five (5) members. The Purchaser shall have the right to designate three (3) members of the board of directors of the Company (“Designation Right”), and the two additional board members will be independent directors and will require approval by the Purchaser (“Director Approval Right”). Pursuant to the Designation Right, immediately following the Closing, Stephen E. Johnson, Kuno D. van der Post and Craig Fabel shall be appointed as directors to the board of directors. Pursuant to the Director Approval Right, the Purchaser approves Thomas E. Vickers and Kellie Newton as the two additional independent directors. The Designation Right and the Director Approval Right, and the Company’s obligations under this Section 3.4, shall expire at such time when the Purchaser does not beneficially own any of the Series B Preferred Shares.
3.5 Information Rights.
(a) The Company will provide the following reports to Purchaser for so long as the Purchaser beneficially owns any of the Series B Preferred Shares:
(i) As soon as practicable after the end of each fiscal year, and in any event within sixty (60) days thereafter, consolidated balance sheets of the Company and its subsidiary, as of the end of such fiscal year, and consolidated statements of operations and consolidated statements of cash flows and stockholders’ equity of the Company and its subsidiary, for such year, and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, and a capitalization table in reasonable detail for such fiscal year;
(ii) As soon as practicable after the end of each calendar month, and in any event within thirty (30) days thereafter, a consolidated balance sheet of the Company and its subsidiary, as of the end of each such month, and consolidated statements of operations, consolidated statements of cash flows of the Company and its subsidiary for such period and for the current fiscal year to date, including a comparison between the actual financial statements and the projected figures according to the operating budget referenced in clause (iii) below;
(iii) As soon as practicable following the submission to the board of directors of the Company and in any event at least sixty (60) days prior to the end of a given fiscal year, an annual operating budget and plan for the succeeding fiscal year for the Company in the form to be approved by the board of directors; and;
(iv) such other information relating to the financial condition, business, prospects, or corporate affairs of the Company as the Purchaser may from time to time reasonably request.
(b) The rights granted pursuant to this Section 3.5 may be assigned to a transferee or assignee in connection with any transfer or assignment of Series B Preferred Shares by the Purchaser only if such transferee or assignee, as appropriate, acquires at least 250,000 shares of the Company’s Series B Preferred Shares, provided written notice thereof is promptly given to the Company.
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(c) The Purchaser acknowledges and agrees that any information obtained pursuant to this Section 3.5 which may be considered ‘inside’ non-public information will not be utilized by the Purchaser in connection with purchases or sales of the Company’s securities, except in compliance with applicable state and federal securities laws.
ARTICLE IV
INDEMNIFICATION
4.1 Survival. The respective representations and warranties of the Company and the Purchaser contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and Closing for a period of eighteen (18) months.
4.2 Indemnity. Each Party (an “Indemnifying Party”) shall indemnify each other Party and hold such other Parties and their respective shareholders, members, managers, directors, officers, employees and agents (collectively, the “Indemnified Parties”) harmless against and in respect of any and all damages, losses, penalties, liabilities, costs and expenses (including, without limitation, all fines, interest, reasonable and actual legal fees and expenses and amounts paid in settlement), that arise from or relate or are attributable to (and without giving effect to any tax benefit to the Indemnified Party) (a) any misrepresentation by such Indemnifying Party or breach of any representation or warranty by such Indemnifying Party in this Agreement; or (b) any breach of any covenant or agreement on the part of such Indemnifying Party in this Agreement. Notwithstanding anything in this Agreement to the contrary, in no event shall a Party be liable for punitive, consequential, incidental, indirect or special damages of any kind or nature, or any diminution in value in any action arising from this Agreement, regardless of the form of action through which such damages are sought including any claim for indemnity under this Section 4.2.
4.3 Notice to Indemnitor; Right of Parties to Defend. Promptly after the assertion of any claim by a third party or occurrence of any event which may give rise to a claim for indemnification from an Indemnifying Party (the “Indemnitor”) under this Article IV, an Indemnified Party (the “Indemnitee”) shall notify the Indemnitor in writing of such claim. The Indemnitor shall have the right to assume the control and defense of any such action (including, but without limitation, tax audits), provided that the Indemnitee may participate in the defense of such action subject to the Indemnitor’s reasonable direction and at Indemnitee’s sole cost and expense. The Party contesting any such claim shall be furnished all reasonable assistance in connection therewith by the other Party and be given full access to all information relevant thereto. In no event shall any such claim be settled without the Indemnitor’s consent.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. At the Closing, the Company agrees to pay, or reimburse the Purchaser for, all reasonable out of pocket costs and expenses incurred by Purchaser in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the transactions contemplated hereby (including all reasonable fees and out of pocket costs and expenses of the Purchaser’s advisors, legal counsel and accountants).
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5.2 Entire Agreement; Amendments. This Agreement, together with the Exhibits hereto, contains the entire understanding of the Parties with respect to the subject matter hereof and supersedes all prior agreements and understandings, oral or written, with respect to such matters, which the Parties acknowledge have been merged into such documents, exhibits and schedules.
5.3 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given to the Party to be notified by personal delivery; or (b) by nationally recognized overnight courier and shall be effective upon receipt. Any notice hereunder shall be addressed as follows:
| If to the Company, to: | 1512 E. Broward Blvd., Suite 300 | |
| Fort Lauderdale, FL 33301 | ||
| Attention: CEO | ||
| If to the Purchaser, to: | 646 Osprey Point Circle | |
| Boca Raton, Florida 33431 | ||
| Attention: Cornelis F. Wit |
or such other address as may be designated in writing hereafter, in the same manner, by either Party.
5.4 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by all the Parties; or, in the case of a waiver, by the Party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either Party to exercise any right hereunder in any manner impair the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their successors and permitted assigns. No Party may assign this Agreement nor any of the rights or obligations hereunder without the written consent of the other Party, which consent shall not unreasonably be withheld, except that the registration rights under the Securities Act set forth in Article III and the rights granted Purchaser under the Investor’s Rights Agreement may be assigned in connection with the private sale or transfer of the Preferred Shares or Conversion Shares held by the Purchaser.
5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the Parties and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
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5.8 Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Florida without regard to the principles of conflicts of law thereof. Exclusive jurisdiction for any action arising under this Agreement shall be in the U.S. federal or state court in Broward County, Florida, and the Parties hereby waive any claim or defense that such forum is not convenient or proper.
5.9 Attorneys’ Fees. In any suit, action or proceeding brought with respect to interpretation or enforcement of this Agreement, the prevailing Party shall be entitled to recover from the non-prevailing Party, attorneys’ fees and costs at both the trial and appellate levels.
5.10 Public Announcement; Confidentiality. Except as may be required by law, no Party shall issue any press release or otherwise publicly disclose this Agreement or the transactions contemplated hereby or any dealings between or among the Parties in connection with the subject matter hereof without the prior approval of the other Parties, which shall not be unreasonably withheld or delayed. In the event that any such press release or other public disclosure shall be required by applicable law, the Party required to issue such release or disclosure shall consult in good faith with the other Parties with respect to the form and substance of such release or disclosure prior to the public dissemination thereof.
5.11. Execution. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each Party and delivered to the other Parties, it being understood that all Parties need not sign the same counterpart. In the event that any signature is delivered by facsimile, .PDF or other electronic transmission, such signature shall create a valid and binding obligation of the Party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile, .PDF or other electronic transmission of the signature page were an original thereof.
5.12 Severability. In case any one or more of the provisions of this Agreement shall be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affecting or impaired thereby and the Parties will attempt to agree upon a valid and enforceable provision that shall be a reasonable substitute therefore, and upon so agreeing, shall incorporate such substitute provision in this Agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.
| THE COMPANY: | ||
| VERITAS FARMS, INC. | ||
| By: | /s/ Alexander M. Salgado | |
| Alexander M. Salgado, Chief Executive Officer | ||
| PURCHASER: | |||
| THE CORNELIS F. WIT REVOCABLE LIVING TRUST | |||
| By: | Cornelis F. Wit | ||
| Cornelis F Wit, Trustee | |||
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Exhibit 10.2
VERITAS FARMS, INC.
EXHIBIT A
DESIGNATION OF SERIES A CONVERTIBLE PREFERRED STOCK
AND
SERIES B CONVERTIBLE PREFERRED STOCK
General
At a duly called meeting of the Board of Directors (the “Board of Directors” or the “Board”) of Veritas Farms, Inc. (the “Company”) held on April 30, 2021, the following resolutions were duly adopted by the Board:
WHEREAS, the Amended and Restated Articles of Incorporation of the Company (the “Articles of Incorporation”) authorizes Preferred Stock consisting of 5,000,000 shares, par value $0.001 per share, issuable from time to time in one or more series;
WHEREAS, the Board of Directors is authorized, subject to limitations prescribed by law and by the provisions of Article V of the Articles of Incorporation, as amended, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation, tights, preferences, powers, restrictions and limitations of the shares of such series; and
WHEREAS, it is the desire of the Board of Directors to establish and fix the number of shares to be included in two new series of Preferred Stock and the designation, rights, preferences and limitations of the shares of such two new series.
NOW, THEREFORE, BE IT RESOLVED, that pursuant to Article V of the Articles of Incorporation there is hereby established (i) a new series of 4,000,000 shares of Series A Convertible Preferred Stock of the Company (the “Series A Preferred Stock”); and (ii) a new series of 1,000,000 shares of Series B Convertible Preferred Stock of the Company (the “Series B Preferred Stock”); each series the designation, rights, preferences, powers, restrictions and limitations set forth as follows:
Series A Convertible Preferred Stock
1. Designation and Number of Shares. The series will be known as the “Series A Convertible Preferred Stock” and will consist of 4,000,000 shares of the authorized but unissued preferred stock of the Company. The face amount of each share of Series A Preferred Stock shall be One Dollar ($1.00) (the “Stated Value”).
2. Ranking. In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series A Preferred Stock shall rank (a) junior to the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”); and (b) senior to (i) the Company’s common stock, par value $0.001 per share (the “Common Stock”); and (ii) senior to any other class or series of stock (including other series of Preferred Stock) of the Company (collectively, “Junior Stock”).
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3. Dividends. From and after the date of the issuance of any shares of Series A Preferred Stock, dividends at the rate per annum of 8%, compounded annually, accrue daily on the Stated Value (the “Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Company shall be under no obligation to pay such Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) shares of Series B Preferred Stock and (b) Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series A Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series A Preferred Stock in an amount at least equal to the sum of (a) the amount of the aggregate Accruing Dividends then accrued on such share of Series A Preferred Stock and not previously paid; and (b) (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series A Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock; and (B) the number of shares of Common Stock issuable upon conversion of a share of Series A Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series A Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the Stated Value of the Series A Preferred Stock; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series A Preferred Stock pursuant to this Section 3 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series A Preferred Stock dividend.
4. Liquidation.
(a) Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any Deemed Liquidation Event, as defined in Section 4(b) below (collectively, a “Liquidation Event”), the holders of Series A Preferred Stock shall be entitled to receive, after payment to all holders of Series B Preferred Stock of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Stock and the amount of the accrued but unpaid dividends on the Series B Preferred Stock, but prior and in preference to any distribution of any of the assets of the Company to the holders of Junior Stock by reason of their ownership thereof, an aggregate amount per share equal to the Stated Value of the Series A Preferred Stock and the accrued but unpaid dividends thereon (the “Liquidation Amount”). After the payment to all holders of Series B Preferred Stock of a liquidation preference equal to the aggregate amount of one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Stock and the amount of the accrued but unpaid dividends on the Series B Preferred Stock and to all holders of the Series A Preferred Stock of the full Liquidation Amount, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Stock and Junior Stock, pro rata, on an “as converted basis,” determined immediately prior to such Liquidation Event, and the Series A Preferred Stock shall not be entitled to participate in such distribution of the remaining assets of the Company.
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(b) Consolidation, Merger, Etc. (i) Any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization (including a share exchange), in which the shareholders of the Company immediately prior to such consolidation, merger or reorganization, do not hold at least a majority of the resulting or surviving entity’s voting power immediately after such consolidation, merger or reorganization (solely in respect of their equity interests in this Company); (ii) the sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets or business of the Company; and (iii) or a Sale of Voting Control shall, in addition to any liquidation, dissolution or winding up of the Company, each also be deemed to be a Liquidation Event. Notwithstanding the foregoing, any transaction described in (i) or (ii) or (iii) above (individually and collectively, a “Deemed Liquidation Event”) shall not constitute a Liquidation Event (or a Deemed Liquidation Event) if, upon the request of the Company (upon the approval of a majority of the members of the Board, excluding for this purpose any director elected or designated by holders of Series A Preferred Stock), the holders of a majority of the issued and outstanding shares of Series A Preferred Stock consent, in writing, to such transaction being deemed not to be a Liquidation Event. “Sale of Voting Control” means the transfer by shareholders of the Company (in one or a series of related transactions) to one person or group of related persons of shares constituting not less than a majority of the outstanding shares of Common Stock of the Company with the Series A Preferred Stock, Series B Preferred Stock and any other class of convertible Junior Stock, on an “as converted” basis.
(c) Consideration. If any of the assets of the Company are to be distributed, or consideration is otherwise to be distributed, paid or received in a transaction described, under this Section 4 in a form other than cash, the fair market value of such assets (including for purposes of payment of the Liquidation Amount) shall be determined in good faith by the Board. Any securities shall be valued as follows (or if otherwise so determined by the Board, in a manner provided for under the negotiated terms of an arms-length transaction with a third party, approved by the Board and the requisite vote of the shareholders of the Company):
(i) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below:
(A) If traded on a national securities exchange (as defined under the Securities Exchange Act of 1934, as amended), the value shall be deemed to be the average of the closing prices of the securities on such exchange over the twenty (20) trading day period ending three days prior to the closing;
(B) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading day period ending three days prior to the closing; and
(C) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board.
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(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount (as determined by the Board in good faith) from the market value determined as pursuant to clause (i) above to reflect the approximate fair market value thereof.
(d) Notice of Liquidation Event. The Company shall give each holder of record of Series A Preferred Stock written notice of the transaction which, if effected, will constitute a Liquidation Event not later than twenty (20) days prior to the shareholders’ meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first notice shall describe the material terms and conditions of the pending transaction and the provisions of this Section 4 (d). The Company shall thereafter give such holders prompt notice of any material changes in the terms of the pending transaction. The transaction shall in no event take place sooner than twenty (20) days after the Company has given the first notice or sooner than seven (7) days after the Company has given notice of any material changes in the terms of such transaction. In the event the requirements of this Section 4(d) are not complied with in all material respects, the Company shall forthwith either:
(i) cause such closing to be postponed until such time as the requirements of this Section 4(d) have been complied with; or
(ii) cancel such transaction, in which event the rights, preferences and privileges of the Series A Preferred Stock shall continue in effect in accordance with the terms of the Articles of Incorporation, as the same may be amended from time to time.
5. Conversion. The holders of Series A Preferred Stock shall have the following conversion rights (the “Conversion Rights”):
(a) Voluntary Conversion. Each share of Series A Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Stated Value by the Conversion Price in effect at the time of conversion. The conversion price of Series A Preferred Stock (the “Conversion Price”) shall initially be $0.05 per share. The Conversion Price, and the rate at which shares of Series A Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. Any accrued but unpaid dividends existing at the time of any conversion pursuant to this Section 5(a) may, at the option of the holder, be converted into shares of Common Stock at a price per share equal to the Stated Value divided by the Conversion Price (as equitably adjusted for any stock splits, stock dividends, reverse stock splits, stock combinations and other similar capitalization changes).
(b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series A Preferred Stock. In lieu of any fractional shares to which a holder would otherwise be entitled, the Company shall pay cash in an amount equal to the product (calculated to the nearest cent) of such fraction and the fair market value of one share of Common Stock as determined in good faith by the Board.
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(c) Mechanics of Conversion.
(i) In order for a holder of Series A Preferred Stock to convert shares of Series A Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates representing such shares of Series A Preferred Stock, at the office of the transfer agent for the Series A Preferred Stock (or at the principal office of the Company if the Company serves as its own transfer agent), together with written notice that such holder elects to convert all or any portion of the shares of the Series A Preferred Stock represented by such certificate or certificates. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or such holder’s attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Company if the Company serves as its own transfer agent) shall be the conversion date (“Conversion Date”). The Company shall, as soon as practicable after the Conversion Date, issue and deliver to the holder of such Series A Preferred Stock, or to such holder’s nominees, a certificate or certificates representing the number of shares of Common Stock to which such holder is entitled upon conversion of such Series A Preferred Stock, together with cash in lieu of any fractional share.
(ii) The Company shall at all times when shares of Series A Preferred Stock are outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of Series A Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock into shares of Common Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of Series A Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price.
(d) Adjustments to Conversion Price.
(i) Adjustment for Stock Splits and Combinations. If the Company shall at any time, or from time to time, after the date of the first issuance of Series A Preferred Stock (the “Original Issue Date”) effect a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Company shall at any time, or from time to time, after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection shall become effective concurrently with the effectiveness of such subdivision or combination.
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(ii) Adjustment for Common Stock Dividends and Distributions. If the Company at any time, or from time to time, after the Original Issue Date, shall make or issue a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price then in effect shall be decreased concurrently with the issuance of such dividend or distribution, by multiplying the Conversion Price then in effect by a fraction: (x) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance; and (y) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that no adjustment with respect to the Conversion Price or the Series A Preferred Stock shall be made if the holders of Series A Preferred Stock simultaneously receive, at the election of the Company (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock that they would have received if all outstanding shares of Series A Preferred Stock had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of Series A Preferred Stock based on the number of shares of Common Stock which each share of Series A Preferred Stock is convertible into, as of the date of such event, as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution.
(iii) Adjustment for issuances below Conversion Price. If the Company at any time, or from time to time, after the Original Issue Date, shall issue shares of its Common Stock for consideration per share (“Offering Price”) or issue any securities convertible into or exchangeable for its Common Stock for a consideration per share of Common Stock (the “Exchange Price”) deliverable upon conversion or exchange of such securities (excluding shares of Common Stock or securities convertible into or exchangeable for its Common Stock issued (a) in any of the transactions described in Section 5(d)(1) and 5 (d)(ii) above; (b) upon issuance of stock or exercise of options granted to the Company’s officers, directors, employees and consultants under a plan or plans adopted by the Company’s Board of Directors or a committee thereof and approved by its shareholders (but only to the extent that the aggregate number of shares excluded by this Section 5(d)(iii) does not exceed 15% of the Company’s Common Stock outstanding, on a fully diluted basis, at the time of any issuance); (c) upon exercise of options, warrants, convertible securities and convertible note outstanding as of the Original Issue Date; (d) to shareholders of any corporation which merges into the Company in proportion to their stock holdings of such corporation immediately prior to such merger, upon such merger; (e) in a bona fide public offering pursuant to a firm commitment underwriting; or (f) in connection with an acquisition of a business or technology which has been approved by a majority of the Company’s outside directors but only if no adjustment is required pursuant to any other specific subsection of this Section 5 with respect to the transaction giving rise to such rights), less than the Conversion Price, then the Conversion Price shall be immediately reset to equal such lower Offering Price or Exchange Price.
(iv) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5 (d), the Company at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series A Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series A Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, as promptly as reasonably practicable after the written request at any time of any holder of Series A Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series A Conversion Price then in effect, and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the conversion of Series A Preferred Stock.
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(e) Notices. All notices hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the person to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five days after having been sent by certified mail, return receipt requested, postage prepaid; or (iv) the next business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the holder at its address and facsimile number, if any, appearing on the books of the Company.
6. Status of Converted Stock. In the event any shares of Series A Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so converted shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate as of the time of conversion, except only the right of the holders thereof to receive shares of Common Stock in exchange therefore and, as applicable, to receive payment of any accrued but unpaid dividends thereon, and shall thereupon become Preferred Stock of the Company without further designation or terms applicable thereto, other than those which are otherwise applicable, if any, to the Preferred Stock of the Company, generally.
7. Voting Rights. Except as otherwise provided herein or as required by applicable law, the holders of Series A Preferred Stock shall be entitled to vote, together with holders of Series B Preferred Stock and Common Stock a single class, on an “as converted” basis, with respect to any matter or question upon which holders of Common Stock have the right to vote. The holders of the Series A Preferred Stock shall also be entitled to vote, separately as a class, on such matters or questions as may, hereunder or otherwise, be presented to holders of the Series A Preferred Stock for a vote from time to time, with each such share having an equivalent vote, and the Series A Preferred Stock shall be entitled to vote together as a single class with any class or series of stock of the Company other than the Common Stock, as may be issued and outstanding from time to time, as and to the extent which the voting rights and other terms applicable to such stock shall from time to time so provide. In addition to any other vote or approval required under Nevada law, holders of a majority of the issued and outstanding shares of Series A Preferred Stock shall approve any amendment to the Articles of Incorporation that would have a material adverse effect on only the rights of the holders of the Series A Preferred Stock as expressly set forth in the Articles of Incorporation.
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8. Protective Provisions. At all times prior to the earlier of the date (a) the Common Stock is listed for trading on a national securities exchange; and (b) fewer than 500,000 shares of the Series A Preferred Stock designated hereunder are issued and outstanding, the Company shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Articles of Incorporation) the prior written approval of the holders of a majority of the outstanding Series A Preferred Stock:
(a) amend or repeal any provision of the Articles of Incorporation or Bylaws, if such amendment or repeal would have a material adverse effect on the rights of the holders of Series A Preferred Stock;
(b) materially amend or alter the preferences, rights or privileges of the Series A Preferred Stock;
(c) declare or pay any dividends or make any distributions on any of the Company’s securities other than as provided herein;
(d) purchase or redeem (or permit any subsidiary to purchase or redeem) any shares of equity securities of the Company other than pursuant to any employment agreement or restricted stock or similar arrangement, or pursuant to any equity compensation plan or arrangement;
(e) other than the Series B Preferred Stock that ranks senior to the Series A Preferred Stock, authorize or issue any new shares of Series A Preferred Stock or any class or series of stock or any other equity interest in the Company that ranks on a parity with or senior to the Series A Preferred Stock;
(f) enter into an agreement that would materially limit the Company’s ability to perform its obligations in respect of the Series A Preferred Stock;
(g) liquidate, dissolve or wind-up the business and affairs of the Company, effect any merger or consolidation or any other Deemed Liquidation Event, or consent to any of the foregoing; or
(h) take any other action, which pursuant to the Articles of Incorporation or applicable Nevada law, requires the vote of the holders of the Series A Preferred Stock as a separate class or series.
9. Redeemed or Otherwise Acquired Shares. Any shares of Series A Preferred Stock that are redeemed or otherwise acquired by the Company or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Company nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series A Preferred Stock following such redemption or acquisition by the Company.
10. Waiver. The rights, preferences, privileges and other terms of the Series A Preferred Stock may be waived as to all shares of Series A Preferred Stock in any instance (without the necessity of convening any meeting of shareholders) upon the written agreement or consent, or the vote at a duly called meeting of shareholders, of a majority of the holders of the Series A Preferred Stock, and such waiver shall thereupon be binding upon all holders of Series A Preferred Stock.
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11. Miscellaneous. The holders of the Series A Preferred Stock shall be entitled to receive all communications sent by the Company to the holders of the Common Stock.
Series B Convertible Preferred Stock
1. Designation and Number of Shares. The series will be known as the “Series B Convertible Preferred Stock” and will consist of 1,000,000 shares of the authorized but unissued preferred stock of the Company. The face amount of each share of Series B Preferred Stock shall be One Dollar ($1.00) (the “Stated Value”).
2 Ranking. In respect of rights to the payment of dividends and the distribution of assets in the event of any liquidation, dissolution or winding-up of the Company, the Series B Preferred Stock shall rank senior to (a) the Company’s Series A Convertible Preferred Stock (the “Series A Preferred Stock”); (b) the Company’s common stock, par value $0.001 per share (the “Common Stock”); and (c) any other class or series of stock (including other series of Preferred Stock) of the Company (collectively, “Junior Stock”).
3. Dividends. From and after the date of the issuance of any shares of Series B Preferred Stock, dividends at the rate per annum of 8%, compounded annually, accrue daily on the Stated Value (the “Accruing Dividends”). Accruing Dividends shall accrue from day to day, whether or not declared, and shall be cumulative; provided, however, such Accruing Dividends shall be payable only when, as, and if declared by the Board of Directors and the Company shall be under no obligation to pay such Accruing Dividends except as set forth herein. The Company shall not declare, pay or set aside any dividends on shares of any other class or series of capital stock of the Company (other than dividends on (a) Common Stock payable in shares of Common Stock) unless (in addition to the obtaining of any consents required elsewhere in the Articles of Incorporation) the holders of the Series B Preferred Stock then outstanding shall first receive, or simultaneously receive, a dividend on each outstanding share of Series B Preferred Stock in an amount at least equal to the sum of (a) the amount of the aggregate Accruing Dividends then accrued on such share of Series B Preferred Stock and not previously paid; and (b) (i) in the case of a dividend on Common Stock or any class or series that is convertible into Common Stock, that dividend per share of Series B Preferred Stock as would equal the product of (A) the dividend payable on each share of such class or series determined, if applicable, as if all shares of such class or series had been converted into Common Stock; and (B) the number of shares of Common Stock issuable upon conversion of a share of Series B Preferred Stock, in each case calculated on the record date for determination of holders entitled to receive such dividend; or (ii) in the case of a dividend on any class or series that is not convertible into Common Stock, at a rate per share of Series B Preferred Stock determined by (A) dividing the amount of the dividend payable on each share of such class or series of capital stock by the original issuance price of such class or series of capital stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or other similar recapitalization with respect to such class or series); and (B) multiplying such fraction by an amount equal to the Stated Value of the Series B Preferred Stock; provided, that if the Company declares, pays or sets aside, on the same date, a dividend on shares of more than one class or series of capital stock of the Company, the dividend payable to the holders of Series B Preferred Stock pursuant to this Section 3 shall be calculated based upon the dividend on the class or series of capital stock that would result in the highest Series B Preferred Stock dividend.
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4. Liquidation.
(a) Preference. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company or any Deemed Liquidation Event, as defined in Section 4(b) below (collectively, a “Liquidation Event”), 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 Company to the holders of Junior Stock (including Series A Preferred Stock) by reason of their ownership thereof, a liquidation preference per share equal to one hundred fifty percent (150%) of the Stated Valued of the Series B Preferred Stock and the amount of the accrued but unpaid dividends on the Series B Preferred Stock (the “Liquidation Amount”). After the payment to all holders of Series B Preferred Stock of the Liquidation Amount and to the payment to all holders of Series A Preferred Stock of a liquidation preference per share equal to the Stated Valued of the Series A Preferred Stock and the amount of the accrued but unpaid dividends on the Series A Preferred Stock, the remaining assets of the Company available for distribution to its shareholders shall be distributed among the holders of the shares of Series B Preferred Stock and Junior Stock other than the Series A Preferred Stock, pro rata, on an “as converted basis,” as applicable.
(b) Consolidation, Merger, Etc. (i) Any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization (including a share exchange), in which the shareholders of the Company immediately prior to such consolidation, merger or reorganization, do not hold at least a majority of the resulting or surviving entity’s voting power immediately after such consolidation, merger or reorganization (solely in respect of their equity interests in this Company); (ii) the sale, lease, transfer, exclusive license or other disposition of all or substantially all of the assets or business of the Company; and (iii) or a Sale of Voting Control shall, in addition to any liquidation, dissolution or winding up of the Company, each also be deemed to be a Liquidation Event. Notwithstanding the foregoing, any transaction described in (i) or (ii) or (iii) above (individually and collectively, a “Deemed Liquidation Event”) shall not constitute a Liquidation Event (or a Deemed Liquidation Event) if, upon the request of the Company (upon the approval of a majority of the members of the Board, excluding for this purpose any director elected or designated by holders of Series B Preferred Stock), the holders of a majority of the issued and outstanding shares of Series B Preferred Stock consent, in writing, to such transaction being deemed not to be a Liquidation Event. “Sale of Voting Control” means the transfer by shareholders of the Company (in one or a series of related transactions) to one person or group of related persons of shares constituting not less than a majority of the outstanding shares of Common Stock of the Company with the Series A Preferred Stock, Series B Preferred Stock and any other class of convertible Junior Stock, on an “as converted” basis.
(c) Consideration. If any of the assets of the Company are to be distributed, or consideration is otherwise to be distributed, paid or received in a transaction described, under this Section 4 in a form other than cash, the fair market value of such assets (including for purposes of payment of the Liquidation Amount) shall be determined in good faith by the Board. Any securities shall be valued as follows (or if otherwise so determined by the Board, in a manner provided for under the negotiated terms of an arms-length transaction with a third party, approved by the Board and the requisite vote of the shareholders of the Company):
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(i) Securities not subject to investment letter or other similar restrictions on free marketability covered by (B) below:
(A) If traded on a national securities exchange (as defined under the Securities Exchange Act of 1934, as amended), the value shall be deemed to be the average of the closing prices of the securities on such exchange over the twenty (20) trading day period ending three days prior to the closing;
(B) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the twenty (20) trading day period ending three days prior to the closing; and
(C) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board.
(ii) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a shareholder’s status as an affiliate or former affiliate) shall be to make an appropriate discount (as determined by the Board in good faith) from the market value determined as pursuant to clause (i) above to reflect the approximate fair market value thereof.
(d) Notice of Liquidation Event. The Company shall give each holder of record of Series B Preferred Stock written notice of the transaction which, if effected, will constitute a Liquidation Event not later than twenty (20) days prior to the shareholders’ meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first notice shall describe the material terms and conditions of the pending transaction and the provisions of this Section 4(d). The Company shall thereafter give such holders prompt notice of any material changes in the terms of the pending transaction. The transaction shall in no event take place sooner than twenty (20) days after the Company has given the first notice or sooner than seven (7) days after the Company has given notice of any material changes in the terms of such transaction. In the event the requirements of this Section 4(d) are not complied with in all material respects, the Company shall forthwith either:
(i) cause such closing to be postponed until such time as the requirements of this Section 4(d) have been complied with; or
(ii) cancel such transaction, in which event the rights, preferences and privileges of the Series B Preferred Stock shall continue in effect in accordance with the terms of the Articles of Incorporation, as the same may be amended from time to time.
5. Conversion. The holders of Series B Preferred Stock shall have the following conversion rights (the “Conversion Rights”):
(a) Voluntary Conversion. Each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time and without the payment of additional consideration by the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Stated Value by the Conversion Price in effect at the time of conversion. The conversion price of Series B Preferred Stock (the “Conversion Price”) shall initially be $0.20 per share. The Conversion Price, and the rate at which shares of Series B Preferred Stock may be converted into shares of Common Stock, shall be subject to adjustment as provided below. Any accrued but unpaid dividends existing at the time of any conversion pursuant to this Section 5(a) may, at the option of the holder, be converted into shares of Common Stock at a price per share equal to the Stated Value divided by the Conversion Price (as equitably adjusted for any stock splits, stock dividends, reverse stock splits, stock combinations and other similar capitalization changes).
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(b) Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Series B Preferred Stock. In lieu of any fractional shares to which a holder would otherwise be entitled, the Company shall pay cash in an amount equal to the product (calculated to the nearest cent) of such fraction and the fair market value of one share of Common Stock as determined in good faith by the Board.
(c) Mechanics of Conversion.
(i) In order for a holder of Series B Preferred Stock to convert shares of Series B Preferred Stock into shares of Common Stock, such holder shall surrender the certificate or certificates representing such shares of Series B Preferred Stock, at the office of the transfer agent for the Series B Preferred Stock (or at the principal office of the Company if the Company serves as its own transfer agent), together with written notice that such holder elects to convert all or any portion of the shares of the Series B Preferred Stock represented by such certificate or certificates. Such notice shall state such holder’s name or the names of the nominees in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. If required by the Company, certificates surrendered for conversion shall be endorsed or accompanied by a written instrument or instruments of transfer, in form satisfactory to the Company, duly executed by the registered holder or such holder’s attorney duly authorized in writing. The date of receipt of such certificates and notice by the transfer agent (or by the Company if the Company serves as its own transfer agent) shall be the conversion date (“Conversion Date”). The Company shall, as soon as practicable after the Conversion Date, issue and deliver to the holder of such Series B Preferred Stock, or to such holder’s nominees, a certificate or certificates representing the number of shares of Common Stock to which such holder is entitled upon conversion of such Series B Preferred Stock, together with cash in lieu of any fractional share.
(ii) The Company shall at all times when shares of Series B Preferred Stock are outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of Series B Preferred Stock, such number of its duly authorized shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Preferred Stock into shares of Common Stock. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of Series B Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price.
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(d) Adjustments to Conversion Price.
(i) Adjustment for Stock Splits and Combinations. If the Company shall at any time, or from time to time, after the date of the first issuance of Series B Preferred Stock (the “Original Issue Date”) effect a subdivision of the outstanding Common Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased. If the Company shall at any time, or from time to time, after the Original Issue Date combine the outstanding shares of Common Stock, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection shall become effective concurrently with the effectiveness of such subdivision or combination.
(ii) Adjustment for Common Stock Dividends and Distributions. If the Company at any time, or from time to time, after the Original Issue Date, shall make or issue a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price then in effect shall be decreased concurrently with the issuance of such dividend or distribution, by multiplying the Conversion Price then in effect by a fraction: (x) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance; and (y) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that no adjustment with respect to the Conversion Price or the Series B Preferred Stock shall be made if the holders of Series B Preferred Stock simultaneously receive, at the election of the Company (i) a dividend or other distribution of shares of Common Stock in a number equal to the number of shares of Common Stock that they would have received if all outstanding shares of Series B Preferred Stock had been converted into Common Stock on the date of such event or (ii) a dividend or other distribution of shares of Series B Preferred Stock based on the number of shares of Common Stock which each share of Series B Preferred Stock is convertible into, as of the date of such event, as is equal to the number of additional shares of Common Stock being issued with respect to each share of Common Stock in such dividend or distribution.
(iii) Adjustment for issuances below Conversion Price. If the Company at any time, or from time to time, after the Original Issue Date, shall issue shares of its Common Stock for consideration per share (“Offering Price”) or issue any securities convertible into or exchangeable for its Common Stock for a consideration per share of Common Stock (the “Exchange Price”) deliverable upon conversion or exchange of such securities (excluding shares of Common Stock or securities convertible into or exchangeable for its Common Stock issued (A) in any of the transactions described in Section 5(d)(i) and 5 (d)(ii) above; (B) upon issuance of stock or exercise of options granted to the Company’s officers, directors, employees and consultants under a plan or plans adopted by the Company’s Board of Directors or a committee thereof and approved by its shareholders (but only to the extent that the aggregate number of shares excluded by this Section 5(d)(iii) does not exceed 15% of the Company’s Common Stock outstanding, on a fully diluted basis, at the time of any issuance); (C) upon exercise of options, warrants, convertible securities and convertible note outstanding as of the Original Issue Date; (D) to shareholders of any corporation which merges into the Company in proportion to their stock holdings of such corporation immediately prior to such merger, upon such merger; (E) in a bona fide public offering pursuant to a firm commitment underwriting; or (F) in connection with an acquisition of a business or technology which has been approved by a majority of the Company’s outside directors but only if no adjustment is required pursuant to any other specific subsection of this Section 5 with respect to the transaction giving rise to such rights), less than the Conversion Price, then the Conversion Price shall be immediately reset to equal such lower Offering Price or Exchange Price.
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(iv) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 5 (d), the Company at its expense shall, as promptly as reasonably practicable but in any event not later than ten (10) days thereafter, compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B Preferred Stock a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property into which the Series B Preferred Stock is convertible) and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, as promptly as reasonably practicable after the written request at any time of any holder of Series B Preferred Stock (but in any event not later than ten (10) days thereafter), furnish or cause to be furnished to such holder a certificate setting forth (i) the Series B Conversion Price then in effect; and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the, conversion of Series B Preferred Stock.
(e) Notices. All notices hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the person to be notified; (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five days after having been sent by certified mail, return receipt requested, postage prepaid; or (iv) the next business day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the holder at its address and facsimile number, if any, appearing on the books of the Company.
6. Status of Converted Stock. In the event any shares of Series B Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so converted shall no longer be deemed to be outstanding and all rights with respect to such shares shall immediately cease and terminate as of the time of conversion, except only the right of the holders thereof to receive shares of Common Stock in exchange therefore and, as applicable, to receive payment of any accrued but unpaid dividends thereon, and shall thereupon become Preferred Stock of the Company without further designation or terms applicable thereto, other than those which are otherwise applicable, if any, to the Preferred Stock of the Company, generally.
7. Voting Rights. Except as otherwise provided herein or as required by applicable law, the holders of Series B Preferred Stock shall be entitled to vote, together with holders of Series A Preferred Stock and Common Stock a single class, with respect to any matter or question upon which holders of Common Stock have the right to vote. Each share of Series B Preferred Stock shall have such number of votes as equal the number of shares of Common Stock then issuable upon conversion of the share of Series B Preferred Stock, multiplied by 50. The holders of the Series B Preferred Stock shall also be entitled to vote, separately as a class, on such matters or questions as may, hereunder or otherwise, be presented to holders of the Series B Preferred Stock for a vote from time to time, with each such share having an equivalent vote, and the Series B Preferred Stock shall be entitled to vote together as a single class with any class or series of stock of the Company other than the Common Stock, as may be issued and outstanding from time to time, as and to the extent which the voting rights and other terms applicable to such stock shall from time to time so provide. In addition to any other vote or approval required under Nevada law, holders of a majority of the issued and outstanding shares of Series B Preferred Stock shall approve any amendment to the Articles of Incorporation that would have a material adverse effect on only the rights of the holders of the Series B Preferred Stock as expressly set forth in the Articles of Incorporation.
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8. Protective Provisions. At all times prior to the date the Common Stock is listed for trading on a national securities exchange, the Company shall not, either directly or indirectly by amendment, merger, consolidation or otherwise, do any of the following without (in addition to any other vote required by law or the Articles of Incorporation) the prior written approval of the holders of a majority of the outstanding Series B Preferred Stock:
(a) amend or repeal any provision of the Articles of Incorporation or Bylaws, if such amendment or repeal would have a material adverse effect on the rights of the holders of Series B Preferred Stock;
(b) amend or alter the preferences, rights or privileges of the Series B Preferred Stock;
(c) declare or pay any dividends or make any distributions on any of the Company’s securities other than as provided herein;
(d) purchase or redeem (or permit any subsidiary to purchase or redeem) any shares of equity securities of the Company other than pursuant to any employment agreement or restricted stock or similar arrangement, or pursuant to any equity compensation plan or arrangement;
(e) authorize or issue any new shares of Series B Preferred Stock or any class or series of stock or any other equity interest in the Company;
(f) enter into an agreement that would materially limit the Company’s ability to perform its obligations in respect of the Series B Preferred Stock;
(g) liquidate, dissolve or wind-up the business and affairs of the Company, effect any merger or consolidation or any other Deemed Liquidation Event, or consent to any of the foregoing;
(h) create, or authorize the creation of, or issue, or authorize the issuance of any debt security or create any lien or security interest (except for purchase money liens or statutory liens of landlords, mechanics, materialmen, workmen, warehousemen and other similar persons arising or incurred in the ordinary course of business) or incur other indebtedness for borrowed money, including but not limited to obligations and contingent obligations under guarantees, or permit any subsidiary to take any such action with respect to any debt security, lien, security interest or other indebtedness for borrowed money;
(i) create, or hold an equity interest in, any subsidiary that is not wholly owned (either directly or through one or more other subsidiaries) by the Company, or permit any subsidiary to create, or authorize the creation of, or issue or obligate itself to issue, any class or series of equity interests, or sell, transfer or otherwise dispose of any equity interests of any direct or indirect subsidiary of the Company, or permit any direct or indirect subsidiary to sell, lease, transfer, exclusively license or otherwise dispose (in a single transaction or series of related transactions) of all or substantially all of the assets of such subsidiary;
(j) increase or decrease the authorized number of directors on the Board; or
(k) take any other action, which pursuant to the Articles of Incorporation or applicable Nevada law, requires the vote of the holders of the Series B Preferred Stock as a separate class or series.
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9. Redeemed or Otherwise Acquired Shares. Any shares of Series B Preferred Stock that are redeemed or otherwise acquired by the Company or any of its subsidiaries shall be automatically and immediately cancelled and retired and shall not be reissued, sold or transferred. Neither the Company nor any of its subsidiaries may exercise any voting or other rights granted to the holders of Series B Preferred Stock following such redemption or acquisition by the Company.
10. Waiver. The rights, preferences, privileges and other terms of the Series B Preferred Stock may be waived as to all shares of Series B Preferred Stock in any instance (without the necessity of convening any meeting of shareholders) upon the written agreement or consent, or the vote at a duly called meeting of shareholders, of a majority of the holders of the Series B Preferred Stock, and such waiver shall thereupon be binding upon all holders of Series B Preferred Stock.
11. Miscellaneous. The holders of the Series B Preferred Stock shall be entitled to receive all communications sent by the Company to the holders of the Common Stock.
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Exhibit 10.3
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the “Agreement”) is entered into this 3rd day of May, 2021, effective May 11, 2021 (the “Effective Date”), by and between VERITAS FARMS, INC., a Nevada corporation (“VFRM” or the “Company”) and ALEXANDER M. SALGADO, an individual (“Executive”). VFRM and Executive are sometimes referred to herein individually, as a “Party” and collectively, as the “Parties.”
RECITALS
WHEREAS, VFRM and Executive entered into that certain employment agreement dated September 27, 2017, under which Executive was employed as VFRM’s Chief Executive Officer (the “Employment Agreement”); and
WHEREAS, Executive also serves as a member of VFRM’s board of directors (the “Board”); and
WHEREAS, VFRM and Executive wish to terminate the Employment Agreement and Executive wishes to resign as a member of the Board and as VFRM’s Chief Executive Officer, on and subject to the terms and conditions set forth below; and
WHEREAS, capitalized terms used but not defined herein shall have the meaning ascribed thereto in the Employment Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and agreements below and other good and valuable consideration, the Parties agree as follows:
1. Termination of Employment Agreement; Resignation as Chief Executive Officer and Member of the Board; Consulting Agreement.
(a) The Employment Agreement is hereby terminated, effective as of the Effective Date, on and subject to the terms of and except as provided in this Agreement.
(b) As of the Effective Date, Executive resigns as the Company’s Chief Executive Officer and a member of the Board, and from any and all other positions the Executive holds with the Company and its subsidiary, 271 Lake Davis Holdings, LLC, a Delaware limited liability company.
(c) Commencing on the Effective Date, Executive shall enter into a Consulting Agreement with the Company in the form attached hereto as Exhibit A (“Consulting Agreement”).
2. Severance. Upon the expiration or termination of the Consulting Agreement, and provided the Consulting Agreement has not been terminated by the Company for Cause (as defined in the Consulting Agreement), the Executive shall receive the following severance:
(a) In satisfaction of all obligations, financial and otherwise, of VFRM to Executive under the Employment Agreement, VFRM shall:
| ● | pay to Executive severance (“Severance Pay”) at the rate of Two Hundred Thousand Dollars ($200,000) per annum (Executive’s current level of base salary) until the second anniversary of the expiration or termination of the Consulting Agreement (the “Severance Period”). Severance Pay shall be paid in accordance with VFRM’s normal payroll practices for the payment of executive and management compensation in effect from time to time during the Severance Period; |
| ● | pay Executive’s COBRA premiums on Executive’s health insurance as in effect as of the Effective Date for eighteen (18) months after the Effective Date, provided, however, that such obligation shall terminate if at any time during such eighteen (18) month period, Executive becomes covered by another health insurance plan, whereupon Executive shall notify VFRM within ten (10) days of accepting such employment setting forth the commencement date of such alternative coverage; and |
| ● | allow Executive to exercise the following vested options (the “Options”) previously granted to him under VFRM’s 2017 Stock Incentive Plan (the “2017 Plan”) at any time and from time to time, prior to the date that is three (3) years from the Effective Date, without regard to Executive’s Continuous Service (as such term is defined in the 2017 Plan): |
| ○ | options to purchase 250,000 shares of VFRM’s common stock at an exercise price of $0.333 per share with an expiration date of November 10, 2027; |
| ○ | options to purchase 500,000 shares of VFRM’s common stock at an exercise price of $1.44 per share with an expiration date of August 6, 2028; and |
| ○ | options to purchase 500,000 shares of VFRM’s common stock at an exercise price of $0.98 per share with an expiration date of December 26, 2029. |
(b) The Company represents and warrants to Executive that the shares of common stock of the Company issuable upon exercise of the Options have been registered on a registration statement on Form S-8, as amended (File No. 333-339412). The Company covenants to use its commercially reasonable efforts to maintain the effectiveness of such registration statement and ensure no stop transfer order is in place with respect thereto with the Company’s transfer agent nor a stop order in place with respect thereto with the United States Securities and Exchange Commission (the “SEC”).
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(c) With respect to all shares of common stock owned of record by Executive as of the Effective Date, as soon as practicable upon the expiration of the three-month period beginning on the Effective Date, the Company shall take all steps necessary to instruct the Company’s transfer agent to remove the restrictive legend from the stock certificates evidencing such shares. Until such legend removal is effected, the Company covenants that it will file the reports required to be filed by it under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations adopted by the SEC thereunder (or, if it ceases to be required to file such reports, it will, upon the request of the Executive, make publicly available other information that fulfills the information requirements set forth in Rule 144 under the Securities Act), and it will take such further action as the Executive may reasonably request, all to the extent required from time to time to enable the Executive to sell the such shares without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time; or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of the Executive, the Company will deliver to it a written statement as to whether the Company has complied with such information disclosure and other requirements.
(d) All payments made by VFRM to Executive under Section 2(a) shall be subject to all required federal, state and local withholding, payroll and insurance taxes.
(e) VFRM and Executive agree that except for Accrued Obligations (which for purposes of this Agreement, shall be as defined in the Employment Agreement) and as otherwise specifically set forth in this Agreement, VFRM shall have no further obligations, financial or otherwise, to Executive under the Employment Agreement or otherwise, including without limitation, the award and payment of any bonuses or amounts described in Section 8 of the Employment Agreement in the event of a Change of Control (as defined in the Employment Agreement), the right to which Executive specifically waives.
(f) The provisions of the Employment Agreement which survive the termination thereof pursuant to its terms, including, without limitation, the provisions of Sections 9, 10, 11, 12, 13, 16, 17 and 24, of the Employment Agreement shall survive the termination of the Employment Agreement and shall be deemed incorporated by reference into this Agreement, provided, however, that VFRM and Executive agree that Section 15 of the Employment Agreement is hereby terminated. In the event of a conflict between the surviving provisions of the Employment Agreement and any provision of this Agreement, the provision of this Agreement shall control.
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3. Releases.
On behalf of himself, his heirs, executors, administrators, and assigns, Executive fully releases VFRM and all of its affiliated and related entities, and their respective successors, assigns, officers, directors, agents, and employees, of and from any and all potential or actual known or unknown, actions, causes of actions, claims, demands, lawsuits, judgments, debts, accounts, covenants, agreements, actions, cross-actions, liabilities, obligations, losses, damages, costs, compensation, expenses, attorneys’ fees, remedies, causes of action of any nature, whether in tort or contract, or based on any wrongful or intentional act, fraud or misrepresentation, breach of duty or common law, or arising under or by virtue of any judicial decision, statute or regulation, for past, present, or future injuries, physical or mental or property or economic damage, and for all other losses and damages of any kind, including, but not limited to the following: actual damages, all exemplary and punitive damages, all penalties of any kind, including, without limitation, any statutory or other penalties or liabilities, tax liability, damage to physical or mental health, business reputation, lost earnings, profits or good will, consequential damages, damages ensuing from loss of credit and prejudgment and post-judgment interest and costs and attorneys’ fees, from the beginning of time to the Effective Date, other than claims arising pursuant to this Agreement. This Release includes, but is not limited to, all liabilities, for the payment of any sums or accrued earnings, bonuses, severance pay, salary, accruals under any vacation, sick leave or holiday plans, any employee benefits, any employment related charge, claim or lawsuit under any federal, state, or local law, including but not limited to claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Age Discrimination in Employment Act, as amended by the Older Workers’ Benefit Protection Rights, the Americans With Disabilities Act, the Worker Adjustment Retraining and Notification Act, the Family and Medical Leave Act of 1993, and any tort, contract, quasi-contract claims, and attorneys’ fees. Notwithstanding the foregoing, nothing contained in this Section 3(a) will operate to release any releasees hereunder from claims based on statutory or common law fraud.
4. Non-Disparagement. Neither Party, including in the case of VFRM, its officers, directors, employees, consultants and advisors will disparage, portray in a negative light, or make any statement which could be construed as defamatory to the other Party or injurious to its reputation. Notwithstanding the foregoing, for the avoidance of doubt, nothing in this Agreement limits, restricts or in any other way affects Executive’s communicating with any governmental agency or entity, or communicating with any official or staff person of a governmental agency or entity, concerning matters relevant to the governmental agency or entity.
5. Enforcement. In the event of a Party’s breach or threatened breach of Sections 3, 4 or 7 of this Agreement, the non-breaching Party may enforce such sections by obtaining an injunction to restrain the violation. Injunctive relief shall be in addition to, and not in lieu of, any other remedies or damages available at law or in equity, including the recovery of compensatory and punitive damages from the breaching Party.
6. Section 409A. The Parties intend for the compensation provided under this Agreement to comply with, or be exempt from, the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) (together with the regulations thereunder, “Section 409A”). If any payment or benefit hereunder constituting “nonqualified deferred compensation” subject to Section 409A would be subject to subsection (a)(2)(B)(i) of Section 409A (relating to payments made to “specified employees” of publicly-traded companies upon separation from service), any such payment or benefit to which Executive would otherwise be entitled during the six (6)-month period following Executive’s separation from service will instead be provided or paid without interest on the first business day following the expiration of such six (6)-month period, or if earlier, the date of Executive’s death. Each payment made under this Agreement shall be treated as a separate payment. Notwithstanding anything to the contrary in this Agreement, any reimbursement that constitutes or could constitute nonqualified deferred compensation subject to Section 409A will be subject to the following additional requirements: (a) the expenses eligible for reimbursement will have been incurred during the term of this Agreement; (b) the amount of expenses eligible for reimbursement during any calendar year will not affect the expenses eligible for reimbursement in any other taxable year; (c) reimbursement will be made not later than December 31 of the calendar year following the calendar year in which the expense was incurred; and (d) the right to reimbursement will not be subject to liquidation or exchange for any other benefit.
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7. No Offset; Clawback.
(a) in no event shall any alternative source of income or other monies to Executive from outside of the Company, whether through other employment, consultancy, investments or otherwise, be deemed to offset the payments owed to Executive hereunder; and
(b) no cash compensation received by Executive under this Agreement shall be subject to clawback or recoupment by the Company following its payment, nor shall the Options be subject to any clawback or recoupment by the Company.
8. Indemnification; D&O Liability and Insurance.
(a) The Company agrees that all rights to indemnification or exculpation now existing in favor of Executive, as provided in the Company’s organizational documents, shall survive the Effective Date and shall continue in full force and effect for a period of six (6) years after the Effective Date and that the Company will perform and discharge the obligations to provide such indemnity and exculpation after the Effective Date during such period; provided, however, that all rights to indemnification and exculpation in respect of any action arising out of or relating to matters existing or occurring at or prior to the termination of Executive’s service and asserted or made within such three (3) year period shall continue until the final disposition of such action. Until the termination of all such indemnification and exculpation obligations, except as required by law, the Company shall not, amend, repeal or otherwise modify the indemnification provisions of the Company’s articles of incorporation, bylaws, or other similar governing documents as in effect on the date hereof in any manner that would adversely affect the rights thereunder of Executive.
(b) In the event the Company or any of the Company’s successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity in such consolidation or merger; or (ii) transfers all or substantially all of its properties and assets to any person, then and in either such case, the Company shall make proper provision so that the successors and assigns shall assume the obligations set forth herein (to the extent not they do not terminate pursuant to the terms set forth herein).
9. Limitations on Indemnification. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Executive:
(a) for any acts or omissions or transactions from which a director may not be relieved of liability under applicable law;
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(b) with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Nevada Revised Statutes 78, but such indemnification may be provided by the Company in specific cases if the board of directors has approved the initiation or bringing of such suit;
(c) for any expenses incurred by Executive with respect to any proceeding instituted by Executive to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Executive in such proceeding was not made in good faith or was frivolous;
(d) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to or on behalf of Executive by an insurance carrier under a policy of directors’ and officers’ liability insurance maintained by the Company or any other policy of insurance maintained by the Company or Executive; or
(e) for Expenses and the payment of profits arising from the purchase and sale by Executive of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.”
10. Shareholder Litigation. Until six (6) years after the Effective Date, the Company shall use commercially reasonable efforts to promptly notify Executive of any action brought by any persons against the Company or any of its directors, officers or the other representatives to the extent Executive is included as a party to such action (such action, a “Board Litigation”), and shall use commercially reasonable efforts to keep Executive reasonably and promptly informed with respect to the status thereof. The Company will provide Executive with the right to consult on any settlement with respect to such Board Litigation.
11. Filing of Beneficial Ownership Reports with the Commission. Provided that Executive cooperates with the Company, the Company shall cooperate with Executive in connection with and facilitate, at the Company’s sole cost, the timely preparation and filing of any and all beneficial ownership reports required to be filed by Executive with the SEC pursuant to Sections 13 and 16 of the Exchange Act and the rules and regulations of the SEC.
12. Protective Provisions. This Agreement does not prevent Executive from (a) filing a charge of discrimination with the EEOC (b) reporting any information to the SEC or any other government agency or regulatory authority having jurisdiction over the Company, or in accordance with any applicable state or federal laws providing for whistleblower protection or (c) cooperating with any governmental investigation of the Company. However, by reason of the release contained in Section 3(a), Executive agrees that he will not seek or accept any award of damages or attorneys’ fees of any kind arising out of a charge or complaint filed by Executive, provided that this does not limit Executive’s right to recover an award from the SEC.
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13. Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the Parties relating to the termination of the Employment Agreement and supersedes any and all prior agreements or oral representations by either Party related thereto. This Agreement shall not be changed, modified or amended in any respect except by a written instrument signed by the Parties.
14. Confidentiality. Except as otherwise contemplated herein, the Parties agree that the facts relating to the existence of this Agreement, the negotiations leading to the execution of this Agreement, and the terms of this Agreement shall be held in confidence by the parties and, except as necessary to enforce this Agreement or as required by law or court process, shall not be disclosed, communicated, offered into evidence in any legal proceedings or divulged to any person, other than to Executive’s spouse and each Party’s tax advisors, legal advisors and accountants and to those who must perform tasks to effectuate this Agreement, in any case, without first advising such persons to whom disclosure is made of the confidential nature of this Agreement. Notwithstanding the foregoing, if the Company is contacted by the media or as a reference or Executive is contacted directly by, or Executive directly contacts, Executive’s prospective employers, the Company and Executive agree to respond, orally or in writing to such media or prospective employers, only refer such party to the Current Report on Form 8-K (the “Form 8-K”) filed by the Company with the SEC in connection with Executive’s separation or, in the event of communications with a prospective employer, confirm Executive’s title and dates of employment. Such Form 8-K will be timely filed on or after the Effective Date and will be limited to the disclosures set forth in Exhibit B attached hereto. Other than the Form 8-K, the Company has no intention to make any further SEC filings or to issue any written statement in connection with the matters contemplated herein.
15. Expenses. Each Party has had independent counsel and as such, each party shall bear his, her or its respective legal fees and expenses relating to this Agreement, provided, however, that within thirty (30) days of the Effective Date, the Company shall pay to Executive’s counsel, Executive’s legal fees and expenses relating to this Agreement, up to a maximum of Five Thousand Dollars ($5,000), subject to submission by Executive’s counsel of invoices detailing the legal fees and expenses for which payment is sought hereunder.
16. Consideration and Revocation Period. Executive represents and warrants that Executive has read this entire Agreement; has been provided at least twenty-one (21) days to consider it; has been given the opportunity and has had this Agreement reviewed by an attorney; understands the meaning and application of each and every provision of this Agreement; and is signing of Executive’s own free will with the intent of being bound by each and every provision of this Agreement. Executive acknowledges that if Executive signs this Agreement prior to the expiration of twenty-one (21) days, Executive has done so voluntarily and knowingly. Executive agrees that any modification to this Agreement, material or otherwise, does not restart, extend or affect in any way the original twenty-one (21) day consideration period. Executive further understands that Executive has seven (7) days to revoke this Agreement after signing it by delivering a notice of rescission by to the Company in accordance with the provisions of Section 21.
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15. Choice of Law and Invalid Provisions. This Agreement is made and delivered in, and shall be governed by, and construed in accordance with, the applicable laws of the State of Florida and if any term or part of this Agreement shall be determined to be invalid, illegal or unenforceable, in whole or in part, the validity of the remaining part of such term or the validity of any other term of this Agreement shall not in any way be affected. If any invalidity or unenforceability is caused by the length of any period of time or the size of any area set forth in any part of this Agreement, the period of time or area, or both, shall be considered to be reduced to a period or area that would cure the invalidity or unenforceability.
16. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, legal representatives, successors and Assigns.
17. Waiver. A waiver by any Party of any of the terms and conditions hereof shall not be construed as a general waiver by such Party and such Party shall be free to reinstate any such term or condition, with or without notice to the other Party.
18. Construction and Acknowledgment. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the Party causing this Agreement to be drafted. All sections or subsections in this Agreement are for convenience only and are not deemed part of the content of this Agreement.
19. Jurisdiction; Venue; Inconvenient Forum; Jury Trial; Attorneys’ Fees. Any suit, action or proceeding brought to interpret, enforce or otherwise arising under this Agreement shall be brought in the Broward County Circuit Court for the Eleventh Judicial Circuit, in and for Broward County, Florida, or in the U.S. District Court for the Southern District of Florida, Fort Lauderdale Division, and the Parties accept the exclusive personal jurisdiction of those courts for the purpose of any suit, action or proceeding. Each Party waives all rights to any trial by jury in all litigation relating to or arising out of this Agreement. In any suit, action or proceeding brought to interpret or enforce or otherwise arising under this to this Agreement, the prevailing Party shall be entitled to recover attorneys’ fees and costs at both the trial and appellate levels.
20. No Admission of Liability. The Parties acknowledge that by entering into this Agreement, VFRM does not admit it has any liability whatsoever to Executive concerning Executive’s employment or the separation of that employment, nor does Executive admit that any wrongdoing was the cause of the separation of his employment with the Company.
21. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service, to Executive at the last address the Executive has filed in writing with the Company or, in the case of the Company, at its main offices, attention of the Chief Executive. Notices shall be effective on receipt.
22. Counterparts. This Agreement may be executed in multiple counterparts (including by facsimile, .pdf or other electronic transmission, each of which shall be deemed an original and all of which shall constitute a single agreement.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date.
| VFRM: | ||
| VERITAS FARMS, INC. | ||
| By: | /s/ Michael D. Pelletier | |
| Michael
D. Pelletier, Chief Financial Officer | ||
| EXECUTIVE: | ||
| Alexander M. Salgado | ||
| Alexander M. Salgado | ||
Exhibit 10.4
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT (this “Agreement”) is entered into as of May 11, 2021 (the “Effective Date”), by and between VERITAS FARMS, INC., a Nevada corporation (the “Company”), and ALEXANDER M. SALGADO, an individual (the “Consultant”), each a “Party” and together, the “Parties.”
RECITALS
WHEREAS, the Company and the Consultant have entered into a Separation Agreement of even date herewith in connection with the Consultant’s separation from the Company as the Chief Executive Officer and member of its Board of Directors, and any other positions that he may have held with respect to the Company and its subsidiary (the “Separation Agreement”);
WHEREAS, pursuant to the terms of the Separation Agreement the Parties have agreed to enter into this Agreement for the provision of consulting services by Consultant to the Company; and
WHEREAS, the Company desires to retain Consultant and Consultant desires to provide consulting services to the Company pursuant to the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing provisions, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties hereto agree as follows:
1. Recitals. The foregoing recitals are true and correct and incorporated herein by reference.
2. Retention and Performance of the Services.
(a) Retention and Definition of the Services. The Company retains the Consultant and the Consultant agrees to provide the Company with such advice and assistance with respect to its business and operations generally to provide for an orderly transition to the Consultant’s successor as Chief Executive Officer of the Company, as the Company may reasonably request (the “Services”).
(b) Performance of the Services . During the Term, the Consultant agrees to be available to provide the Services as reasonably requested from to time by the Company. Consultant shall perform the Services in a diligent, timely and professional manner, and shall, at all times during the Term, utilize his best efforts in connection with the Services. The Consultant will devote such time as may be reasonably requested by the Company to fulfill his obligations under this Agreement. Notwithstanding the foregoing, the Consultant shall not be required to spend more than forty (40) hours per week performing the Services and may perform the Services remotely if the services do not necessitate the Consultant to be at the Company’s headquarters.
(c) Compliance with Laws and Company Policies. The Consultant agrees that, in the performance of the Services under this Agreement, he shall comply with all applicable laws, statutes, judgments, rules, regulations, ordinances, orders, decrees, permits, licenses, and other legal requirements of any governmental authority or judicial court, now in effect or hereafter promulgated, and any judicial or administrative interpretation thereof. Consultant shall also comply with all applicable policies of the Company relating to business and conduct in connection with the Services.
3. Term. The term of this Agreement will be for three (3) months beginning on the Effective Date (the “Term”), unless earlier terminated as provided for in this Agreement. The term of this Agreement may be extended by mutual written agreement of the Parties.
4. Compensation. During the Term, the Consultant shall be compensated, as follows:
(a) Consulting Fee. The monthly consulting fee (the “Consulting Fee”) payable to Consultant during the term of this Agreement is $16,666.66. The Consulting Fee shall be payable to Consultant on a bi-weekly basis in accordance with the Company’s normal payroll practices.
(b) Expenses. The Company shall reimburse the Consultant for all reasonable and necessary out-of-pocket business expenses including, but not limited to, travel expenses incurred in connection with his performance of the Services hereunder, subject to the submission of reasonable documentation therefor and pre-approval by the Company.
5. Confidentiality.
(a) The Consultant agrees that all non-public information pertaining to the prior, current or contemplated business of the Company is valuable and a confidential asset of the Company. Such information shall include, without limitation, information relating to customer lists, bidding procedures, intellectual property, patents, trademarks, trade secrets, financing techniques and sources and such financial statements of the Company as are not available to the public. The Consultant, his employees, agents and attorneys shall hold all such information in trust and confidence for the Company and shall not use or disclose any such information for other than the Company’s business and shall be liable for damages incurred by the Company as a result of the use or disclosure of such information by the Consultant or the Consultant’s employees, agents or attorneys for any purpose other than the Company’s business, except (i) where such information is publicly available or later becomes publicly available other than through a breach of this Agreement; (ii) where such information is subsequently lawfully obtained by the Consultant from a third party or parties with no confidentiality obligation to the Company; (iii) if such information is known to the Consultant prior to the execution of the Employment Agreement dated September 27, 2017 by and between the Company and the Consultant; or (iv) as may be required by law. The terms of this Section 5 shall survive the expiration or termination of this Agreement.
(b) The Consultant acknowledges and agrees that in the event of the breach or threatened breach by the Consultant or its employees, agents or attorneys of the terms and conditions of this Section 5, the Company will suffer irreparable injury and that monetary damages would not provide an adequate remedy at law and that no remedy at law may exist. Accordingly, in the event of such breach or threatened breach, the Company will be entitled, if it so elects and without the posting of any bond or security, to institute and prosecute proceedings in any court of competent jurisdiction, in law or in equity, to obtain damages for any breach of this Section 5 or to (i) enforce the specific performance of this Agreement by the Consultant or its employees, agents or attorneys; or (ii) enjoin the Consultant from breaching or attempting to breach this Section 5.
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6. No Conflicting Agreements; Nonexclusive Engagement.
(a) No Conflicting Agreements. Consultant represents that Consultant is not a party to any existing agreement that would prevent Consultant from entering into and performing this Agreement. Consultant will not enter into any other agreement that is in conflict with Consultant’s obligations under this Agreement. Subject to the foregoing and Consultant’s obligations in Section 5, Consultant may act as a consultant to and perform professional services for other persons or entities without the necessity of obtaining approval from the Company.
(b) Other Engagements. The Company may (i) engage other persons and entities to act as consultants to the Company and perform services for the Company, including services that are similar to the Services described in Section 2, and (ii) enter into agreements similar to this Agreement with other persons or entities, in all cases without the necessity of obtaining approval from Consultant.
7. Termination.
(a) Early Termination by the Company. The Company may terminate this Agreement for “Cause” during the Term. The following shall constitute Cause for termination:
(i) the Consultant’s material breach or violation of any of the terms or conditions of this Agreement, or any other agreement between Consultant and the Company, including the Separation Agreement, and the failure to remedy such material breach or violation within seven (7) days after written notice of such material breach or violation is given to the Consultant by the Company;
(ii) the Consultant’s failure to perform, or gross negligence in the performance of, Consultant’s Services to the Company, or willful misconduct by Consultant that could be reasonably anticipated to be, or is, harmful to the business, reputation or other interest of the Company in any material respect;
(iii) the Consultant’s performance of any act or his failure to act, for which if he were prosecuted and convicted, a crime or offense involving money or property of the Company or its subsidiary, or which would constitute a felony or a crime involving moral turpitude, dishonesty, breach of trust, unethical business conduct, or any crime involving the Company in the jurisdiction involved would have occurred, or the Consultant submitting to a plea of guilty or nolo contendre with respect thereto;
(iv) the Consultant engaged in unlawful harassment or discrimination of employees, customers or suppliers of the Company;
(v) the Consultant exposed the Company to criminal liability substantially caused by Consultant;
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(vi) violation by Consultant of any law, rule or regulation (other than (A) traffic violations or similar offenses; (B) a non-material law, rule or regulation; or (C) violations that would not be detrimental to the Company, its business, its reputation or its customers in any material respect);
(vii) the Consultant’s theft or embezzlement of money or property of the Company; or
(viii) the Consultant’s perpetration of a fraud on the Company, or the Consultant’s participation in such a fraud.
In addition to the foregoing, the Company may terminate this Agreement during the Term for the death or disability of the Consultant (where the Consultant is unable to perform the Services for ten (10) days during the Term, whether or not consecutive).
(b) Early Termination by the Consultant. The Consultant may terminate this Agreement during the Term in the event of Company’s material breach or violation of any of the terms or conditions of this Agreement and the failure to remedy such material breach or violation within fifteen (15) days after written notice of such material breach or violation is given to the Company by the Consultant.
8. Return of Property. Promptly upon the expiration or sooner termination of the Term of this Agreement, and earlier if requested by the Company at any time, Consultant shall deliver to the Company (and will not keep in Consultant’s possession or deliver to anyone else) all Confidential Information of the Company related to the Business and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, materials, equipment, computer software, other documents or property, or reproductions of any aforementioned items developed by Consultant as part of or in connection with the Services or otherwise belonging to the Company.
9. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement of the Parties pertaining to its subject matter and supersedes all prior or contemporaneous agreements or understandings between the Parties pertaining to the subject matter of this Agreement, and there are no promises, agreements, conditions, undertakings, warranties, or representations, whether written or oral, express or implied, between the Parties other than as set forth in this Agreement.
(b) Modification. This Agreement may not be amended or modified, or any provision waived, unless in writing and signed by both Parties.
(c) Waiver. Failure of a Party to enforce one or more of the provisions of this Agreement or to require at any time performance of any of the obligations of this Agreement will not be construed to be a waiver of such provisions by such Party nor to in any way affect the validity of this Agreement or such Party’s right thereafter to enforce any provision of this Agreement, nor to preclude such Party from taking any other action at any time which it would legally be entitled to take.
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(d) Successors and Assigns. This Agreement may not be assigned or the duties of any Party delegated unless in writing and signed by both Parties, except for any assignment by the Company occurring by operation of law. Subject to the foregoing, this Agreement will inure to the benefit of, and be binding upon, the Parties and their respective heirs, beneficiaries, personal representatives, successors and permitted assigns.
(e) Notices. Any notice, demand, consent, agreement, request, or other communication required or permitted under this Agreement will be in writing and will be (i) mailed by first-class mail, certified, return receipt requested, postage prepaid; or (ii) delivered by overnight courier, to the Parties at the addresses as follows (or at such other addresses as will be specified by the Parties by like notice):
| If to the Company, then to: | Veritas Farms, Inc. |
| 1512 E. Broward Blvd., Suite 300 | |
| Fort Lauderdale, Florida 33301 | |
| Attention: CEO |
| If to the Consultant, then to: | Alexander M. Salgado |
| _________________________ | |
| _________________________ |
Each Party may designate by notice in writing a new address to which any notice, demand, consent, agreement, request or communication may thereafter be given, served or sent. Each notice, demand, consent, agreement, request or communication that is mailed or delivered by courier in the manner described above will be deemed received for all purposes at such time as it is delivered to the addressee (with the return receipt, the courier delivery receipt being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation.
(f) Severability. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such invalidity or unenforceability will not affect the validity and enforceability of the other provisions of this Agreement and the provision held to be invalid or unenforceable shall be construed and enforced as nearly as possible according to its original terms and intent to eliminate such invalidity or unenforceability.
(g) Counterparts. This Agreement may be executed in any number of counterparts and by facsimile or other electronic means (including by PDF attachment), and all such counterparts will collectively be deemed to constitute a single binding agreement and shall have the same legal effect as an original.
(h) Governing Law; Venue; Attorneys’ Fees. This Agreement shall be governed by the laws of the State of Florida, without regard to its conflicts of law principles. In the event that any Party brings suit against the other hereunder, such Party shall bring such suit in the U.S. federal or state court in Broward County, Florida. None of the Parties will argue or contend that it is not subject to the jurisdiction of the Florida courts or that venue in Broward County, Florida is improper. Each Party consents that all service of process may be made by certified mail directed to it at its address stated herein. The prevailing Party in any action brought to interpret or enforce this Agreement shall be entitled to recover attorneys’ fees and costs from the non-prevailing Party at both the trial and appellate levels.
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(i) Independent Contractor Status. The Consultant will be performing consulting services as an independent contractor during the Term, and not as an employee or officer of the Company. The Consultant will be responsible for all taxes and non-reimbursable expenses attributable to the rendition of his consulting services. The consulting arrangement shall not be deemed to constitute a partnership or joint venture between the Company and the Consultant, nor shall the consulting arrangement be deemed to constitute the Consultant as an agent of the Company. Consultant has no authority (and shall not hold himself out as having authority) to bind the Company. Consultant shall not make any agreements or representations on the Company’s behalf without the Company’s prior written consent.
(j) Cooperation. During the Term and continuing thereafter, if requested by the Company, the Consultant shall cooperate and assist the Company and its subsidiary and affiliates in any dispute, proceeding, or investigation in which the Company or its subsidiary or affiliate is involved and in which the Consultant has been involved, or which involves facts or events that existed or arose during the period of the Consultant’s employment or consultancy with the Company relating to the business of the Company. The Company will reimburse the Consultant for all reasonable out-of-pocket costs incurred by the Consultant in fulfilling his obligations under this Section 9(j).
(k) Restrictive Covenants. The Consultant shall continue to be bound by the restrictive covenants contained in Section 2(f) of the Separation Agreement (the “Restrictive Covenants”), except that any references in the Restrictive Covenants to the termination or end of the Consultant’s employment shall be deemed to refer instead to the termination or end of the Consultant’s Term under this Agreement. Except as modified in this Section 9(k), the Restrictive Covenants will survive the termination of this Agreement to the extent provided in the Separation Agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the date first above written.
| THE COMPANY: | ||
| VERITAS FARMS, INC. | ||
| By: | /s/ Michael D. Pelletier | |
| Michael D. Pelletier, Chief Financial Officer | ||
| THE CONSULTANT: | |
| /s/ Alexander M. Salgado | |
| Alexander M. Salgado |
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Exhibit 10.5
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (the “Agreement”) is entered into this 6th day of May, 2021, effective May 14, 2021 (the “Effective Date”), by and between VERITAS FARMS, INC., a Nevada corporation (“VFRM” or the “Company”) and MICHAEL D. PELLETIER, an individual (“Executive”). VFRM and Executive are sometimes referred to herein individually, as a “Party” and collectively, as the “Parties.”
RECITALS
WHEREAS, effective as of April 23, 2019 the Executive was hired and employed by VFRM to serve as its Chief Financial Officer; and
WHEREAS, VFRM and Executive wish to terminate Executive’s employment with VFRM and Executive wishes to resign as VFRM’s Chief Financial Officer, on and subject to the terms and conditions set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and agreements below and other good and valuable consideration, the Parties agree as follows:
1. Termination of Employment; Resignation as Chief Financial Officer; Consulting Agreement.
(a) Executive’s employment with VFRM is hereby terminated effective as of the Effective Date, on and subject to the terms of and except as provided in this Agreement.
(b) As of the Effective Date, except as provided in the Consulting Agreement (as hereinafter defined), Executive resigns from any and all positions the Executive holds with the Company and its subsidiary, 271 Lake Davis Holdings, LLC, a Delaware limited liability company.
(c) Commencing on the Effective Date, Executive shall enter into a Consulting Agreement with the Company in the form attached hereto as Exhibit A (the “Consulting Agreement”).
2. Severance. Upon the expiration or termination of the Consulting Agreement, and provided the Consulting Agreement has not been terminated by the Company for Cause (as defined in the Consulting Agreement), the Executive shall receive the following severance:
(a) In satisfaction of all obligations, financial and otherwise, of VFRM to Executive, VFRM shall:
| ● | Commencing on the date of expiration or termination of the Consulting Agreement and continuing for a period of six (6) months thereafter (the “Severance Period”), pay to Executive severance (“Severance Pay”) at the rate of twelve thousand Dollars ($12,000) per month (Executive’s current level of base salary). Severance Pay shall be paid in accordance with VFRM’s normal payroll practices for the payment of executive and management compensation in effect from time to time during the Severance Period; |
| ● | Commencing on the Effective Date and continuing through the end of the Severance Period, pay Executive’s COBRA premiums on Executive’s health insurance as in effect as of the Effective Date, provided, however, that such obligation shall terminate if at any time during such time period Executive becomes covered by another health insurance plan, whereupon Executive shall notify VFRM within ten (10) days of accepting such employment setting forth the commencement date of such alternative coverage; and |
| ● | allow Executive to exercise the following vested options (the “Options”) previously granted to him under VFRM’s 2017 Stock Incentive Plan (the “2017 Plan”) at any time and from time to time, commencing on the Effective Date and continuing through the date which is three (3) months after expiration of the Severance Period, without regard to Executive’s Continuous Service (as such term is defined in the 2017 Plan): |
| o | options to purchase 16,667 shares of VFRM’s common stock at an exercise price of $2.488 per share with an expiration date of April 23, 2029. |
(b) The Company represents and warrants to Executive that the shares of common stock of the Company issuable upon exercise of the Options have been registered on a registration statement on Form S-8, as amended (File No. 333-339412). The Company covenants to use its commercially reasonable efforts to maintain the effectiveness of such registration statement and ensure no stop transfer order is in place with respect thereto with the Company’s transfer agent nor a stop order in place with respect thereto with the United States Securities and Exchange Commission (the “SEC”).
(c) With respect to all shares of common stock owned of record by Executive as of the Effective Date, as soon as practicable upon the expiration of the three-month period beginning on the Effective Date, the Company shall take all steps necessary to instruct the Company’s transfer agent to remove the restrictive legend from the stock certificates evidencing such shares. Until such legend removal is effected, the Company covenants that it will file the reports required to be filed by it under the Securities Act of 1933, as amended (the “Securities Act”) and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the rules and regulations adopted by the SEC thereunder (or, if it ceases to be required to file such reports, it will, upon the request of the Executive, make publicly available other information that fulfills the information requirements set forth in Rule 144 under the Securities Act), and it will take such further action as the Executive may reasonably request, all to the extent required from time to time to enable the Executive to sell the such shares without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time; or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of the Executive, the Company will deliver to it a written statement as to whether the Company has complied with such information disclosure and other requirements.
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(d) All payments made by VFRM to Executive under Section 2(a) shall be subject to all required federal, state and local withholding, payroll and insurance taxes.
(e) VFRM and Executive agree that except as otherwise specifically set forth in this Agreement, VFRM shall have no further obligations, financial or otherwise, to Executive.
3. Release.
On behalf of himself, his heirs, executors, administrators, and assigns, Executive fully releases VFRM and all of its affiliated and related entities, and their respective successors, assigns, officers, directors, agents, and employees, of and from any and all potential or actual known or unknown, actions, causes of actions, claims, demands, lawsuits, judgments, debts, accounts, covenants, agreements, actions, cross-actions, liabilities, obligations, losses, damages, costs, compensation, expenses, attorneys’ fees, remedies, causes of action of any nature, whether in tort or contract, or based on any wrongful or intentional act, fraud or misrepresentation, breach of duty or common law, or arising under or by virtue of any judicial decision, statute or regulation, for past, present, or future injuries, physical or mental or property or economic damage, and for all other losses and damages of any kind, including, but not limited to the following: actual damages, all exemplary and punitive damages, all penalties of any kind, including, without limitation, any statutory or other penalties or liabilities, tax liability, damage to physical or mental health, business reputation, lost earnings, profits or good will, consequential damages, damages ensuing from loss of credit and prejudgment and post-judgment interest and costs and attorneys’ fees, from the beginning of time to the Effective Date, other than claims arising pursuant to this Agreement. This Release includes, but is not limited to, all liabilities, for the payment of any sums or accrued earnings, bonuses, severance pay, salary, accruals under any vacation, sick leave or holiday plans, any employee benefits, any employment related charge, claim or lawsuit under any federal, state, or local law, including but not limited to claims under Title VII of the Civil Rights Act of 1964, the Civil Rights Act of 1991, the Civil Rights Act of 1866, the Age Discrimination in Employment Act, as amended by the Older Workers’ Benefit Protection Rights, the Americans With Disabilities Act, the Worker Adjustment Retraining and Notification Act, the Family and Medical Leave Act of 1993, and any tort, contract, quasi-contract claims, and attorneys’ fees. Notwithstanding the foregoing, nothing contained in this Section 3 will operate to release any releasees hereunder from claims based on statutory or common law fraud.
4. Non-Disparagement. Neither Party, including in the case of VFRM, its officers, directors, employees, consultants and advisors will disparage, portray in a negative light, or make any statement which could be construed as defamatory to the other Party or injurious to its reputation. Notwithstanding the foregoing, for the avoidance of doubt, nothing in this Agreement limits, restricts or in any other way affects Executive’s communicating with any governmental agency or entity, or communicating with any official or staff person of a governmental agency or entity, concerning matters relevant to the governmental agency or entity.
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5. Enforcement. In the event of a Party’s breach or threatened breach of Sections 3, 4 or 7 of this Agreement, the non-breaching Party may enforce such sections by obtaining an injunction to restrain the violation. Injunctive relief shall be in addition to, and not in lieu of, any other remedies or damages available at law or in equity, including the recovery of compensatory and punitive damages from the breaching Party.
6. Section 409A. The Parties intend for the compensation provided under this Agreement to comply with, or be exempt from, the provisions of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) (together with the regulations thereunder, “Section 409A”). If any payment or benefit hereunder constituting “nonqualified deferred compensation” subject to Section 409A would be subject to subsection (a)(2)(B)(i) of Section 409A (relating to payments made to “specified employees” of publicly-traded companies upon separation from service), any such payment or benefit to which Executive would otherwise be entitled during the six (6)-month period following Executive’s separation from service will instead be provided or paid without interest on the first business day following the expiration of such six (6)-month period, or if earlier, the date of Executive’s death. Each payment made under this Agreement shall be treated as a separate payment. Notwithstanding anything to the contrary in this Agreement, any reimbursement that constitutes or could constitute nonqualified deferred compensation subject to Section 409A will be subject to the following additional requirements: (a) the expenses eligible for reimbursement will have been incurred during the term of this Agreement; (b) the amount of expenses eligible for reimbursement during any calendar year will not affect the expenses eligible for reimbursement in any other taxable year; (c) reimbursement will be made not later than December 31 of the calendar year following the calendar year in which the expense was incurred; and (d) the right to reimbursement will not be subject to liquidation or exchange for any other benefit.
7. No Offset; Clawback.
(a) in no event shall any alternative source of income or other monies to Executive from outside of the Company, whether through other employment, consultancy, investments or otherwise, be deemed to offset the payments owed to Executive hereunder; and
(b) no cash compensation received by Executive under this Agreement shall be subject to clawback or recoupment by the Company following its payment, nor shall the Options be subject to any clawback or recoupment by the Company.
8. Indemnification.
(a) The Company agrees that all rights to indemnification or exculpation now existing in favor of Executive, as provided in the Company’s organizational documents, shall survive the Effective Date and shall continue in full force and effect for a period of six (6) years after the Effective Date and that the Company will perform and discharge the obligations to provide such indemnity and exculpation after the Effective Date during such period; provided, however, that all rights to indemnification and exculpation in respect of any action arising out of or relating to matters existing or occurring at or prior to the termination of Executive’s service and asserted or made within such six (6) year period shall continue until the final disposition of such action. Until the termination of all such indemnification and exculpation obligations, except as required by law, the Company shall not, amend, repeal or otherwise modify the indemnification provisions of the Company’s articles of incorporation, bylaws, or other similar governing documents as in effect on the date hereof in any manner that would adversely affect the rights thereunder of Executive.
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(b) In the event the Company or any of the Company’s successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or surviving corporation or entity in such consolidation or merger; or (ii) transfers all or substantially all of its properties and assets to any person, then and in either such case, the Company shall make proper provision so that the successors and assigns shall assume the obligations set forth herein (to the extent not they do not terminate pursuant to the terms set forth herein).
9. Limitations on Indemnification. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement to indemnify Executive:
(a) for any acts or omissions or transactions from which a director may not be relieved of liability under applicable law;
(b) with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Nevada Revised Statutes 78, but such indemnification may be provided by the Company in specific cases if the board of directors has approved the initiation or bringing of such suit;
(c) for any expenses incurred by Executive with respect to any proceeding instituted by Executive to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by the Executive in such proceeding was not made in good faith or was frivolous;
(d) for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) which have been paid directly to or on behalf of Executive by an insurance carrier under a policy of directors’ and officers’ liability insurance maintained by the Company or any other policy of insurance maintained by the Company or Executive; or
(e) for Expenses and the payment of profits arising from the purchase and sale by Executive of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.”
10. Shareholder Litigation. Until six (6) years after the Effective Date, the Company shall use commercially reasonable efforts to promptly notify Executive of any action brought by any persons against the Company or any of its directors, officers or the other representatives to the extent Executive is included as a party to such action (such action, a “Board Litigation”), and shall use commercially reasonable efforts to keep Executive reasonably and promptly informed with respect to the status thereof. The Company will provide Executive with the right to consult on any settlement with respect to such Board Litigation.
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11. Filing of Beneficial Ownership Reports with the Commission. Provided that Executive cooperates with the Company, the Company shall cooperate with Executive in connection with and facilitate, at the Company’s sole cost, the timely preparation and filing of any and all beneficial ownership reports required to be filed by Executive with the SEC pursuant to Sections 13 and 16 of the Exchange Act and the rules and regulations of the SEC.
12. Protective Provisions. This Agreement does not prevent Executive from (a) filing a charge of discrimination with the EEOC (b) reporting any information to the SEC or any other government agency or regulatory authority having jurisdiction over the Company, or in accordance with any applicable state or federal laws providing for whistleblower protection or (c) cooperating with any governmental investigation of the Company. However, by reason of the release contained in Section 3(a), Executive agrees that he will not seek or accept any award of damages or attorneys’ fees of any kind arising out of a charge or complaint filed by Executive, provided that this does not limit Executive’s right to recover an award from the SEC.
13. Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the Parties relating to the termination of the Executive’s employment with VFRM and supersedes any and all prior agreements or oral representations by either Party related thereto. This Agreement shall not be changed, modified or amended in any respect except by a written instrument signed by the Parties.
14. Confidentiality. Except as otherwise contemplated herein, the Parties agree that the facts relating to the existence of this Agreement, the negotiations leading to the execution of this Agreement, and the terms of this Agreement shall be held in confidence by the parties and, except as necessary to enforce this Agreement or as required by law or court process, shall not be disclosed, communicated, offered into evidence in any legal proceedings or divulged to any person, other than to Executive’s spouse and each Party’s tax advisors, legal advisors and accountants and to those who must perform tasks to effectuate this Agreement, in any case, without first advising such persons to whom disclosure is made of the confidential nature of this Agreement. Notwithstanding the foregoing, if the Company is contacted by the media or as a reference or Executive is contacted directly by, or Executive directly contacts, Executive’s prospective employers, the Company and Executive agree to respond, orally or in writing to such media or prospective employers, only refer such party to the Current Report on Form 8-K (the “Form 8-K”) filed by the Company with the SEC in connection with Executive’s separation or, in the event of communications with a prospective employer, confirm Executive’s title and dates of employment. Such Form 8-K will be timely filed on or after the Effective Date and will be limited to the disclosures set forth in Exhibit B attached hereto. Other than the Form 8-K, the Company has no intention to make any further SEC filings or to issue any written statement in connection with the matters contemplated herein.
15. Expenses. Each Party has had independent counsel and as such, each party shall bear his, her or its respective legal fees and expenses relating to this Agreement, provided, however, that within thirty (30) days of the Effective Date, the Company shall pay to Executive’s counsel, Executive’s legal fees and expenses relating to this Agreement, up to a maximum of Five Thousand Dollars ($5,000), subject to submission by Executive’s counsel of invoices detailing the legal fees and expenses for which payment is sought hereunder.
16. Consideration and Revocation Period. Executive represents and warrants that Executive has read this entire Agreement; has been provided at least twenty-one (21) days to consider it; has been given the opportunity and has had this Agreement reviewed by an attorney; understands the meaning and application of each and every provision of this Agreement; and is signing of Executive’s own free will with the intent of being bound by each and every provision of this Agreement. Executive acknowledges that if Executive signs this Agreement prior to the expiration of twenty-one (21) days, Executive has done so voluntarily and knowingly. Executive agrees that any modification to this Agreement, material or otherwise, does not restart, extend or affect in any way the original twenty-one (21) day consideration period. Executive further understands that Executive has seven (7) days to revoke this Agreement after signing it by delivering a notice of rescission by to the Company in accordance with the provisions of Section 23.
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17. Choice of Law and Invalid Provisions. This Agreement is made and delivered in, and shall be governed by, and construed in accordance with, the applicable laws of the State of Florida and if any term or part of this Agreement shall be determined to be invalid, illegal or unenforceable, in whole or in part, the validity of the remaining part of such term or the validity of any other term of this Agreement shall not in any way be affected. If any invalidity or unenforceability is caused by the length of any period of time or the size of any area set forth in any part of this Agreement, the period of time or area, or both, shall be considered to be reduced to a period or area that would cure the invalidity or unenforceability.
18. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective heirs, legal representatives, successors and Assigns.
19. Waiver. A waiver by any Party of any of the terms and conditions hereof shall not be construed as a general waiver by such Party and such Party shall be free to reinstate any such term or condition, with or without notice to the other Party.
20. Construction and Acknowledgment. This Agreement shall be construed without regard to any presumption or other rule requiring construction against the Party causing this Agreement to be drafted. All sections or subsections in this Agreement are for convenience only and are not deemed part of the content of this Agreement.
21. Jurisdiction; Venue; Inconvenient Forum; Jury Trial; Attorneys’ Fees. Any suit, action or proceeding brought to interpret, enforce or otherwise arising under this Agreement shall be brought in the Broward County Circuit Court for the Seventeenth Judicial Circuit, in and for Broward County, Florida, or in the U.S. District Court for the Southern District of Florida, Fort Lauderdale Division, and the Parties accept the exclusive personal jurisdiction of those courts for the purpose of any suit, action or proceeding. Each Party waives all rights to any trial by jury in all litigation relating to or arising out of this Agreement. In any suit, action or proceeding brought to interpret or enforce or otherwise arising under this to this Agreement, the prevailing Party shall be entitled to recover attorneys’ fees and costs at both the trial and appellate levels.
22. No Admission of Liability. The Parties acknowledge that by entering into this Agreement, VFRM does not admit it has any liability whatsoever to Executive concerning Executive’s employment or the separation of that employment, nor does Executive admit that any wrongdoing was the cause of the separation of his employment with the Company.
23. Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service, to Executive at the last address the Executive has filed in writing with the Company or, in the case of the Company, at its main offices, attention of the Chief Executive. Notices shall be effective on receipt.
24. Counterparts. This Agreement may be executed in multiple counterparts (including by facsimile, .pdf or other electronic transmission, each of which shall be deemed an original and all of which shall constitute a single agreement.
[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed as of the Effective Date.
| VFRM: | ||
| VERITAS FARMS, INC. | ||
| By: | /s/ Dave Smith | |
| Dave Smith, Chief Operating Officer | ||
| EXECUTIVE: | ||
| /s/ Michael D. Pelletier | ||
| Michael D. Pelletier | ||
8 | Page
Exhibit 10.6
CONSULTING SERVICES AGREEMENT
THIS CONSULTING SERVICES AGREEMENT (this “Agreement”) is entered into as of May 11, 2021 (the “Effective Date”), by and between VERITAS FARMS, INC., a Nevada corporation (the “Company”), and MICHAEL D. PELLETIER, an individual (the “Consultant”), each a “Party” and together, the “Parties.”
RECITALS
WHEREAS, the Company and the Consultant have entered into a Separation Agreement of even date herewith in connection with the Consultant’s separation from the Company as the Chief Financial Officer and any other positions that he may have held with respect to the Company and its subsidiary (the “Separation Agreement”);
WHEREAS, pursuant to the terms of the Separation Agreement the Parties have agreed to enter into this Agreement for the provision of consulting services by Consultant to the Company; and
WHEREAS, the Company desires to retain Consultant and Consultant desires to provide consulting services to the Company pursuant to the terms of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing provisions, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties hereto agree as follows:
1. Recitals. The foregoing recitals are true and correct and incorporated herein by reference.
2. Retention and Performance of the Services.
(a) Retention and Definition of the Services. The Company retains the Consultant and the Consultant agrees to provide the Company with such advice and assistance with respect to its business and operations generally to provide for an orderly transition to the Consultant’s successor as Chief Financial Officer of the Company, as the Company may reasonably request, including, but not limited to, the Consultant will provide services as the Company’s principal financial officer, principal accounting officer, and acting Chief Financial Officer for the Company, and will perform all duties and fulfill the responsibilities typically completed or required of a chief financial officer of a public company in the United States, including, but not limited to, oversight of the Company’s accounting and finance organization, financial and accounting compliance functions, preparation the Company’s financial statements and review all required financial filings as required by the Securities and Exchange Commission (“SEC”) and sign such documents, representations and certifications for the Company as required by the rules and regulations of the SEC and the Company’s auditors and otherwise consistent with the Company’s policies (the “Services”).
(b) Performance of the Services . During the Term, the Consultant agrees to be available to provide the Services as reasonably requested by the Company, Consultant shall perform the Services in a diligent, timely and professional manner, and shall, at all times during the Term, utilize his best efforts in connection with the Services. The Consultant will devote such time as may be reasonably requested by the Company (up to a maximum of forty (40) hours per week at the Company’s corporate offices) to fulfill his obligations under this Agreement.
(c) Compliance with Laws and Company Policies. The Consultant agrees that, in the performance of the Services under this Agreement, he shall comply with all applicable laws, statutes, judgments, rules, regulations, ordinances, orders, decrees, permits, licenses, and other legal requirements of any governmental authority or judicial court, now in effect or hereafter promulgated, and any judicial or administrative interpretation thereof. Consultant shall also comply with all applicable policies of the Company relating to business and conduct in connection with the Services.
3. Term. The term of this Agreement will be for three (3) months beginning on the Effective Date (the “Term”), unless earlier terminated as provided for in this Agreement. The term of this Agreement may be extended by mutual written agreement of the Parties.
4. Compensation. During the Term, the Consultant shall be compensated, as follows:
(a) Consulting Fee. The monthly consulting fee (the “Consulting Fee”) payable to Consultant during the term of this Agreement is $12,000. The Consulting Fee shall be payable to Consultant on a bi-weekly basis in accordance with the Company’s normal payroll practices.
(b) Expenses. The Company shall reimburse the Consultant for all reasonable and necessary out-of-pocket business expenses including, but not limited to, travel expenses incurred in connection with his performance of the Services hereunder, subject to the submission of reasonable documentation therefor and pre-approval by the Company.
5. Confidentiality.
(a) The Consultant agrees that all non-public information pertaining to the prior, current or contemplated business of the Company is valuable and a confidential asset of the Company. Such information shall include, without limitation, information relating to customer lists, bidding procedures, intellectual property, patents, trademarks, trade secrets, financing techniques and sources and such financial statements of the Company as are not available to the public. The Consultant, his employees, agents and attorneys shall hold all such information in trust and confidence for the Company and shall not use or disclose any such information for other than the Company’s business and shall be liable for damages incurred by the Company as a result of the use or disclosure of such information by the Consultant or the Consultant’s employees, agents or attorneys for any purpose other than the Company’s business, except (i) where such information is publicly available or later becomes publicly available other than through a breach of this Agreement; (ii) where such information is subsequently lawfully obtained by the Consultant from a third party or parties with no confidentiality obligation to the Company; (iii) if such information is known to the Consultant prior to his employment with the Company on April 23, 2019; or (iv) as may be required by law. The terms of this Section 5 shall survive the expiration or termination of this Agreement.
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(b) The Consultant acknowledges and agrees that in the event of the breach or threatened breach by the Consultant or its employees, agents or attorneys of the terms and conditions of this Section 5, the Company will suffer irreparable injury and that monetary damages would not provide an adequate remedy at law and that no remedy at law may exist. Accordingly, in the event of such breach or threatened breach, the Company will be entitled, if it so elects and without the posting of any bond or security, to institute and prosecute proceedings in any court of competent jurisdiction, in law or in equity, to obtain damages for any breach of this Section 5 or to (i) enforce the specific performance of this Agreement by the Consultant or its employees, agents or attorneys; or (ii) enjoin the Consultant from breaching or attempting to breach this Section 5.
(c) Furthermore, the Consultant shall continue to be bound by the terms, conditions and obligations contained in that certain Confidentiality, Work for Hire and Non-Solicitation Agreement dated as of March 13, 2019 by and between the Consultant and 271 Lake Davis Holdings, LLC, a Delaware limited liability company (“2019 Agreement”), except that any references in the 2019 Agreement to the termination or end of the Consultant’s employment shall be deemed to refer instead to the termination or end of the Consultant’s Term under this Agreement. Except as modified in this Section 5(c), the provisions in the 2019 Agreement will survive the termination of this Agreement to the extent provided in the 2019 Agreement.
6. No Conflicting Agreements; Nonexclusive Engagement.
(a) No Conflicting Agreements. Consultant represents that Consultant is not a party to any existing agreement that would prevent Consultant from entering into and performing this Agreement. Consultant will not enter into any other agreement that is in conflict with Consultant’s obligations under this Agreement. Subject to the foregoing and Consultant’s obligations in Section 5, Consultant may act as a consultant to and perform professional services for other persons or entities without the necessity of obtaining approval from the Company.
(b) Other Engagements. The Company may (i) engage other persons and entities to act as consultants to the Company and perform services for the Company, including services that are similar to the Services described in Section 2, and (ii) enter into agreements similar to this Agreement with other persons or entities, in all cases without the necessity of obtaining approval from Consultant.
7. Non Solicitation. During his service as Consultant under this Agreement and for the two (2) year period thereafter, Consultant shall not, directly or indirectly, for himself or on behalf of any other person, firm or entity: (a) solicit, hire, employ, engage, retain or enter into a business affiliation with any person who at any time during the preceding 12-month period was an employee of, the Company, or (b) encourage, induce or attempt to encourage or induce any person who at any time during the preceding 12-month period was a supplier or customer of the Company, to cease doing business with the Company, or to decrease the amount of business such supplier or customer does with the Company.
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8. Non-Competition. From the Effective Date through the end of the Severance Period (as defined in the Separation Agreement), regardless of the reason for such termination or expiration (the “Restricted Period”), the Consultant will not, directly or indirectly, whether as owner, partner, shareholder, consultant, agent, employee, co-venturer or otherwise, engage, prepare to engage, participate, assist or invest in any Competing Business anywhere in the United States or any other geographic area in which the Company is actively distributing its products or providing its services as of the termination date or expiration date of this Agreement. Notwithstanding the foregoing, (i) the Consultant may own up to two percent (2%) of the outstanding stock of a publicly held corporation which constitutes or is affiliated with a Competing Business; and (ii) the Consultant may be employed by a large organization which is engaged in a Competing Business as its non-primary business, so long as Consultant is not involved with or assisting such Competing Business, and so long as Consultant does not breach his obligations regarding Confidential Information. “Competing Business” means the development, commercialization, marketing and sale of hemp, hemp derivative products and other goods or services which the Company is engaged in as of the termination date or expiration date of this Agreement.
9. Termination.
(a) Early Termination by the Company. The Company may terminate this Agreement for “Cause” during the Term. The following shall constitute Cause for termination:
(i) the Consultant’s material breach or violation of any of the terms or conditions of this Agreement, or any other agreement between Consultant and the Company, including the Separation Agreement, and the failure to remedy such material breach or violation within seven (7) days after written notice of such material breach or violation is given to the Consultant by the Company;
(ii) the Consultant’s failure to perform, or gross negligence in the performance of, Consultant’s Services to the Company, or willful misconduct by Consultant that could be reasonably anticipated to be, or is, harmful to the business, reputation or other interest of the Company in any material respect;
(iii) the Consultant’s performance of any act or his failure to act, for which if he were prosecuted and convicted, a crime or offense involving money or property of the Company or its subsidiary, or which would constitute a felony or a crime involving moral turpitude, dishonesty, breach of trust, unethical business conduct, or any crime involving the Company in the jurisdiction involved would have occurred, or the Consultant submitting to a plea of guilty or nolo contendere with respect thereto;
(iv) the Consultant engaged in unlawful harassment or discrimination of employees, customers or suppliers of the Company;
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(v) the Consultant exposed the Company to criminal liability substantially caused by Consultant;
(vi) violation by Consultant of any law, rule or regulation (other than (A) traffic violations or similar offenses; (B) a non-material law, rule or regulation; or (C) violations that would not be detrimental to the Company, its business, its reputation or its customers in any material respect);
(vii) the Consultant’s theft or embezzlement of money or property of the Company; or
(viii) the Consultant’s perpetration of a fraud on the Company, or the Consultant’s participation in such a fraud.
In addition to the foregoing, the Company may terminate this Agreement during the Term for the death or disability of the Consultant (where the Consultant is unable to perform the Services for ten (10) days during the Term, whether or not consecutive).
(b) Early Termination by the Consultant. The Consultant may terminate this Agreement during the Term in the event of Company’s material breach or violation of any of the terms or conditions of this Agreement and the failure to remedy such material breach or violation within fifteen (15) days after written notice of such material breach or violation is given to the Company by the Consultant.
10. Return of Property. Promptly upon the expiration or sooner termination of the Term of this Agreement, and earlier if requested by the Company at any time, Consultant shall deliver to the Company (and will not keep in Consultant’s possession or deliver to anyone else) all Confidential Information of the Company related to the Business and all devices, records, data, notes, reports, proposals, lists, correspondence, specifications, drawings, materials, equipment, computer software, other documents or property, or reproductions of any aforementioned items developed by Consultant as part of or in connection with the Services or otherwise belonging to the Company.
11. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement of the Parties pertaining to its subject matter and supersedes all prior or contemporaneous agreements or understandings between the Parties pertaining to the subject matter of this Agreement, and there are no promises, agreements, conditions, undertakings, warranties, or representations, whether written or oral, express or implied, between the Parties other than as set forth in this Agreement.
(b) Modification. This Agreement may not be amended or modified, or any provision waived, unless in writing and signed by both Parties.
(c) Waiver. Failure of a Party to enforce one or more of the provisions of this Agreement or to require at any time performance of any of the obligations of this Agreement will not be construed to be a waiver of such provisions by such Party nor to in any way affect the validity of this Agreement or such Party’s right thereafter to enforce any provision of this Agreement, nor to preclude such Party from taking any other action at any time which it would legally be entitled to take.
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(d) Successors and Assigns. This Agreement may not be assigned or the duties of any Party delegated unless in writing and signed by both Parties, except for any assignment by the Company occurring by operation of law. Subject to the foregoing, this Agreement will inure to the benefit of, and be binding upon, the Parties and their respective heirs, beneficiaries, personal representatives, successors and permitted assigns.
(e) Notices. Any notice, demand, consent, agreement, request, or other communication required or permitted under this Agreement will be in writing and will be (i) mailed by first-class mail, certified, return receipt requested, postage prepaid; or (ii) delivered by overnight courier, to the Parties at the addresses as follows (or at such other addresses as will be specified by the Parties by like notice):
| If to the Company, then to: | Veritas Farms, Inc. 1512 E. Broward Blvd., Suite 300 Fort Lauderdale, Florida 33301 Attention: CEO | ||
| If to the Consultant, then to: | Michael D. Pelletier 510 NE 17th Avenue #206 Fort Lauderdale, FL 33301 |
Each Party may designate by notice in writing a new address to which any notice, demand, consent, agreement, request or communication may thereafter be given, served or sent. Each notice, demand, consent, agreement, request or communication that is mailed or delivered by courier in the manner described above will be deemed received for all purposes at such time as it is delivered to the addressee (with the return receipt, the courier delivery receipt being deemed conclusive evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation.
(f) Severability. If any provision of this Agreement is held to be invalid or unenforceable by a court of competent jurisdiction, then such invalidity or unenforceability will not affect the validity and enforceability of the other provisions of this Agreement and the provision held to be invalid or unenforceable shall be construed and enforced as nearly as possible according to its original terms and intent to eliminate such invalidity or unenforceability.
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(g) Counterparts. This Agreement may be executed in any number of counterparts and by facsimile or other electronic means (including by PDF attachment), and all such counterparts will collectively be deemed to constitute a single binding agreement and shall have the same legal effect as an original.
(h) Governing Law; Venue; Attorneys’ Fees. This Agreement shall be governed by the laws of the State of Florida, without regard to its conflicts of law principles. In the event that any Party brings suit against the other hereunder, such Party shall bring such suit in the U.S. federal or state courts located in Broward County, Florida. None of the Parties will argue or contend that it is not subject to the jurisdiction of the Florida courts or that venue in Broward County, Florida is improper. Each Party consents that all service of process may be made by certified mail directed to it at its address stated herein. The prevailing Party in any action brought to interpret or enforce this Agreement shall be entitled to recover attorneys’ fees and costs from the non-prevailing Party at both the trial and appellate levels.
(i) Independent Contractor Status. The Consultant will be performing consulting services as an independent contractor during the Term, and not as an employee of the Company. The Consultant will be responsible for all taxes and non-reimbursable expenses attributable to the rendition of his consulting services. The consulting arrangement shall not be deemed to constitute a partnership or joint venture between the Company and the Consultant, nor shall the consulting arrangement be deemed to constitute the Consultant as an agent of the Company. Consultant has no authority (and shall not hold himself out as having authority) to bind the Company. Consultant shall not make any agreements or representations on the Company’s behalf without the Company’s prior written consent.
(j) Cooperation. During the Term and continuing thereafter, if requested by the Company, the Consultant shall cooperate and assist the Company and its subsidiary and affiliates in any dispute, proceeding, or investigation in which the Company or its subsidiary or affiliate is involved and in which the Consultant has been involved, or which involves facts or events that existed or arose during the period of the Consultant’s employment or consultancy with the Company relating to the business of the Company. The Company will reimburse the Consultant for all reasonable out-of-pocket costs incurred by the Consultant in fulfilling his obligations under this Section 9(j).
[Signature Page Follows]
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IN WITNESS WHEREOF, the Parties have executed this Agreement to be effective as of the date first above written.
| THE COMPANY: | ||
| VERITAS FARMS, INC. | ||
| By: | /s/ Dave Smith | |
| Dave Smith, Chief Operating Officer | ||
| THE CONSULTANT: | ||
| /s/ Michael D. Pelletier | ||
| Michael D. Pelletier | ||
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Exhibit 99.1
 |
Veritas Farms Announces Securities Purchase
Agreement, |
Fort Lauderdale, FL, May. 11, 2021. Veritas Farms, Inc. (OTCQB: VFRM) (“Veritas Farms” or the “Company”), a vertically integrated CBD and Wellness company focused on the production of full spectrum hemp oil products with naturally occurring cannabinoids, announces that on May 11, 2021, the Company entered into a Securities Purchase Agreement (the “SPA”) with an existing shareholder, pursuant to which the Company contemporaneously sold to the Purchaser an aggregate of (a) 2,000,000 shares of its Series A Convertible Preferred Stock, and (b) 1,000,000 shares of its Series B Convertible Preferred Stock, and as a result of the transaction and the voting rights accorded the preferred stock issued, the Purchaser now holds approximately 88% of the voting power of the Company and accordingly, a “Change in Control” has occurred. For more information, please refer to the Form 8-K that the Company filed with the Securities and Exchange Commission in relation to the transaction.
Pursuant to the SPA, the Company announces the resignation of Alexander Salgado, CEO and Co-Founder. Mr. Salgado set out on a mission several years ago to produce the best and purest quality hemp products on the market, with the goal of offering customers a natural remedy for their ailments. He led the company to scalability by expanding to 8,000 retail stores and navigating Veritas Farms to continued success via their D2C e-commerce website in 2020 when the pandemic hit. Mr. Salgado will be devoting more time to his family and other endeavors in the wellness community.
Alexander Salgado, CEO, and Co-Founder of Veritas Farms said, “I am proud to have led Veritas Farms for so many years. I am looking forward to my next path and am honored to pass the torch to the new management team that I know will grow the company to even greater success.”
Veritas Farms has named Stephen Johnson as the new CEO. Mr. Johnson has over 20 years of executive management experience, including as CEO of OmniComm Systems, a publicly held health sciences company focusing on the delivery of technology products for clinical research. Prior to that Mr. Johnson held management positions in sales and marketing for Oracle Corporation, PHT, Inc. and Pfizer Pharmaceuticals.
“Much of my recent career has been focused on growing companies and building new product divisions to leading positions in the industry,” said Stephen Johnson, CEO of Veritas Farms. “I am honored to be taking on this new position with Veritas Farms. I am looking forward to working with the talented and dedicated team at Veritas Farms as we continue our journey to becoming the market leading provider of sustainably produced, full spectrum CBD products.”
About Veritas Farms, Inc.
Veritas Farms, Inc. (OTCQB: VFRM) is a vertically integrated agribusiness focused on producing superior quality, whole plant, full spectrum hemp oils, and extracts containing naturally occurring cannabinoids. The Company currently owns and operates a 140-acre farm and production facility in Pueblo, Colorado, and is registered with the Colorado Department of Agriculture to grow industrial hemp. The Company markets and sells products under its Veritas Farms™ brand and manufactures private label products for a number of leading distributors and retailers.
Veritas Farms full spectrum hemp oil products include vegan capsules, tinctures, formulations for sublingual applications and infused edibles, lotions, salves, skincare products, and pet products in a variety of sizes, formats, and flavors. All Veritas Farms brand products are tested for strength and purity by third-party, ISO certified laboratories. The Company files periodic reports with the Securities and Exchange Commission, which can be viewed at www.sec.gov.
For additional information and online product purchase, visit www.theveritasfarms.com.
Veritas Farms, Inc. - Investor Contact
Toll-Free: 833-691-4367
E-mail: [email protected]
Veritas Farms, Inc. - Social Media
Instagram: www.instagram.com/veritasfarmsofficial/
Facebook: www.facebook.com/VeritasFarmsOfficial/
LinkedIn: www.linkedin.com/company/veritasfarms/
Twitter: www.twitter.com/theveritasfarms
Cautionary Language Concerning Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact, including those with respect to the Company’s mission statement and growth strategy, are “forward-looking statements.” Although the Company's management believes that such forward-looking statements are reasonable, it cannot guarantee that such expectations are, or will be, correct. These forward-looking statements involve many risks and uncertainties, which could cause the Company’s future results to differ materially from those anticipated. Potential risks and uncertainties include, among others, general economic conditions and conditions affecting the industries in which the Company operates; the uncertainty of regulatory requirements and approvals; and the ability to obtain necessary financing on acceptable terms or at all. Additional information regarding the factors that may cause actual results to differ materially from these forward-looking statements is available in the Company’s filings with the Securities and Exchange Commission. The Company assumes no obligation to update any of the information contained or referenced in this press release.
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