SNBH Sentient Brands Holdings Inc (PK)

 

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): September 3, 2024

 

SENTIENT BRANDS HOLDINGS INC.

(Exact name of registrant as specified in its charter)

 

 (Former Name of Registrant)

 

Nevada		001-34861		86-3765910
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(IRS Employer Identification Number)

 

590 Madison Avenue, 21^st Floor

New York, New York 10022

(Address of principal executive offices) (zip code)

 

646-202-2897

(Registrant’s telephone number, including area code)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

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	N/A	N/A

  

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

 

Item 1.01

Entry Into A Material Definitive Agreement

  

On September 3, 2024, Sentient Brands Holdings Inc. (the “Company”) entered into a Share Exchange Agreement (the “Exchange Agreement”) with AIG, F&B, Inc., a Nevada corporation (“AIG”), and the owners (the “AIG Shareholders”) of 100% of the issued and outstanding shares of common stock of AIG (collectively, the “AIG Shares”), pursuant to which, upon the Closing (as defined below), the Company will acquire the AIG Shares from the AIG Shareholders in exchange for shares of common stock of the Company (the “Acquisition Shares”), which such Acquisition Shares will be issued by the Company to the AIG Shareholders in accordance with an Earnout Schedule (as defined below) as set forth in the Exchange Agreement (the “Share Exchange”). The closing of the Share Exchange (the “Closing”) is to take place on or before November 1, 2024 (the “Outside Closing Date”).

 

The AIG Shareholders represent a group of international, vertically integrated food and beverage manufacturing companies (“AIG Group”), comprising eight factories and 170 distributors across 22 countries, who market and sell products through various U.S. and international big-box retailers and distributors, with several product lines holding Organic and Kosher certifications. In line with its business plan, AIG intends to launch a global, vertically integrated food and beverage manufacturing and distribution business, based on AIG Group’s proven, cash flow-positive product lines and business models. The Company believes that, if the Share Exchange is consummated, AIG’s planned business venture would be synergistic with the Company’s existing product and brand development business and anticipates meaningful operation efficiency through the integration of the two organizations.

 

Pursuant to the Exchange Agreement, following the Closing, the Acquisition Shares will be issued by the Company to the AIG Shareholders on a quarterly basis over the five (5) year period immediately following the Closing, in accordance with a performance-based Earnout Schedule (the “Earnout Schedule”). Pursuant to the Earnout Schedule, the Acquisition Shares will be issued to the AIG Shareholders (and/or their designees) after achieving certain Company revenue and EBITDA growth for a period of up to five (5) years. The number of Acquisition Shares issued to the AIG Shareholders pursuant to the Earnout Schedule will be based upon the greatest number of Acquisition Shares that would be calculated utilizing three (3) different earnout criteria methods, as follows:

 

(1) Annual Revenue Growth Method: Acquisition Shares issued = (Company quarterly revenue growth relative to the same quarter in the previous year) / (Company’s trailing average share price over the prior quarter) where Company’s trailing average share price is the average of the closing price of the Company’s share price on its principal market for the quarter. For example: If revenue grows from $5,000,000 in quarter one 2024 to $10,000,000 in quarter one 2025 and the Company’s trailing average share price is $.07, then: $5,000,000/$.07 = 71,428,571 Acquisition Shares to be issued.

 

(2) EBITDA Method: Acquisition Shares issued = (Five (5) x quarterly EBITDA growth relative to the same quarter in the previous year) / (Company’s trailing average share price over the prior quarter). For example: If EBITDA grows from $200,000 in quarter one 2024 to $500,000 in quarter one 2025 and the Company’s trailing average share price is $.07, then: 5 x $300,000 = $1,500,000/$.07 = 21,428,571 acquisition shares to be issued.

 

(3) Appraised Value of Rolled-in Assets Method: Acquisition Shares issued = (appraised value of rolled-in assets relative to the same quarter in the previous year) / (Company’s trailing average share price over the prior quarter). For example: If assets in quarter one 2024 were $1,000,000 and assets in quarter one 2025 were $5,000,000 and the Company’s trailing average share price is $.07, then: $4,000,000/$.07 = 57,142,857 Acquisition Shares to be issued.

 

 

Issuances of the Acquisition Shares to the AIG Shareholders will commence after the initial two (2) quarters of the Company’s revenue are disclosed in the Company’s periodic reports filed with the Securities and Exchange Commission (“SEC”) on Form 10-Q and 10-K, as applicable, following the Closing. The number of Acquisition Shares will be trued up at the end of the Company’s respective fiscal year (i.e., four (4) quarters of the Company’s revenue divided by the Company’s trailing average share price over the prior year). This calculation will be made prior to the issuance of shares for the fourth quarter of a given year and the number of true up shares will be added or deducted from the amount issued.

 

The number of Acquisition Shares to be issued to the AIG Shareholders each quarter will be determined by calculating the three (3) above earnout criteria methods. The method which yields the largest number of Acquisition Shares will be utilized for the issuance of the Acquisition Shares to the AIG Shareholders within the applicable quarterly period. The AIG Shareholders must designate any designees or assignees prior to the end of the quarter and must provide documentation sufficient to determine whether or not the designee’s or assignee’s shares are to be aggregated with any other recipient of shares for the purpose of determining the Maximum Issuance (as defined below).

 

The Acquisition Shares earnout period will last for up to five (5) years, provided, that, in order for Acquisition Shares to be issued to the AIG Shareholders in a given year, the Company’s revenue, with a minimum of 5% EBITDA in such year, must increase over the previous year, and the number of Acquisition Shares to be issued will be based upon such increase. At the end of each fiscal quarter of the Company, the Company will calculate the Acquisition Shares to be issued to the AIG Shareholders using the three above earnout criteria methods. The method resulting in the largest number of Acquisition Shares will be selected for each quarter’s issuance of the Acquisition Shares to the AIG Shareholders. The applicable number of Acquisition Shares shall be transferred to the AIG Shareholders accordingly, subject to the Maximum Issuance.

 

AIG’s valuation was calculated based upon the AIG’s financial projections which reflect: (i) one times (1x) quarterly revenue within the initial three month period following the Closing, (ii) a minimum of five percent (5%) EBITDA within the initial three month period following the Closing, and (iii) annual revenues for the year ending 2025 in the aggregate amount of $45,000,000, and a minimum of five percent (5%) EBITDA for the year ending 2025.

 

The number of Acquisition Shares that may be acquired by the AIG Shareholders pursuant to the Earnout Schedule will be limited to the extent necessary to ensure that, following such earnout, the total number of shares of common stock then beneficially owned by such AIG Shareholder and its affiliates and any other persons whose beneficial ownership of the common stock would be aggregated with the AIG Shareholder’s for purposes of Section 13(d) of the Securities Exchange Act of 1934 (“1934 Act”), does not exceed 9.999% of the total number of issued and outstanding shares of common stock (including for such purpose the shares of common stock issuable upon such earnout) (a “Maximum Issuance”). For such purposes, beneficial ownership will be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. In the case where the number of Acquisition Shares to be issued to an AIG Shareholder would exceed the Maximum Issuance, then the Company will reserve that number of shares in excess of the Maximum Issuance with its Transfer Agent (the “Reserve Shares”) and such Reserve Shares will be issued to the AIG Shareholder at such time that the issuance would not cause such AIG Shareholder to exceed to the 9.999% ownership limit.

 

 

Concurrently with the Closing, Dante Jones will resign as an executive officer and director of the Company; George Furlan will be appointed as interim chief executive officer, president and chief financial officer of the Company, and as a non-independent director of the Company; and Eric Bruns and Dionne Pendelton will be appointed as independent directors of the Company. The parties have agreed to indemnify each other for any losses that may be incurred by them as a result of their breach of any of their representations, warranties and covenants contained in the Exchange Agreement. The Exchange Agreement contains customary representations, warranties, covenants and conditions for a transaction of this type for the benefit of the parties. Prior to the Closing, certain parties to the Share Exchange (collectively, the “Lockup Parties”) will be subject to the terms of a lock-up leak-out agreement, which will provide the manner in which such Lockup Parties may sell, transfer or dispose of their shares of common stock during the 12-month period following the Closing.

 

The foregoing information is a summary of each of the agreements involved in the transactions described above, is not complete, and is qualified in its entirety by reference to the full text of those agreements, each of which is attached an exhibit to this Current Report on Form 8-K. Readers should review those agreements for a complete understanding of the terms and conditions associated with this transaction.

 

In the event the Closing is consummated on or before the Outside Closing Date, the shares of common stock to be issued as part of the Share Exchange will be issued pursuant to exemptions from registration provided by Section 4(a)(2) and/or Regulation D of the 1933 Securities Act, as amended.

 

The representations, warranties and covenants contained in the Exchange Agreement were made only for purposes of such agreement and as of specific dates, were solely for the benefit of the parties to the Exchange Agreement, and may be subject to limitations agreed upon by the contracting parties. Accordingly, the Exchange Agreement is incorporated herein by reference only to provide investors with information regarding the terms of the Exchange Agreement, and not to provide investors with any other factual information regarding the Company, AIG or either of their businesses, and should be read in conjunction with the disclosures in the Company’s periodic reports and other filings with the Securities and Exchange Commission.

 

Item 9.01 Financial Statements and Exhibits

  

Exhibit Number		Description
10.1		Share Exchange Agreement by and between Sentient Brands Holdings Inc., AIG-F&B, Inc., and the owners of the AIG Shares (as defined therein) dated September 3, 2024

 

 

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.

  

	SENTIENT BRANDS HOLDINGS INC.
Date: September 9, 2024	By:	/s/ Dante Jones
		Dante Jones
		Interim Chief Executive Officer

 

 

 

EXHIBIT 10.1

 

SHARE EXCHANGE AGREEMENT

 

SHARE EXCHANGE AGREEMENT, dated as of September 3, 2024 (the “Agreement”), by and among SENTIENT BRANDS HOLDINGS INC., a Nevada corporation (“Purchaser”), and AIG-F&B, INC., a Nevada corporation, and its affiliates and subsidiaries (collectively, the “Company”), and each of the shareholders of the Company set forth on the signature page hereof (collectively, the “Sellers”).

 

WITNESSETH

 

WHEREAS, the Company operates within the food, beverage, manufacturing, brand development and distribution industry;

 

WHEREAS, the Shareholders are the owners of 100% of the issued and outstanding securities of the Company;

 

WHEREAS, the Sellers desire to sell to Purchaser and the Purchaser desires to purchase from the Sellers, 100% of the issued and outstanding securities of the Company in exchange for shares of common stock of the Purchaser to be issued upon the terms and conditions hereinafter set forth;

 

WHEREAS, the respective Boards of Directors of Purchaser and the Company deem it advisable and in the best interests of Purchaser and the Company, respectively, and their respective shareholders, to consummate the transactions contemplated by this Agreement upon the terms and conditions set forth herein;

 

WHEREAS, certain terms used in this Agreement are defined in Article 1;

 

WHEREAS, it is intended that the Acquisition (as herein defined) shall qualify for United States federal income tax purposes as a reorganization within the meaning of Section 368 of the Internal Revenue Code of 1986, as amended; and

 

NOW THEREFORE in consideration of the premises and the mutual covenants, agreements, representations and warranties contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto hereby agree as follows:

 

ARTICLE 1.

DEFINITIONS AND INTERPRETATION

 

1.1       Definitions. As used in this Agreement, the following terms when capitalized in this Agreement shall have the following meanings:

 

(a)

“Affiliates” shall mean, with respect to any Person, any and all other Persons that control, are controlled by, or are under common control with, such Person. For purposes of the foregoing, “control” of a Person shall mean direct or indirect ownership of 50% or more of the securities or other interests of such Person having by their terms ordinary voting power to elect or appoint a majority of the board of directors or others performing similar functions with respect to such Person.

 

(b)

“Acquisition” means the Acquisition, at the Closing, of the Company by Purchaser pursuant to this Agreement;

 

 

(c)

“Acquisition Shares” means the number of shares of common stock of the Purchaser which shall be issued by Purchaser to the Sellers (and/or their designees) pursuant to the terms of the Acquisition (as defined above) set forth in Section 2.2(a) and the related Earnout Schedule (as defined herein) set forth on Schedule A attached hereto, as set forth herein;

 

(d)

“Business Day” shall mean any day other than Saturday, Sunday and any day on which banking institutions in the United States are authorized by law or other governmental action to close;

 

(e)

“Closing Date” means the day on which all conditions precedent to the completion of the transactions contemplated hereby have been satisfied or waived;

 

(f)

“Claim Notice” means written notification pursuant to Section 9.3 of a Third Party Claim as to which indemnity under Section 9.1 is sought by an Indemnified Party.

 

(g)

“Code” means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

 

(h)

“Contract” shall mean an agreement, written or oral, between the Company and any other Person which obligates either the Company or such other Person to do or not to do a particular thing.

 

(i)

“EBITDA” means earnings before interest, taxes, depreciation, and amortization.

 

(j)

“Election Notice” means a written notice provided by the Sellers or Purchaser, as the case may be, in respect of a Tax Claim to the effect that it elects to contest, and to control the defense or prosecution of, such Tax Claim as provided in this Agreement.

 

(k)

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

(l)

“ERISA Affiliate” shall mean any entity that would be deemed to be a “single employer” with the Company under Section 414(b), (c), (m) or (o) of the Code or Section 4001 of ERISA.

 

(m)

“Environmental Liabilities” means any cost, damages, expense, liability, obligation, or other responsibility arising from or under (a) any Environmental Law and consisting of or relating to (i) any environmental matters or conditions (including on-site or off-site contamination and environmental regulation of chemical substances or products); (ii) fines, penalties, judgments, awards, settlements, legal or administrative proceedings, out-of-pocket damages and necessary and required response, investigative, remedial, or inspection costs and expenses arising under Environmental Law; (iii) financial responsibility under Environmental Law for clean-up costs or corrective action, including any necessary and required investigation, clean-up, removal, containment, or other remediation or response actions required by Environmental Law and for any natural resource damages; or (iv) any other compliance, corrective, investigative, or remedial measures required under Environmental Law; or (b) any common law causes of action, including, but not limited to, negligence, trespass or nuisance, based on violation by the Company of Environmental Laws, releases by the Company of Hazardous Materials or actions or omissions by the Company that expose others to Hazardous Materials. The terms “removal,” “remedial,” “response action”, and “release” shall have the meanings provided for such terms under, and shall include the types of activities covered by, the United States Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section 9601 et seq., as amended (“CERCLA”).

  

 

(n)

“Environmental Laws” shall mean all federal, state and local Laws relating to public health, or to pollution or protection of the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) including, without limitation, the Clean Air Act, as amended, CERCLA, the Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), the Toxic Substances Control Act, the Federal Water Pollution Control Act, as amended, the Safe Drinking Water Act, as amended, the Hazardous Materials Transportation Act, as amended, the Oil Pollution Act of 1990, any state Laws implementing the foregoing federal Laws, and all other Laws relating to or regulating (i) emissions, discharges, releases, or cleanup of pollutants, contaminants, chemicals, polychlorinated biphenyls (PCB’s), oil and gas exploration and production wastes, brine, solid wastes, or toxic or Hazardous Materials or wastes (collectively, the “Polluting Substances”), (ii) the generation, processing, distribution, use, treatment, handling, storage, disposal, or transportation of Polluting Substances, or (iii) environmental conservation or protection. References in this Agreement to Environmental Laws existing or in effect as of a particular date shall include written administrative interpretations and policies then existing or in effect.

 

(o)

“Environmental Permit” means any federal, state, local, provincial, or foreign permits, licenses, approvals, consent or authorizations required by any Governmental or Regulatory Authority under or in connection with any Environmental Law and includes any and all orders, consent orders or binding agreements issued or entered into by a Governmental or Regulatory Authority under any applicable Environmental Law.

 

(p)

“Escrow Agreement” means the terms of the escrow arrangement set forth in Section 2.2.

 

(q)

“Governmental or Regulatory Authority” shall mean any federal, state, regional, municipal or local court, legislative, executive, Native American or regulatory authority or agency, board, commission, department or subdivision thereof.

 

(r)

“Hazardous Activity” means the distribution, generation, handling, importing, management, manufacturing, processing, production, refinement, release, storage, transfer, transportation, treatment, or use (including any withdrawal or other use of groundwater) of Hazardous Materials in, on, under, about, or from the Company’s facilities or any part thereof into the environment.

  

(s)

“Hazardous Materials” means (i) any petroleum or petroleum products, radioactive materials, asbestos in any form that is, or that is likely to become, friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls (PCBs), or (ii) any chemicals, materials, substances or wastes which are now or hereafter become defined as or included in the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “extremely hazardous wastes,” “restricted hazardous wastes,” “toxic substances,” “toxic pollutants” or words of similar import, under any applicable Environmental Law.

 

(t)

“Indemnified Party” means any Person entitled to indemnification under any provision of Article 9.

 

(u)

“Indemnifying Party” means any Person obligated to provide indemnification under any provision of Article 9.

 

(v)

“Law” shall mean any federal, state, county, or local laws, statutes, regulations, rules, codes, ordinances, orders, decrees, judgments or injunctions enacted, adopted, issued or promulgated by any Governmental or Regulatory Authority, from time to time.

 

(w)

“Lien” shall mean any mortgage, deed of trust, pledge, lien, claim, security interest, covenant, restriction, easement, preemptive right, or any other encumbrance or charge of any kind.

 

 

(x)

“Company Material Contract” shall have the meaning set forth in Section 3.17.

 

(y)

“Purchaser Material Contract” shall have the meaning set forth in Section 4.14

 

(z)

“Material Adverse Effect” shall mean any material adverse effect on the business or financial condition of the Company;

 

	(aa)	“Order” shall mean any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).
	(bb)	“Place of Closing” means such place as Purchaser and the Sellers mutually agree upon;
	(cc)	“Permitted Lien” shall mean: (a) liens created under any Lease, except any lien arising as a result of any failure to timely make any payment or failure to perform any other obligation or other default under such Lease; (b) liens for Taxes that are not yet due and payable or that are being contested in good faith by appropriate proceedings; (c) mechanics, materialmen’s, landlords’, carriers’, warehousemen’s, and other liens imposed by law incurred in the ordinary course of business; (d) zoning restrictions, land use regulations, declarations, reservations, provisions, covenants, conditions, waivers, restrictions on the use of property and third party easements, rights of way, leases or similar matters that are recorded in the county records where the effected property is located and do not prohibit the use of the property as currently used; (e) the absence of executed rights of way or easements, or a defect in any executed right of way or easement, where such rights have been or can be otherwise obtained through a proceeding under prescription or other operation of law; (f) deposits or pledges to secure obligations under worker’s compensation, social security or similar laws, or under unemployment insurance; (g) deposits or pledges to secure bids, tenders, contracts (other than contracts for the payment of money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of like nature arising in the ordinary course of the Company’s business and made, created or arising prior to the Closing Date; (h) leases or subleases granted by or to others; and (i) precautionary Uniform Commercial Code financing statements regarding operating leases which leases are either disclosed pursuant to Article 3 hereof or no longer in effect.
	(dd)	“Person” shall mean an individual, partnership, joint venture, trust, corporation, limited liability company or other legal entity or Governmental or Regulatory Authority.
	(ee)	“Post-Closing Period” means any taxable period or portion thereof beginning after the Closing Date. If a taxable period begins on or before the Closing Date and ends after the Closing Date, then the portion of the taxable period that begins on the day following the Closing Date shall constitute a Post-Closing Period.
	(ff)	“Pre-Closing Period” means any taxable period or portion thereof that is not a Post- Closing Period.
	(gg)	“Purchaser Material Adverse Effect” shall mean any change, event, violation, inaccuracy, circumstance, or effect that is materially adverse to the business, operations, assets, liabilities, condition (financial or otherwise), or results of operations of the Purchaser;
	(hh)	“Remedial Action” shall mean any removal, remediation, response, clean up or other corrective action to respond to, remove or otherwise address any Environmental Liability.
		“Shares” means all (100%) of the issued and outstanding shares of common stock of the Company as defined in Section 3.3.
	(jj)	“Taxes” shall mean any and all taxes, charges, fees, levies or other assessments, including, without limitation, all net income, gross income, gross receipts, excise, stamp, real or personal property, ad valorem, withholding, estimated, social security, unemployment, occupation, use, sales, service, service use, license, net worth, payroll, franchise, severance, transfer, recording or other taxes, assessments or charges imposed by any Governmental or Regulatory Authority, whether computed on a separate, consolidated, unitary, combined or other basis, and in each case such term shall include any interest, penalties, or additions to tax attributable thereto.
	(kk)	“Tax Return” shall mean any return, report or similar statement required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax and including any return of an affiliated, combined or unitary group.

 

 

Any other terms defined within the text of this Agreement will have the meanings so ascribed to them.

 

1.2       Captions and Section Numbers. The headings and section references in this Agreement are for convenience of reference only and do not form a part of this Agreement and are not intended to interpret, define or limit the scope, extent or intent of this Agreement or any provision thereof.

 

1.3       Section References and Schedules. Any reference to a particular “Article”, “Section”, “paragraph”, “clause” or other subdivision is to the particular Article, section, clause or other subdivision of this Agreement and any reference to a Schedule by number will mean the appropriate Schedule and Disclosure Schedule attached to this Agreement and by such reference the appropriate Schedule and Disclosure Schedule is incorporated into and made part of this Agreement.

 

1.4       Severability of Clauses. If any part of this Agreement is declared or held to be invalid for any reason, such invalidity will not affect the validity of the remainder which will continue in full force and effect and be construed as if this Agreement had been executed without the invalid portion, and it is hereby declared the intention of the parties that this Agreement would have been executed without reference to any portion which may, for any reason, be hereafter declared or held to be invalid.

 

ARTICLE 2.

THE ACQUISITION

 

2.1       The Acquisition. Subject to the terms and conditions set forth in this Agreement and in reliance on the representations, warranties, covenants and conditions herein contained, the Sellers hereby agree to sell, assign and deliver to Purchaser the Shares (as defined herein) in exchange for the Acquisition Shares on the Closing Date and to transfer to Purchaser on the Closing Date a 100% undivided interest in and to the Shares free from all liens, Liens, mortgages, charges, pledges, encumbrances or other burdens (other than those that may arise under federal or state securities laws restricting the right to sell or transfer the Shares) with all rights now or thereafter attached thereto.

 

2.2      Purchase Price; Earnout; Allocation; Consideration.

 

(a)

The purchase price for the purchase of the Shares shall be the Acquisition Shares, which such Acquisition Shares shall be issued by Purchaser to Sellers (and/or their designees) over the five (5) year period immediately following the Closing in accordance with the following terms: Following the Closing, the Acquisition Shares shall: (1) be issued to the Sellers (and/or their designees) on a quarterly basis (based upon Purchaser’s one times (1x) quarterly revenue, EBITDA, or appraised asset value) in accordance with the Earnout Schedule set forth on Schedule A attached hereto (the “Earnout Schedule”); and (2) be allocated by Purchaser to the Sellers (and/or their designees) on a pro rata basis in accordance with each Seller’s respective percentage of ownership of the Shares as set forth on Exhibit A attached hereto, subject to Section 2.5 below.

 

(b)

Maximum Issuance. Notwithstanding anything to the contrary contained herein, the number of Acquisition Shares that may be acquired by the Sellers pursuant to the Earnout Schedule (or otherwise in respect hereof) shall be limited to the extent necessary to ensure that, following such earnout (or other issuance), the total number of shares of Common Stock then beneficially owned by such Seller and its affiliates and any other persons whose beneficial ownership of Common Stock would be aggregated with the Seller’s for purposes of Section 13(d) of the 1934 Act, does not exceed 9.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such earnout) (a “Maximum Issuance”). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. This provision may not be waived.

 

(c)

In the case where the number of Acquisition Shares to be issued to a Seller would exceed the Maximum Issuance, then the Purchaser shall reserve that number of shares in excess of the Maximum Issuance with its Transfer Agent (the “Reserve Shares”) and such Reserve Shares shall be issued to the Seller at such time that the issuance would not cause such Seller to exceed to the 9.999% ownership limit set forth in Section 2.2(a).

 

(d)

The Company’s valuation was calculated based upon the Company’s financial projections which reflect: (i) one times (1x) quarterly revenue within the initial three month period following the Closing, (ii) a minimum of five percent (5%) EBITDA within the initial three month period following the Closing, and (iii) annual revenues for the year ending 2025 in the aggregate amount of $45,000,000, and a minimum of five percent (5%) EBITDA for the year ending 2025.

 

 

2.3       Adherence with Applicable Securities Laws. Each of the Sellers agrees that he or she is acquiring the Acquisition Shares for investment purposes and will not offer, sell or otherwise transfer, pledge or hypothecate any of the Acquisition Shares issued to him (other than pursuant to an effective Registration Statement under the Securities Act of 1933, as amended (the “Securities Act”), directly or indirectly unless:

 

(a)

the sale is to Purchaser;

 

(b)

the sale is made pursuant to the exemption from registration under the Securities Act, provided by Rule 144 thereunder; or

 

(c)

the Acquisition Shares are sold in a transaction that does not require registration under the Securities Act or any applicable United States state laws and regulations governing the offer and sale of securities, and the Seller has furnished to Purchaser an opinion of counsel to that effect or such other written opinion as may be reasonably required by Purchaser.

 

The Sellers acknowledge that the certificates representing the Acquisition Shares shall bear the following legend or one that is substantially similar to the following legend:

 

THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR UNDER APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS AND UNTIL REGISTERED UNDER THE 1933 ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE 1933 ACT.

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS AND RIGHTS AS SET FORTH IN THE (A) SHARE EXCHANGE AGREEMENT DATED AUGUST 2, 2024 AND (B) LOCK-UP AGREEMENT BETWEEN THE COMPANY AND THE HOLDER OF THIS CERTIFICATE, COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY.

 

2.4       Closing. The parties hereto shall use their best efforts to close the transactions contemplated by this Agreement (the “Closing”) on or before November 1, 2024.

 

2.5       Lock-Up / Leak-out. Prior to the Closing, (i) each of the Sellers, (ii) the Company’s officers, insiders, directors, and affiliates or other related parties under control of the Company, (iii) Purchaser’s officers, insiders, directors, and affiliates or other related parties under control of Purchaser, and (iv) holders of over 1,000,000 shares of common stock of the Company following the Closing (collectively, the “Lockup Parties”), shall be subject to the terms and provisions of a lock-up agreement in substantially the form set forth in Exhibit B hereto (the “Lock-Up Agreement”), which shall provide the manner in which such Lockup Parties will sell, transfer or dispose of their shares of common stock subsequent to the Closing, i.e. the sale by the Lockup Parties of up to two percent (2%) of the Lockup Shares every month commencing on the date of the Closing. For the avoidance of doubt, the execution and delivery of the Lockup Agreements by each of the Lockup Parties as set forth in this Section 2.5 is a condition precedent to the consummation of the Acquisition and the other transactions contemplated by the Agreement, provided that, the terms of the Lock-Up Agreements shall not be effective or enforceable until the consummation of the Closing.

 

2.6       No Ownership. The Sellers have no right to, nor any interest in the Acquisition Shares until such time that they have been earned pursuant to the Earnout Schedule.

 

2.7       Restricted Securities. The Sellers understand that the Acquisition Shares are characterized as “restricted securities” under the Securities Act inasmuch as this Agreement contemplates that, if acquired by the Sellers pursuant hereto, the Acquisition Shares would be acquired in a transaction not involving a public offering. The Sellers acknowledge that the Acquisition Shares issued to the Sellers in accordance with the provisions of this Agreement, such Acquisition Shares may not be resold without registration under the Securities Act or the existence of an exemption therefrom. The Sellers represent that they are familiar with Rule 144 promulgated under the Securities Act, as presently in effect, and understand the resale limitations imposed thereby and by the Securities Act.

 

 

ARTICLE 3.

REPESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLERS

 

The Company and Sellers hereby jointly and severally represent and warrant to Purchaser, that:

 

3.1       Organization, Standing and Power. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, with full corporate power and corporate authority to (i) own, lease and operate its properties, and (ii) carry on the business as currently conducted by it. There are no states or jurisdictions in which the character and location of any of the properties owned or leased by the Company, or the conduct of the Company’s business, makes it necessary for the Company to qualify to do business as a foreign corporation, except for those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect on the business or operations of the Company. Unless the context otherwise requires, the Company and its subsidiaries are collectively referred to herein as the “Company”.

 

3.2       Authorization of Agreement. Each Seller has all requisite power, authority and legal capacity to execute and deliver this Agreement, and each other agreement, document, or instrument or certificate contemplated by this Agreement or to be executed by such Seller in connection with the consummation of the transactions contemplated by this Agreement (together with this Agreement, the “Seller Documents”), and to consummate the transactions contemplated hereby and thereby. This Agreement has been, and each of the Seller Documents will be at or prior to the Closing, duly and validly executed and delivered by each Seller and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each of the Seller Documents when so executed and delivered will constitute, legal, valid and binding obligations of each Seller, enforceable against each Seller in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

3.3       Capitalization. The authorized capital stock of the Company consists of 10,000,000 shares of common stock, par value $0.001 per share, 10,000,000 shares of which are issued and outstanding (the “Shares”); and 1,000,000 shares of preferred stock, $0.001 par value per share, none of which are issued and outstanding. All of the Shares are duly authorized, validly issued, fully paid and nonassessable. There are no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Company or obligating the Company to issue or sell any shares of capital stock of or other equity interests in the Company. There is no personal liability, and there are no preemptive rights with regard to the capital stock of the Company, and no right-of-first refusal or similar catch-up rights with regard to such capital stock. Except for the transactions contemplated by this Agreement, there are no outstanding contractual obligations or other commitments or arrangements of the Company to (A) repurchase, redeem or otherwise acquire any of the Shares (or any interest therein) or (B) to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity, or (C) issue or distribute to any person any capital stock of the Company, or (D) issue or distribute to holders of any of the capital stock of the Company any evidences of indebtedness or assets of the Company. All of the outstanding securities of the Company have been issued and sold by the Company in full compliance in all material respects with applicable federal and state securities laws.

 

3.4       Subsidiaries. The Company has no subsidiaries.

 

3.5       Corporate Records.

 

(a)

The Sellers and the Company have delivered to the Purchaser true, correct and complete copies of the articles of incorporation (certified by the Secretary of State or other appropriate official of the applicable jurisdiction of organization) and by-laws (certified by the secretary, assistant secretary or other appropriate officer) or comparable organizational documents of the Company, as set forth on Schedule 3.5 hereto which is incorporated herein by reference.

 

(b)

Schedule 3.5 attached hereto and incorporated herein by reference sets forth the names of the executive officers and directors of the Company and each of its subsidiaries.

 

(c)

The minute books of the Company previously made available to the Purchaser contain complete and accurate records of all meetings and accurately reflect all other corporate action of the stockholders and board of directors (including committees thereof) of the Company. The stock certificate books and stock transfer ledgers of the Company previously made available to the Purchaser are true, correct and complete. All stock transfer taxes levied or payable with respect to all transfers of shares of the Company prior to the date hereof have been paid and appropriate transfer tax stamps affixed.

 

 

3.6      Conflicts; Consents of Third Parties.

 

(a)

None of the execution and delivery by the Company or any Seller of this Agreement and the Seller Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by the Company or any Seller with any of the provisions hereof or thereof will (i) conflict with, or result in the breach of, any provision of the articles of incorporation or by-laws or comparable organizational documents of the Company; (ii) conflict with, violate, result in the breach or termination of, or constitute a default under any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which the Company is a party or by which any of them or any of their respective properties or assets is bound; (iii) violate any statute, rule, regulation, order or decree of any governmental body or authority by which the Company is bound; or (iv) result in the creation of any Lien upon the properties or assets of the Company or any subsidiary of the Company except, in case of clauses (ii), (iii) and (iv), for such violations, breaches or defaults as would not, individually or in the aggregate, have a Material Adverse Effect.

 

(b)

No consent, waiver, approval, Order, permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental or Regulatory Authority is required on the part of any Seller, the Company in connection with the execution and delivery of this Agreement or the Seller Documents, or the compliance by each Seller or the Company as the case may be, with any of the provisions hereof or thereof.

 

3.7       Financial Statements. Prior to the Closing and no later than the date of execution of this Agreement by the parties (the “Execution Date”), the Company will deliver to Purchaser its reviewed unaudited consolidated financial statements for the fiscal period of time commencing with the date of the Company’s inception to a date within 60 days of the Execution Date. (collectively, the “Company Financial Statements”). Upon delivery, the Company Financial Statements will have been prepared in accordance with U.S. promulgated generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods indicated and in respect of interim periods subject to year-end adjustments. The Company Financial Statements will fairly present in all material respects the financial condition and operating results of the Company, as of the dates, and for the periods, indicated therein. The Company will not have any material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Company Financial Statements, which, in both cases, individually and in the aggregate would not be reasonably expected to result in a Material Adverse Effect.

 

3.8       Insurance. The Company is 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 is engaged and in the geographic areas where it engages in such businesses. The Company has no 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 on terms consistent with market for the Company’s lines of business. All policies and other forms of insurance held by the Company are deemed by the Company to be sufficient, and valid policies, in such amounts; and such policies and other forms of insurance shall be outstanding and duly in force on the Closing Date.

 

3.9       Ownership and Transfer of Shares. Each Seller is the record and beneficial owner of the Shares indicated as being owned by such Seller on Exhibit A, free and clear of any and all Liens. Each Seller has the power and authority to sell, transfer, assign and deliver such Shares as provided in this Agreement, and such delivery will convey to the Purchaser good and marketable title to such Shares, free and clear of any and all Liens.

  

3.10    No Undisclosed Liabilities. The Company has no indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due) that would have been required to be reflected in, reserved against or otherwise described in the Company Financial Statements in accordance with GAAP which was not fully reflected in, reserved against or otherwise described in the Company Financial Statements or was not incurred in the ordinary course of business consistent with past practice since the date of the Company’s inception the “Inception Date”).

 

 

3.11    Absence of Certain Developments. Except as expressly contemplated by this Agreement, since the Inception Date:

 

(i)

there has not been any Material Adverse Effect nor has there occurred any event which is reasonably likely to result in a Material Adverse Effect;

 

(ii)

there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the property and assets of the Company having a replacement cost of more than $25,000 for any single loss or $100,000 for all such losses;

 

(iii)

there has not been any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of capital stock of the Company or any repurchase, redemption or other acquisition by the Company of any outstanding shares of capital stock or other securities of, or other ownership interest in, the Company;

 

(iv)

the Company has not awarded or paid any bonuses to employees of the Company except to the extent accrued on the Company Financial Statements or entered into any employment, deferred compensation, severance or similar agreement (nor amended any such agreement) or agreed to increase the compensation payable or to become payable by it to any of the Company’s directors, officers, employees, agents or representatives or agreed to increase the coverage or benefits available under any severance pay, termination pay, vacation pay, company awards, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with such directors, officers, employees, agents or representatives (other than normal increases in the ordinary course of business consistent with past practice and that in the aggregate have not resulted in a material increase in the benefits or compensation expense of the Company);

 

(v)

there has not been any change by the Company in accounting or Tax reporting principles, methods or policies; the Company has not entered into any transaction or Contract or conducted its business other than in the ordinary course consistent with past practice;

 

(vi)

the Company has not made any loans, advances or capital contributions to, or investments in, any Person or paid any fees or expenses to any Seller or any Affiliate of any Seller;

 

(vii)

the Company has not mortgaged, pledged or subjected to any Lien, any of its assets, or acquired any assets or sold, assigned, transferred, conveyed, leased or otherwise disposed of any assets of the Company, except for assets acquired or sold, assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary course of business consistent with past practice;

 

(viii)

the Company has not discharged or satisfied any Lien, or paid any obligation or liability (fixed or contingent), except in the ordinary course of business consistent with past practice and which, in the aggregate, would not be material to the Company;

 

(ix)

the Company has not canceled or compromised any debt or claim or amended, canceled, terminated, relinquished, waived or released any Contract or right except in the ordinary course of business consistent with past practice and which, in the aggregate, would not be material to the Company;

 

(x)

the Company has not made or committed to make any capital expenditures or capital additions or betterments in excess of $25,000 individually or $100,000 in the aggregate;

 

(xi)

the Company has not instituted or settled any material legal proceeding; and

 

(xii)

the Company has not agreed to do anything set forth in this Section 3.11.

 

 

3.12     Taxes.

 

(a)

(A) all Tax Returns required to be filed by or on behalf of the Company have been filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns were true, complete and correct in all material respects; (B) all Taxes payable by or on behalf of the Company or in respect of its income, assets or operations have been fully and timely paid, and (C) the Company has not executed or filed with the IRS or any other taxing authority any agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation), and no power of attorney with respect to any Tax matter is currently in force.

  

(b)

The Company has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable laws.

 

(c)

The Sellers have received complete copies of (A) all federal, state, local and foreign income or franchise Tax Returns of the Company relating to the taxable periods since the Inception Date and (B) any audit report issued within the last three years relating to Taxes due from or with respect to the Company its income, assets or operations.

 

(d)

All material types of Taxes paid and material types of Tax Returns filed by or on behalf of the Company have been paid and filed. No claim has been made by a taxing authority in a jurisdiction where the Company does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction.

 

(e)

All deficiencies asserted or assessments made as a result of any examinations by the IRS or any other taxing authority of the Tax Returns of or covering or including the Company have been fully paid, and there are no other audits or investigations by any taxing authority in progress, nor have the Sellers or the Company received any notice from any taxing authority that it intends to conduct such an audit or investigation.

 

No issue has been raised by a federal, state, local or foreign taxing authority in any current or prior examination which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent taxable period.

 

(f)

Neither the Company nor any other Person (including any of the Sellers) on behalf of the Company has (A) filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by the Company, (B) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or has any knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company, (C) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law with respect to the Company, or (D) requested any extension of time within which to file any Tax Return, which Tax Return has since not been filed.

  

(g)

No property owned by the Company is (i) property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (ii) constitutes “tax-exempt use property” within the meaning of Section 168(h)(1) of the Code or (iii) is “tax-exempt bond financed property” within the meaning of Section 168(g) of the Code.

 

(h)

The Company is not a foreign person within the meaning of Section 1445 of the Code.

 

 

(i)

The Company is not a party to any tax sharing or similar agreement or arrangement (whether or not written) pursuant to which it will have any obligation to make any payments after the Closing. There is no contract, agreement, plan or arrangement covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company, its Affiliates or their respective affiliates by reason of Section 280G of the Code, or would constitute compensation in excess of the limitation set forth in Section 162(m) of the Code.

 

(j)

The Company is not subject to any private letter ruling of the IRS or comparable rulings of other taxing authorities.

 

(k)

Except as set forth on Schedule 3.12, incorporated herein by reference, there are no Liens as a result of any unpaid Taxes upon any of the assets of the Company.

 

(l)

The Company has no elections in effect for federal income tax purposes under Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the code.

 

3.13       Real Property. The Company does not own any real property.

 

3.14       Tangible Personal Property. The Company does not own or lease any personal property.

 

3.15       Intangible Property. The Company does not own any patent, trademark, trade name, service mark or copyright.

 

3.16       Licenses to Tangible and/or Intangible Property. The Company does not own any licenses to tangible and/or intangible property.

 

3.17       Material Contracts. Schedule 3.17, incorporated herein by reference, sets forth all of the following Contracts to which the Company is a party or by which it is bound (collectively, the “Company Material Contracts”): (i) Contracts with any the Seller or any current officer or director of the Company; (ii) Contracts with any labor union or association representing any employee of the Company; (iii) Contracts pursuant to which any party is required to purchase or sell a stated portion of its requirements or output from or to another party; (iv) Contracts for the sale of any of the assets of the Company other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of its assets; (v) joint venture agreements; (vi) Company Material Contracts containing covenants of the Company not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with the Company in any line of business or in any geographical area; (vii) Contracts relating to the acquisition by the Company of any operating business or the capital stock of any other person; (viii) Contracts relating to the borrowing of money; or (ix) any other Contracts, other than Real Property Leases, which involve the expenditure of more than $100,000 in the aggregate or $25,000 annually or require performance by any party more than one year from the date hereof. There have been made available to the Sellers and their representatives true and complete copies of all of the Company Material Contracts. Except as set forth on Schedule 3.17, all of the Company Material Contracts and other agreements are in full force and effect and are the legal, valid and binding obligation of the Company, enforceable against them in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). Except as set forth on Schedule 3.17, the Company is not in default in any material respect under any Company Material Contracts, nor, to the knowledge of the Company, is any other party to any Company Material Contract in default thereunder in any material respect.

 

3.18       Employee Benefits. The Company has not entered into any (i) “employee benefit plans”, as defined in Section 3(3) ERISA, and any other pension plans or employee benefit arrangements, programs or payroll practices (including, without limitation, severance pay, vacation pay, company awards, salary continuation for disability, sick leave, retirement, deferred compensation, bonus or other incentive compensation, stock purchase arrangements or policies, hospitalization, medical insurance, life insurance and scholarship programs) maintained by the Company or to which the Company contributes or is obligated to contribute thereunder with respect to employees of the Company (“Employee Benefit Plans”) and (ii) “employee pension plans”, as defined in Section 3(2) of ERISA, maintained by the Company or any trade or business (whether or not incorporated) which are under control, or which are treated as a single employer, with the Company as an ERISA Affiliate or to which the Company or any ERISA Affiliate contributed or is obligated to contribute thereunder (“Pension Plans”).

 

 

3.19       Labor.

 

(a)

The Company is not a party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements which pertain to employees of the Company.

 

(b)

No employees of the Company are represented by any labor organization. No labor organization or group of employees of the Company has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the best knowledge of the Company, threatened to be brought or filed, with the National Labor Relations Board or other labor relations tribunal. There is no organizing activity involving the Company pending or, to the best knowledge of the Company, threatened by any labor organization or group of employees of the Company.

 

(c)

There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances or other labor disputes pending or, to the best knowledge of the Company, threatened against or involving the Company. There are no unfair labor practice charges, grievances or complaints pending or, to the best knowledge of the Company, threatened by or on behalf of any employee or group of employees of the Company.

 

3.20       Litigation. There is no suit, action, proceeding, investigation, claim or order pending or, to the knowledge of the Company, overtly threatened against the Company (or to the knowledge of the Company, pending or threatened, against any of the officers, directors or key employees of the Company with respect to their business activities on behalf of the Company), or to which the Company is otherwise a party, which, if adversely determined, would have a Material Adverse Effect, before any court, or before any governmental department, commission, board, agency, or instrumentality; nor to the knowledge of the Company is there any reasonable basis for any such action, proceeding, or investigation. The Company is not subject to any judgment, order or decree of any court or governmental agency except to the extent the same are not reasonably likely to have a Material Adverse Effect and the Company is not engaged in any legal action to recover monies due it or for damages sustained by it.

 

3.21       Compliance with Laws; Permits. The Company is in compliance with all Laws applicable to the Company or to the conduct of the business or operations of the Company or the use of its properties (including any leased properties) and assets, except for such non-compliances as would not, individually or in the aggregate, have a Material Adverse Effect. The Company has all governmental permits and approvals from state, federal or local authorities which are required for the Company to operate its business, except for those the absence of which would not, individually or in the aggregate, have a Material Adverse Effect.

 

3.22       Environmental Matters.

 

(a)

the operations of the Company are in compliance with all applicable Environmental Laws and all Environmental Permits;

 

(b)

the Company has obtained all permits required under all applicable Environmental Laws necessary to operate its business;

 

(c)

the Company is not the subject of any outstanding written order or Contract with any Governmental or Regulatory Authority or Person respecting (i) Environmental Laws, (ii) Remedial Action, (iii) any release or threatened release of a Hazardous Material or (iv) any Hazardous Activity;

 

 

(d)

the Company has not received any written communication alleging that the Company may be in violation of any Environmental Law, or any Environmental Permit, or may have any liability under any Environmental Law;

 

(e)

the Company has no current contingent liability in connection with any Hazardous Activity or release of any Hazardous Materials into the indoor or outdoor environment (whether on-site or off-site);

 

(f)

to the Company’s knowledge, there are no investigations of the business, operations, or currently or previously owned, operated or leased property of the Company pending or threatened which could lead to the imposition of any liability pursuant to Environmental Law;

 

(g)

there is not located at any of the properties of the Company any (i) underground storage tanks, (ii) asbestos-containing material or (iii) equipment containing polychlorinated biphenyls; and,

 

(h)

the Company has provided to the Sellers all environmentally related audits, studies, reports, analyses, and results of investigations that have been performed with respect to the currently or previously owned, leased or operated properties of the Company.

 

3.23       FDA Compliance. The Company, and the manufacture, marketing, distribution and sales of the Company’s products and services, is in compliance in all material respects with all applicable rules and regulations of the U.S. Food and Drug Administration (the “FDA”), and all related applicable laws, statutes, ordinances, rules or regulations (including, without limitation, the Federal Food, Drug and Cosmetic Act, as amended, and the Good Manufacturing Practice regulations), the enforcement of which, individually or in the aggregate, would be expected to result in a Material Adverse Effect.

 

3.24       Inventories; Receivables; Payables.

 

(a)

The inventories of the Company are in good and marketable condition, and are saleable in the ordinary course of business. Adequate reserves have been reflected in the Company Financial Statements for obsolete or otherwise unusable inventory, which reserves were calculated in a manner consistent with past practice and in accordance with GAAP consistently applied.

 

(b)

All accounts receivable of the Company have arisen from bona fide transactions in the ordinary course of business consistent with past practice. All accounts receivable of the Company reflected on the Company Financial Statements are good and collectible at the aggregate recorded amounts thereof, net of any applicable reserve for returns or doubtful accounts reflected thereon, which reserves are adequate and were calculated in a manner consistent with past practice and in accordance with GAAP consistently applied. All accounts receivable arising after the Inception Date are good and collectible at the aggregate recorded amounts thereof, net of any applicable reserve for returns or doubtful accounts, which reserves are adequate and were calculated in a manner consistent with past practice and in accordance with GAAP consistently applied.

 

(c)

All accounts payable of the Company reflected in the Company Financial Statements or arising after the date thereof are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due and payable.

 

3.25       Related Party Transactions. Neither the Company nor any Affiliates of the Company has borrowed any moneys from or has outstanding any indebtedness or other similar obligations to the Company. Neither the Company, any Affiliate of the Company nor any officer or employee of any of them (i) owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee or partner of, or consultant to, or lender to or borrower from or has the right to participate in the profits of, any Person which is (A) a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Company, (B) engaged in a business related to the business of the Company, or (C) a participant in any transaction to which the Company is a party or (ii) is a party to any Contract with the Company.

 

 

3.26       No Misrepresentation. No representation or warranty of the Company or the Sellers contained in this Agreement or in any schedule hereto or in any certificate or other instrument furnished by the Company and/or the Sellers to the Company pursuant to the terms hereof, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

 

3.27       Financial Advisors. No Person has acted, directly or indirectly, as a broker or finder for the Company in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof.

 

3.28       Guarantees. There are no written guarantees currently in effect heretofore issued by the Company to any bank or other lender in connection with any credit facilities extended by such creditors to the Company in connection with any other contracts or agreements (collectively, the “Guarantees”), including the name of such creditor and the amount of the indebtedness, together with any interest and fees currently owing and expected to be outstanding as of the Closing.

 

3.29       Patriot Act. The Company certifies that it has not been designated, and is not owned or controlled, by a “suspected terrorist” as defined in Executive Order 13224. The Company hereby acknowledges that the Sellers seek to comply with all applicable Laws concerning money laundering and related activities. In furtherance of those efforts, the Company hereby represents, warrants and agrees that: (i) none of the cash or property owned by the Company has been or shall be derived from, or related to, any activity that is deemed criminal under United States law; and (ii) no contribution or payment by the Company has, and this Agreement will not, cause the Company to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.

 

3.30       FCPA Compliance. To the best of the Company’s knowledge, no director, officer, agent, employee, Affiliate, or other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended (“FCPA”); or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.

 

3.31       Investment Intention. The Sellers are acquiring the Acquisition Shares for their own accounts, for investment purposes only and not with a view to the distribution (as such term is used in Section 2(11) of the Securities Act of 1933, as amended (the “Securities Act”) thereof. The Sellers understand that the Acquisition Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.

 

3.32       Investors. Each of the Sellers represents and warrants to Purchaser that he or she is an “accredited investor” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933, as amended.

 

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser hereby represents and warrants to the Company and the Sellers, that:

 

4.1        Organization and Good Standing. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada, with full corporate power and corporate authority to (i) own, lease and operate its properties, (ii) carry on the business as currently conducted by it. There are no states or jurisdictions in which the character and location of any of the properties owned or leased by the Purchaser, or the conduct of the Purchaser’s business makes it necessary for the Purchaser to qualify to do business as a foreign corporation, except for those jurisdictions in which the failure to so qualify would not have a Material Adverse Effect on the business or operations of the Purchaser.

 

 

4.2       Authorization of Agreement. The Purchaser has full corporate power and authority to execute and deliver this Agreement and each other agreement, document, instrument or certificate contemplated by this Agreement or to be executed by the Purchaser in connection with the consummation of the transactions contemplated hereby and thereby (the “Purchaser Documents”), and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by the Purchaser of this Agreement and each Purchaser Document have been duly authorized by all necessary corporate action on behalf of the Purchaser. This Agreement has been, and each Purchaser Document will be at or prior to the Closing, duly executed and delivered by the Purchaser and (assuming the due authorization, execution and delivery by the other parties hereto and thereto) this Agreement constitutes, and each Purchaser Document when so executed and delivered will constitute, legal, valid and binding obligations of the Purchaser, enforceable against the Purchaser in accordance with their respective terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity).

 

4.3       Capitalization. The authorized capital stock of the Purchaser consists of: 500,000,000 shares of common stock, $0.001 par value per share, 64,370,518 shares of which are issued and outstanding; and 25,000,000 shares of preferred stock, $0.001 par value per share, 1,000,000 of which are issued and outstanding. All of the shares of the Purchaser are duly authorized, validly issued, fully paid and nonassessable. Schedule 4.3 sets forth a true and complete list of the holders of all outstanding shares of the Purchaser as of the date of this Agreement. Prior to Closing, there shall be no options, warrants or other rights, agreements, arrangements or commitments of any character relating to the issued or unissued capital stock of the Purchaser or obligating the Purchaser to issue or sell any shares of capital stock of or other equity interests in the Purchaser. There is no personal liability, and there are no preemptive rights with regard to the capital stock of the Purchaser, and no right-of-first refusal or similar catch-up rights with regard to such capital stock. Prior to Closing, there shall be no outstanding contractual obligations or other commitments or arrangements of the Purchaser to (A) repurchase, redeem or otherwise acquire any shares of the Purchaser (or any interest therein) or (B) to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any other entity, or (C) issue or distribute to any person any capital stock of the Purchaser, or (D) issue or distribute to holders of any of the capital stock of the Purchaser any evidences of indebtedness or assets of the Purchaser. All of the outstanding securities of the Purchaser have been issued and sold by the Purchaser in full compliance in all material respects with applicable federal and state securities laws.

 

4.4       Subsidiaries. Except for Jaguaring Company, d/b/a Cannavolve Holdings, a Washington limited liability company, Purchaser has no subsidiaries.

 

4.5       Corporate Records.

 

(a)

The Purchaser has delivered to the Company true, correct and complete copies of the articles of incorporation (each certified by the Secretary of State or other appropriate official of the applicable jurisdiction of organization) and by-laws (each certified by the secretary, assistant secretary or other appropriate officer) or comparable organizational documents of the Purchaser.

 

(b)

The minute books of the Purchaser previously made available to the Sellers contain complete and accurate records of all meetings and accurately reflect all other corporate action of the stockholders and board of directors (including committees thereof) of the Purchaser to the best of the Purchaser’s knowledge. The stock certificate books and stock transfer ledgers of the Purchaser previously made available to the Sellers are true, correct and complete. All stock transfer taxes levied or payable with respect to all transfers of shares of the Purchaser prior to the date hereof have been paid and appropriate transfer tax stamps affixed to the best of the Purchaser’s knowledge.

 

 

4.6       Conflicts; Consents of Third Parties.

 

(a)

None of the execution and delivery by Purchaser of this Agreement and the Purchaser Documents, the consummation of the transactions contemplated hereby or thereby, or compliance by Purchaser with any of the provisions hereof or thereof will (i) conflict with, or result in the breach of, any provision of the articles of incorporation or by-laws or comparable organizational documents of the Purchaser; (ii) conflict with, violate, result in the breach or termination of, or constitute a default under any note, bond, mortgage, indenture, license, agreement or other instrument or obligation to which the Purchaser is a party or by which any of them or any of their respective properties or assets is bound; (iii) violate any statute, rule, regulation, order or decree of any governmental body or authority by which the Purchaser is bound; or (iv) result in the creation of any Lien upon the properties or assets of the Purchaser except, in case of clauses (ii), (iii) and (iv), for such violations, breaches or defaults as would not, individually or in the aggregate, have a Material Adverse Effect.

  

(b)

No consent, waiver, approval, Order, permit or authorization of, or declaration or filing with, or notification to, any Person or Governmental or Regulatory Authority is required on the part of Purchaser in connection with the execution and delivery of this Agreement or the Purchaser Documents, or the compliance by Purchaser with any of the provisions hereof or thereof, other than the filing of a Current Report on Form 8-K and any required amendments thereof, a Schedule 14f-1, if necessary, and any applicable Schedule 13D amendments and Forms 4.

 

4.7       Financial Statements.

 

(a)

The Sellers have reviewed copies of the audited balance sheets of the Purchaser as at December 31, 2023 and the related audited statements of income and of cash flows of the Purchaser for the years then ended and the copies of the unaudited balance sheets of the Purchaser and the related unaudited statements of income and of cash flows of the Purchaser for the years then ended (the “Financial Statements”). Each of the Financial Statements is complete and correct in all material respects, has been prepared in accordance with GAAP (subject to normal year-end adjustments in the case of the unaudited statements) and in conformity with the practices consistently applied by the Purchaser without modification of the accounting principles used in the preparation thereof and presents fairly the financial position, results of operations and cash flows of the Purchaser as at the dates and for the periods indicated.

 

(b)

For the purposes hereof, the audited balance sheet of the Purchaser at December 31, 2023 is referred to as the “Balance Sheet” and December 31, 2023 is referred to as the “Balance Sheet Date”.

 

4.8       No Undisclosed Liabilities. Prior to Closing, Purchaser shall have no indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due) that would have been required to be reflected in, reserved against or otherwise described on the Balance Sheet or in the notes thereto in accordance with GAAP which was not fully reflected in, reserved against or otherwise described in the Balance Sheet or the notes thereto or was not incurred in the ordinary course of business consistent with past practice since the Balance Sheet Date. For the avoidance of doubt, at Closing, the Purchaser will not have any material liabilities or obligations, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually and in the aggregate would not be reasonably expected to result in a Material Adverse Effect.

 

 

4.9       Absence of Certain Developments. Except as expressly contemplated by this Agreement, since the Balance Sheet Date:

 

(i)

there has not been any “material adverse change” (defined as a change that significantly impacts the financial condition, operations, or prospects of the Purchaser in a negative manner) nor has there occurred any event which is reasonably likely to result in a material adverse change;

 

(ii)

there has not been any damage, destruction or loss, whether or not covered by insurance, with respect to the property and assets of the Purchaser having a replacement cost of more than $25,000 for any single loss or $100,000 for all such losses;

 

(iii)

there has not been any declaration, setting aside or payment of any dividend or other distribution in respect of any shares of capital stock of the Purchaser or any repurchase, redemption or other acquisition by the Purchaser of any outstanding shares of capital stock or other securities of, or other ownership interest in, the Purchaser;

 

(iv)

the Purchaser has not awarded or paid any bonuses to employees of the Purchaser except to the extent accrued on the Balance Sheet or entered into any employment, deferred compensation, severance or similar agreement (nor amended any such agreement) or agreed to increase the compensation payable or to become payable by it to any of the Purchaser’s directors, officers, employees, agents or representatives or agreed to increase the coverage or benefits available under any severance pay, termination pay, vacation pay, company awards, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan, payment or arrangement made to, for or with such directors, officers, employees, agents or representatives (other than normal increases in the ordinary course of business consistent with past practice and that in the aggregate have not resulted in a material increase in the benefits or compensation expense of the Purchaser);

 

(v)

there has not been any change by the Purchaser in accounting or Tax reporting principles, methods or policies; the Purchaser has not entered into any transaction or Contract or conducted its business other than in the ordinary course consistent with past practice;

 

(vi)

the Purchaser has not made any loans, advances or capital contributions to, or investments in, any Person or paid any fees or expenses to any Seller or any Affiliate of any Seller;

 

(vii)

the Purchaser has not mortgaged, pledged or subjected to any Lien, any of its assets, or acquired any assets or sold, assigned, transferred, conveyed, leased or otherwise disposed of any assets of the Purchaser, except for assets acquired or sold, assigned, transferred, conveyed, leased or otherwise disposed of in the ordinary course of business consistent with past practice;

 

(viii)

the Purchaser has not discharged or satisfied any Lien, or paid any obligation or liability (fixed or contingent), except in the ordinary course of business consistent with past practice and which, in the aggregate, would not be material to the Purchaser;

 

(ix)

the Purchaser has not canceled or compromised any debt or claim or amended, canceled, terminated, relinquished, waived or released any Contract or right except in the ordinary course of business consistent with past practice and which, in the aggregate, would not be material to the Purchaser;

 

(x)

the Purchaser has not made or committed to make any capital expenditures or capital additions or betterments in excess of $25,000 individually or $100,000 in the aggregate;

 

(xi)

the Purchaser has not instituted or settled any material legal proceeding; and

 

(xii)

the Purchaser has not agreed to do anything set forth in this Section 4.9.

 

 

4.10     Taxes.

 

(a)

(A) all Tax Returns required to be filed by or on behalf of the Purchaser have been filed with the appropriate taxing authorities in all jurisdictions in which such Tax Returns are required to be filed (after giving effect to any valid extensions of time in which to make such filings), and all such Tax Returns were true, complete and correct in all material respects; (B) all Taxes payable by or on behalf of the Purchaser or in respect of its income, assets or operations have been fully and timely paid, and (C) the Purchaser has not executed or filed with the IRS or any other taxing authority any agreement, waiver or other document or arrangement extending or having the effect of extending the period for assessment or collection of Taxes (including, but not limited to, any applicable statute of limitation), and no power of attorney with respect to any Tax matter is currently in force.

 

(b)

The Purchaser has complied in all material respects with all applicable laws, rules and regulations relating to the payment and withholding of Taxes and has duly and timely withheld from employee salaries, wages and other compensation and has paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable laws.

 

(c)

The Sellers have received complete copies of (A) all federal, state, local and foreign income or franchise Tax Returns of the Purchaser relating to the taxable periods since 2004 and (B) any audit report issued within the last three years relating to Taxes due from or with respect to the Purchaser its income, assets or operations.

 

(d)

All material types of Taxes paid and material types of Tax Returns filed by or on behalf of the Purchaser have been paid and filed. No claim has been made by a taxing authority in a jurisdiction where the Purchaser does not file Tax Returns such that it is or may be subject to taxation by that jurisdiction.

 

(e)

All deficiencies asserted or assessments made as a result of any examinations by the IRS or any other taxing authority of the Tax Returns of or covering or including the Purchaser have been fully paid, and there are no other audits or investigations by any taxing authority in progress, nor have the Sellers or the Purchaser received any notice from any taxing authority that it intends to conduct such an audit or investigation. No issue has been raised by a federal, state, local or foreign taxing authority in any current or prior examination which, by application of the same or similar principles, could reasonably be expected to result in a proposed deficiency for any subsequent taxable period.

 

(f)

Neither the Purchaser nor any other Person (including any of the Sellers) on behalf of the Purchaser has (A) filed a consent pursuant to Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as such term is defined in Section 341(f)(4) of the Code) owned by the Purchaser, (B) agreed to or is required to make any adjustments pursuant to Section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Purchaser or has any knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Purchaser, (C) executed or entered into a closing agreement pursuant to Section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law with respect to the Purchaser, or (D) requested any extension of time within which to file any Tax Return, which Tax Return has since not been filed.

 

 

(g)

No property owned by the Purchaser is (i) property required to be treated as being owned by another Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately prior to the enactment of the Tax Reform Act of 1986, (ii) constitutes “tax-exempt use property” within the meaning of Section 168(h)(1) of the Code or (iii) is “tax-exempt bond financed property” within the meaning of Section 168(g) of the Code.

 

(h)

The Purchaser is not a foreign person within the meaning of Section 1445 of the Code.

 

(i)

The Purchaser is not a party to any tax sharing or similar agreement or arrangement (whether or not written) pursuant to which it will have any obligation to make any payments after the Closing.

 

(j)

There is no contract, agreement, plan or arrangement covering any person that, individually or collectively, could give rise to the payment of any amount that would not be deductible by the Company, its Affiliates or their respective affiliates by reason of Section 280G of the Code, or would constitute compensation in excess of the limitation set forth in Section 162(m) of the Code.

 

(k)

The Purchaser is not subject to any private letter ruling of the IRS or comparable rulings of other taxing authorities.

 

(l)

Except as set forth on Schedule 4.10, there are no Liens as a result of any unpaid Taxes upon any of the assets of the Purchaser.

 

(m)

The Purchaser has no elections in effect for federal income tax purposes under Sections 108, 168, 338, 441, 463, 472, 1017, 1033 or 4977 of the code.

 

4.11

Real Property. The Purchaser does not own any real property.

 

4.12

Tangible Personal Property. The Purchaser does not own or lease any personal property

 

4.13       Intangible Property. The Purchaser does not own any patent, trademark, trade name, service mark or copyright.

 

4.14       Material Contracts.

 

Schedule 4.14 sets forth all of the following Contracts to which the Purchaser is a party or by which it is bound (collectively, the “ Purchaser Material Contracts”): (i) Contracts with any the Seller or any current officer or director of the Purchaser; (ii) Contracts with any labor union or association representing any employee of the Purchaser; (iii) Contracts pursuant to which any party is required to purchase or sell a stated portion of its requirements or output from or to another party; (iv) Contracts for the sale of any of the assets of the Purchaser other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of its assets; (v) joint venture agreements; (vi) Purchaser Material Contracts containing covenants of the Purchaser not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with the Purchaser in any line of business or in any geographical area; (vii) Contracts relating to the acquisition by the Purchaser of any operating business or the capital stock of any other person; (viii) Contracts relating to the borrowing of money; or (ix) any other Contracts, other than Real Property Leases, which involve the expenditure of more than $100,000 in the aggregate or $25,000 annually or require performance by any party more than one year from the date hereof. There have been made available to the Sellers and their representatives true and complete copies of all of the Purchaser Material Contracts. Except as set forth on Schedule 4.14, all of the Purchaser Material Contracts and other agreements are in full force and effect and are the legal, valid and binding obligation of the Purchaser, enforceable against them in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium and similar laws affecting creditors’ rights and remedies generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding at law or in equity). Except as set forth on Schedule 4.14, the Purchaser is not in default in any material respect under any Purchaser Material Contracts, nor, to the knowledge of Purchaser, is any other party to any Purchaser Material Contract in default thereunder in any material respect.

 

 

4.15       Employee Benefits. The Purchaser has not entered into any (i) “employee benefit plans”, as defined in Section 3(3) ERISA, and any other pension plans or employee benefit arrangements, programs or payroll practices (including, without limitation, severance pay, vacation pay, company awards, salary continuation for disability, sick leave, retirement, deferred compensation, bonus or other incentive compensation, stock purchase arrangements or policies, hospitalization, medical insurance, life insurance and scholarship programs) maintained by the Purchaser or to which the Purchaser contributes or is obligated to contribute thereunder with respect to employees of the Purchaser (“Employee Benefit Plans”) and (ii) “employee pension plans”, as defined in Section 3(2) of ERISA, maintained by the Purchaser or any trade or business (whether or not incorporated) which are under control, or which are treated as a single employer, with Purchaser as an ERISA Affiliate or to which the Purchaser or any ERISA Affiliate contributed or is obligated to contribute thereunder (“Pension Plans”).

 

4.16       Labor.

 

(a)

The Purchaser is not a party to any labor or collective bargaining agreement and there are no labor or collective bargaining agreements which pertain to employees of the Purchaser.

 

(b)

No employees of the Purchaser are represented by any labor organization. No labor organization or group of employees of the Purchaser has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the best knowledge of the Purchaser, threatened to be brought or filed, with the National Labor Relations Board or other labor relations tribunal. There is no organizing activity involving the Purchaser pending or, to the best knowledge of the Purchaser, threatened by any labor organization or group of employees of the Purchaser.

 

(c)

There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances or other labor disputes pending or, to the best knowledge of any Purchaser, threatened against or involving the Purchaser. There are no unfair labor practice charges, grievances or complaints pending or, to the best knowledge of Purchaser, threatened by or on behalf of any employee or group of employees of the Purchaser.

 

4.17       Litigation. There is no suit, action, proceeding, investigation, claim or order pending or, to the knowledge of the Purchaser, overtly threatened against the Purchaser (or to the knowledge of the Purchaser, pending or threatened, against any of the officers, directors or key employees of the Purchaser with respect to their business activities on behalf of the Purchaser), or to which the Purchaser is otherwise a party, which, if adversely determined, would have a Material Adverse Effect, before any court, or before any governmental department, commission, board, agency, or instrumentality; nor to the knowledge of the Purchaser is there any reasonable basis for any such action, proceeding, or investigation. The Purchaser is not subject to any judgment, order or decree of any court or governmental agency except to the extent the same are not reasonably likely to have a Material Adverse Effect and the Purchaser is not engaged in any legal action to recover monies due it or for damages sustained by it.

 

4.18       Compliance with Laws; Permits. The Purchaser is in compliance with all Laws applicable to the Purchaser or to the conduct of the business or operations of the Purchaser or the use of its properties (including any leased properties) and assets, except for such non-compliances as would not, individually or in the aggregate, have a Material Adverse Effect. The Purchaser has all governmental permits and approvals from state, federal or local authorities which are required for the Purchaser to operate its business, except for those the absence of which would not, individually or in the aggregate, have a Material Adverse Effect.

 

 

4.19       Environmental Matters.

 

(a)

the operations of the Purchaser are in compliance with all applicable Environmental Laws and all Environmental Permits;

 

(b)

the Purchaser has obtained all permits required under all applicable Environmental Laws necessary to operate its business;

 

(c)

the Purchaser is not the subject of any outstanding written order or Contract with any Governmental or Regulatory Authority or Person respecting (i) Environmental Laws, (ii) Remedial Action, (iii) any release or threatened release of a Hazardous Material or (iv) any Hazardous Activity;

  

(d)

the Purchaser has not received any written communication alleging that the Purchaser may be in violation of any Environmental Law, or any Environmental Permit, or may have any liability under any Environmental Law;

 

(e)

the Purchaser has no current contingent liability in connection with any Hazardous Activity or release of any Hazardous Materials into the indoor or outdoor environment (whether on-site or off-site);

 

(f)

to the Purchaser’s knowledge, there are no investigations of the business, operations, or currently or previously owned, operated or leased property of the Purchaser pending or threatened which could lead to the imposition of any liability pursuant to Environmental Law;

 

(g)

there is not located at any of the properties of the Purchaser any (i) underground storage tanks, (ii) asbestos-containing material or (iii) equipment containing polychlorinated biphenyls; and,

 

(h)

the Purchaser has provided to the Sellers all environmentally related audits, studies, reports, analyses, and results of investigations that have been performed with respect to the currently or previously owned, leased or operated properties of the Purchaser.

 

4.20       Insurance. The Purchaser does not carry any insurance of any kind or nature.

 

4.21       Inventories; Receivables; Payables.

 

(a)

The inventories of the Purchaser are in good and marketable condition, and are saleable in the ordinary course of business. Adequate reserves have been reflected in the Balance Sheet for obsolete or otherwise unusable inventory, which reserves were calculated in a manner consistent with past practice and in accordance with GAAP consistently applied.

 

(b)

All accounts receivable of the Purchaser have arisen from bona fide transactions in the ordinary course of business consistent with past practice. All accounts receivable of the Purchaser reflected on the Balance Sheet are good and collectible at the aggregate recorded amounts thereof, net of any applicable reserve for returns or doubtful accounts reflected thereon, which reserves are adequate and were calculated in a manner consistent with past practice and in accordance with GAAP consistently applied. All accounts receivable arising after the Balance Sheet Date are good and collectible at the aggregate recorded amounts thereof, net of any applicable reserve for returns or doubtful accounts, which reserves are adequate and were calculated in a manner consistent with past practice and in accordance with GAAP consistently applied.

 

(c)

All accounts payable of the Purchaser reflected in the Balance Sheet or arising after the date thereof are the result of bona fide transactions in the ordinary course of business and have been paid or are not yet due and payable.

 

 

4.22       Related Party Transactions. Neither the Purchaser nor any Affiliates of Purchaser has borrowed any moneys from or has outstanding any indebtedness or other similar obligations to the Purchaser. Neither the Purchaser, any Affiliate of the Purchaser nor any officer or employee of any of them (i) owns any direct or indirect interest of any kind in, or controls or is a director, officer, employee or partner of, or consultant to, or lender to or borrower from or has the right to participate in the profits of, any Person which is (A) a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Purchaser, (B) engaged in a business related to the business of the Purchaser, or (C) a participant in any transaction to which the Purchaser is a party or (ii) is a party to any Contract with the Purchaser.

 

4.23       No Misrepresentation. No representation or warranty of Purchaser contained in this Agreement or in any schedule hereto or in any certificate or other instrument furnished by the Purchaser to Sellers pursuant to the terms hereof, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading.

 

4.24       Financial Advisors. No Person has acted, directly or indirectly, as a broker or finder for the Purchaser in connection with the transactions contemplated by this Agreement and no Person is entitled to any fee or commission or like payment in respect thereof.

 

4.25       Guarantees. There are no written guarantees currently in effect heretofore issued by the Purchaser to any bank or other lender in connection with any credit facilities extended by such creditors to the Purchaser in connection with any other contracts or agreements (collectively, the “Guarantees”), including the name of such creditor and the amount of the indebtedness, together with any interest and fees currently owing and expected to be outstanding as of the Closing.

 

4.26       Patriot Act. The Purchaser certifies that it has not been designated, and is not owned or controlled, by a “suspected terrorist” as defined in Executive Order 13224. The Purchaser hereby acknowledges that the Sellers seek to comply with all applicable Laws concerning money laundering and related activities. In furtherance of those efforts, the Purchaser hereby represents, warrants and agrees that: (i) none of the cash or property owned by the Purchaser has been or shall be derived from, or related to, any activity that is deemed criminal under United States law; and (ii) no contribution or payment by the Purchaser has, and this Agreement will not, cause the Purchaser to be in violation of the United States Bank Secrecy Act, the United States International Money Laundering Control Act of 1986 or the United States International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001.

 

4.27       Trading Status. Purchaser’s common stock is traded on OTC Markets under the trading symbol “SNBH”. Purchaser has at least one market makers. As of the Closing, Purchaser’s Common Stock will be listed for trading on OTC Markets with at least one market maker.

 

4.28       Reporting Status. Purchaser is a reporting issuer under Section 12(g) of the Securities Exchange Act of 1934 (the “‘34 Act”). Purchaser is now, and as of the Closing will be, current in its filings and will have filed all of the filings required to have been made in the previous twelve months.

 

4.29       Investment Intention. Purchaser is acquiring the Shares for its own account, for investment purposes only and not with a view to the distribution (as such term is used in Section 2(11) of the Securities Act of 1933, as amended (the “Securities Act”) thereof. Purchaser understands that the Shares have not been registered under the Securities Act and cannot be sold unless subsequently registered under the Securities Act or an exemption from such registration is available.

 

4.30       Acquisition Shares. The Acquisition Shares issuable pursuant to the purchase price, when issued, will be duly authorized and validly issued, fully paid and non-assessable, will be delivered hereunder free and clear of any Liens, except that such Acquisition Shares will be “restricted securities”, as such term is defined in the rules and regulations of the Securities and Exchange Commission promulgated under the Securities Act, and will be subject to restrictions on transfers pursuant to such rules and regulations.

 

 

ARTICLE 5.

COVENANTS

 

5.1       Access to Information. The Company agrees that, prior to the Closing Date, the Purchaser shall be entitled, through its officers, employees and representatives (including, without limitation, its legal advisors and accountants), to make such investigation of the properties, businesses and operations of the Company and its subsidiaries and such examination of the books, records and financial condition of the Company and its Subsidiaries as it reasonably requests and to make extracts and copies of such books and records. Any such investigation and examination shall be conducted during regular business hours and under reasonable circumstances, and the Company shall cooperate, and shall cause the Company and its Subsidiaries to cooperate, fully therein. No investigation by the Purchaser prior to or after the date of this Agreement shall diminish or obviate any of the representations, warranties, covenants or agreements of the Sellers or the Company contained in this Agreement or the Seller Documents. In order that the Purchaser may have full opportunity to make such physical, business, accounting and legal review, examination or investigation as it may reasonably request of the affairs of the Company and its Subsidiaries, the Company shall cause the officers, employees, consultants, agents, accountants, attorneys and other representatives of the Company and its Subsidiaries to cooperate fully with such representatives in connection with such review and examination.

 

5.2       Conduct of the Business Pending the Closing.

 

(a)

Except as otherwise expressly contemplated by this Agreement, or with the prior written consent of the Purchaser, the Sellers shall, and shall cause the Company to:

 

(i)

conduct the businesses of the Company only in the ordinary course consistent with past practice;

 

(ii)

use its best efforts to (A) preserve its present business operations, organization (including, without limitation, management and the sales force) and goodwill of the Company and (B) preserve its present relationship with Persons having business dealings with the Company;

 

(iii)

maintain (A) all of the assets and properties of the Company in their current condition, ordinary wear and tear excepted and (B) insurance upon all of the properties and assets of the Company in such amounts and of such kinds comparable to that in effect on the date of this Agreement;

 

(iv)

(A) maintain the books, accounts and records of the Company in the ordinary course of business consistent with past practices, (B) continue to collect accounts receivable and pay accounts payable utilizing normal procedures and without discounting or accelerating payment of such accounts, and (C) comply with all contractual and other obligations applicable to the operation of the Company; and

 

(v)

comply in all material respects with applicable laws and regulations.

 

(vi)

Forebear from (i) soliciting, initiating, or encouraging the submission of any proposal or offer from any person relating to the acquisition of any capital stock or other voting securities of the Company, or any assets of the Company (including any acquisition structured as a merger, consolidation, share exchange or other business combination), (ii) participating in any discussions or negotiations regarding, furnishing any information with respect to, assisting or participating in, or facilitating in any other manner any effort or attempt by any person to do or seek any of the foregoing, or (iii) taking any other action that is inconsistent with this Agreement or the transactions contemplated hereby and that has the effect of avoiding the Closing contemplated hereby. The Sellers or the Company shall notify Purchaser immediately if any person makes any proposal, offer, inquiry, or contact with respect to any of the foregoing.

  

(vii)

permit the Company to enter into or agree to enter into any merger or consolidation with, any corporation or other entity, and not engage in any new business or invest in, make a loan, advance or capital contribution to, or otherwise acquire the securities of any other Person;

 

(viii)

forbear from doing anything prohibited by this Section 5.2 or anything which would make any of the representations and warranties of the Company or Sellers in this Agreement untrue or incorrect in any material respect.

 

 

(b)

Except as otherwise expressly contemplated by this Agreement, or with the prior written consent of the Company, the Purchaser shall not:

 

(i)

declare, set aside, make or pay any dividend or other distribution in respect of the capital stock of the Purchaser or repurchase, redeem or otherwise acquire any outstanding shares of the capital stock or other securities of, or other ownership interests in, the Purchaser;

 

(ii)

effect any recapitalization, reclassification, stock split or like change in the capitalization of the Purchaser other than to effectuate the transactions contemplated by this Agreement;

 

(iii)

amend the articles of incorporation or by-laws of the Purchaser other than to effectuate the transaction contemplated by this Agreement;

 

(iv)

(A) materially increase the annual level of compensation of any employee of the Purchaser, (B) increase the annual level of compensation payable or to become payable by the Purchaser to any of its executive officers, (C) increase the coverage or benefits available under any (or create any new) severance pay, termination pay, vacation pay, company awards, salary continuation for disability, sick leave, deferred compensation, bonus or other incentive compensation, insurance, pension or other employee benefit plan or arrangement made to, for, or with any of the directors, or officers of the Purchaser, or (D) enter into any employment agreement (or amend any such agreement) to which the Purchaser is a party or involving a director or officer of the Purchaser in his or her capacity as a director or officer of the Purchaser;

 

(v)

subject to any Lien (except for leases that do not materially impair the use of the property subject thereto in their respective businesses as presently conducted), any of the properties or assets (whether tangible or intangible) of the Purchaser;

 

(vi)

acquire any material properties or assets or sell, assign, transfer, convey, lease or otherwise dispose of any of the material properties or assets (except for fair consideration in the ordinary course of business consistent with past practice) of the Purchaser;

 

(vii)

enter into, modify or terminate any labor or collective bargaining agreement of the Purchaser or, through negotiation or otherwise, make any commitment or incur any liability to any labor organization with respect to the Purchaser;

 

(viii)

permit the Purchaser to enter into or agree to enter into any merger or consolidation with, any corporation or other entity, and not engage in any new business or invest in, make a loan, advance or capital contribution to, or otherwise acquire the securities of any other Person;

 

(ix)

permit the Purchaser to make any investments in or loans to any Affiliate; or

 

(x)

agree to do anything prohibited by this Section 5.2 or anything which would make any of the representations and warranties of the Purchaser in this Agreement untrue or incorrect in any material respect.

 

5.3       Consents. The Sellers shall use their best efforts, and the Purchaser shall cooperate with the Sellers, to obtain at the earliest practicable date all consents and approvals required to consummate the transactions contemplated by this Agreement.

 

5.4       Other Actions. Each of the Sellers and the Purchaser shall use its best efforts to (i) take all actions necessary or appropriate to consummate the transactions contemplated by this Agreement and (ii) cause the fulfillment at the earliest practicable date of all of the conditions to their respective obligations to consummate the transactions contemplated by this Agreement.

 

 

ARTICLE 6.

CONDITIONS TO CLOSING

 

6.1       Conditions Precedent to Obligations of Purchaser. The obligation of the Purchaser to consummate the transactions contemplated by this Agreement is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions (any or all of which may be waived by the Purchaser in whole or in part to the extent permitted by applicable law):

 

(a)

all representations and warranties of the Company and Sellers contained herein shall be true and correct as of the date hereof and as of the Closing Date;

 

(b)

all representations and warranties of the Company and Sellers contained herein qualified as to materiality shall be true and correct, and the representations and warranties of the Company and Sellers contained herein not qualified as to materiality shall be true and correct in all material respects, at and as of the Closing Date with the same effect as though those representations and warranties had been made again at and as of that time;

 

(c)

the Company and Sellers shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by them on or prior to the Closing Date;

 

(d)

the Purchaser shall have been furnished with certificates (dated the Closing Date and in form and substance reasonably satisfactory to the Purchaser) executed by the Chief Executive Officer and Chief Financial Officer of the Company certifying as to the fulfillment of the conditions specified in Sections 6.1(a), 6.2(b) and 6.2(c) hereof;

 

(e)

there shall not have been or occurred any material adverse change in the business or operations of the Company;

 

(f)

the Company and Sellers shall have obtained all consents and waivers referred to in Section 3.6(b) of which there are none at present, in a form reasonably satisfactory to the Purchaser, with respect to the transactions contemplated by this Agreement and the Seller Documents; and

 

(g)

no legal proceedings shall have been instituted or threatened or claim or demand made against the Sellers, the Company or any of its Subsidiaries, or seeking to restrain or prohibit or to obtain substantial damages with respect to the consummation of the transactions contemplated hereby, and there shall not be in effect any Order by a Governmental or Regulatory Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby.

 

6.2       Conditions Precedent to Obligations of the Sellers. The obligations of the Sellers to consummate the transactions contemplated by this Agreement are subject to the fulfillment, prior to or on the Closing Date, of each of the following conditions (any or all of which may be waived by the Company and Sellers in whole or in part to the extent permitted by applicable law):

 

(a)

all representations and warranties of the Purchaser contained herein shall be true and correct as of the date hereof and as of the Closing Date;

 

(b)

all representations and warranties of the Purchaser contained herein qualified as to materiality shall be true and correct, and all representations and warranties of the Purchaser contained herein not qualified as to materiality shall be true and correct in all material respects, at and as of the Closing Date with the same effect as though those representations and warranties had been made again at and as of that date;

 

(c)

the Purchaser shall have performed and complied in all material respects with all obligations and covenants required by this Agreement to be performed or complied with by Purchaser on or prior to the Closing Date;

 

(d)

the Sellers shall have been furnished with certificates (dated the Closing Date and in form and substance reasonably satisfactory to the Sellers) executed by the Chief Executive Officer and Chief Financial Officer of the Purchaser certifying as to the fulfillment of the conditions specified in Sections 6.2(a), 6.2(b) and 6.2(c) hereof;

 

 

(e)

there shall not be in effect any Order by a Governmental or Regulatory Authority of competent jurisdiction restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated hereby;

 

(f)

the Purchaser shall have obtained all consents and waivers referred to in Section 4.6(b) hereof, in a form reasonably satisfactory to the Company and Sellers, with respect to the transactions contemplated by this Agreement and the Purchaser Documents; and

 

(g)

all officers and members of the Board of Directors of the Purchaser shall have provided resignations, effective from the Closing Date.

 

ARTICLE 7. 

TERMINATION

 

7.1       Material Change in the Business of the Company. If any material loss or damage to the business or operations of the Company occurs prior to Closing and such loss or damage, in Purchaser’s reasonable opinion, cannot be substantially repaired or replaced within thirty (30) days, Purchaser may, within two (2) days following any such loss or damage, by notice in writing or electronically to Company, at its option, either:

 

(a)

terminate this Agreement, in which case no party will be under any further obligation to any other party; or

 

(b)

elect to complete the Acquisition and the other transactions contemplated hereby, in which case the proceeds and the rights to receive the proceeds of all insurance covering such loss or damage will, as a condition precedent to Purchaser’ obligations to carry out the transactions contemplated hereby, be vested in Company or otherwise adequately secured to the satisfaction of Purchaser on or before the Closing Date.

 

7.2       Material Change in the Purchaser Business. If any material loss or damage to the Purchaser Business occurs prior to Closing and such loss or damage, in Company’s reasonable opinion, cannot be substantially repaired or replaced within sixty (60) days, Company shall, within two (2) days following any such loss or damage, by notice in writing to Purchaser, at its option, either:

 

(a)

terminate this Agreement, in which case no party will be under any further obligation to any other party; or

 

(b)

elect to complete the Acquisition and the other transactions contemplated hereby, in which case the proceeds and the rights to receive the proceeds of all insurance covering such loss or damage will, as a condition precedent to Company’s obligations to carry out the transactions contemplated hereby, be vested in Purchaser or otherwise adequately secured to the satisfaction of Company on or before the Closing Date.

 

7.3       Termination of the Agreement.

 

(a)

Purchaser or the Company may terminate this Agreement by mutual written consent at any time prior to the Closing;

 

(b)

Purchaser may terminate this Agreement by giving written notice to the Company, and the Sellers at any time prior to the Closing (A) in the event the Company or the Sellers have breached any material representation, warranty, or covenant contained in this Agreement in any material respect, Purchaser has notified the Company and the Sellers of the breach, and the breach has continued without cure for a period of 10 days after the notice of breach, or (B) if the Closing shall not have occurred on or before 60 days after the date of this Agreement by reason of the failure of any condition precedent to Closing hereof; and

 

(c)

The Company may terminate this Agreement by giving written notice to Purchaser at any time prior to the Closing (A) in the event Purchaser has breached any material representation, warranty, or covenant contained in this Agreement in any material respect, the Company or has notified Purchaser of the breach, and the breach has continued without cure for a period of 20 days after the notice of breach or (B) if the Closing shall not have occurred on or before 60 days after the date of this Agreement, by reason of the failure of any condition precedent to Closing hereof (unless the failure results primarily from the Company, or the Sellers themselves breaching any representation, warranty, or covenant contained in this Agreement).

 

7.4       Effect of Termination. If either party terminates this Agreement pursuant to this Article 7, All rights and obligations of the parties hereunder shall terminate, provided, however, that any liability arising from any breach of this Agreement prior to its termination shall survive such termination.

 

 

ARTICLE 8.

DOCUMENTS TO BE DELIVERED

 

8.1       Documents to be Delivered by the Sellers. At the Closing, the Company and Sellers shall deliver, or cause to be delivered, to the Purchaser the following:

 

(a)

The Shares;

 

(b)

the certificates referred to in Section 6.2(d) hereof;

 

(c)

copies of all consents and waivers referred to in Section 6.1(f) hereof;

 

(d)

certificates of good standing with respect to the Company issued by the Secretary of the State of the State of Nevada;

 

(e)

executed Lock-Up Agreements (as previously provided pursuant to Section 2.5 herein); and

 

(f)

such other documents as the Purchaser shall reasonably request.

 

8.2        Documents to be Delivered by the Purchaser. At the Closing, the Purchaser shall deliver to the Sellers the following:

 

(a)

the Acquisition Shares;

 

(b)

the certificates referred to in Section 6.2(d) hereof;

 

(c)

copies of all consents and waivers referred to in Section 6.1(f) hereof;

 

(d)

certificates of good standing with respect to the Purchaser issued by the Secretary of the State of the State of Nevada;

 

(e)

resignations of any officers and directors of the Company effective as of the Closing Date, to be effective upon filing the amended Form 8-K current report within four days following the Closing;

 

(f)

resolution of the Board of Directors: (i) accepting the resignation of Dante Jones as an executive officer and director of the Purchaser; (ii) appointing George Furlan as (1) interim chief executive officer, president and chief financial officer of the Purchaser and the Company, and (2) a non-independent director of the Purchaser; (iii); appointing Eric Bruns and Dionne Pendelton as independent directors of the Purchaser; and (iv) accepting resignation of Serge Knazev as an interim chief executive officer of the Company;

 

(g)

executed Lock-Up Agreements (as previously provided pursuant to Section 2.5 herein); and

 

(h)

such other documents as the Sellers shall reasonably request.

 

 

ARTICLE 9. 

INDEMNIFICATION

 

9.1        Indemnification.

 

(a)

The Company and Sellers hereby agree to jointly and severally indemnify and hold the Purchaser and their respective directors, officers, employees, Affiliates, agents, representatives, heirs, successors and assigns (collectively, the “Purchaser Indemnified Parties”) harmless from and against:

 

(i)

any and all losses, liabilities, obligations, damages, costs and expenses based upon, attributable to or resulting from the failure of any representation or warranty of the Sellers set forth in Article 3 hereof, or any representation or warranty contained in any certificate delivered by or on behalf of the Sellers pursuant to this Agreement, to be true and correct in all respects as of the date made;

 

(ii)

any and all losses, liabilities, obligations, damages, costs and expenses based upon, attributable to or resulting from the breach of any covenant or other agreement on the part of the Sellers under this Agreement or any Seller Document;

 

(iii)

any and all losses, liabilities, obligations, damages, costs and expenses based upon, attributable to or resulting from any act or omission of the Company or any Seller; and

 

(iv)

any and all expenses incident to the foregoing.

 

(b)

Purchaser hereby agrees to indemnify and hold the Sellers and their respective Affiliates, agents, successors and assigns (collectively, the “Seller Indemnified Parties”) harmless from and against:

 

(i)

any and all losses, liabilities, obligations, damages, costs and expenses based upon, attributable to or resulting from the failure of any representation or warranty of the Purchaser set forth in Section 4 hereof, or any representation or warranty contained in any certificate delivered by or on behalf of the Purchaser pursuant to this Agreement, to be true and correct as of the date made;

 

(ii)

any and all losses, liabilities, obligations, damages, costs and expenses based upon, attributable to or resulting from the breach of any covenant or other agreement on the part of the Purchaser under this Agreement; and

 

(iii)

any and all Expenses incident to the foregoing.

 

9.2        Intentionally omitted

 

 

9.3        Indemnification Procedures.

 

(a)

In the event that any legal proceedings shall be instituted or that any claim or demand (“Claim”) shall be asserted by any Person in respect of which payment may be sought under Section 9.1 hereof, the Indemnified Party shall reasonably and promptly cause written notice of the assertion of any Claim of which it has knowledge which is covered by this indemnity to be forwarded to the Indemnifying Party. The Indemnifying Party shall have the right, at its sole option and expense, to be represented by counsel of its choice, which must be reasonably satisfactory to the Indemnified Party, and to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder. If the Indemnifying Party elects to defend against, negotiate, settle or otherwise deal with any Claim which relates to any losses indemnified against hereunder, it shall within five (5) days (or sooner, if the nature of the Claim so requires) notify the Indemnified Party of its intent to do so. If the Indemnifying Party elects not to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder, fails to notify the Indemnified Party of its election as herein provided or contests its obligation to indemnify the Indemnified Party for such Losses under this Agreement, the Indemnified Party may defend against, negotiate, settle or otherwise deal with such Claim. If the Indemnified Party defends any Claim, then the Indemnifying Party shall reimburse the Indemnified Party for the Expenses of defending such Claim upon submission of periodic bills. If the Indemnifying Party shall assume the defense of any Claim, the Indemnified Party may participate, at his or its own expense, in the defense of such Claim; provided, however, that such Indemnified Party shall be entitled to participate in any such defense with separate counsel at the expense of the Indemnifying Party if, (i) so requested by the Indemnifying Party to participate or (ii) in the reasonable opinion of counsel to the Indemnified Party, a conflict or potential conflict exists between the Indemnified Party and the Indemnifying Party that would make such separate representation advisable; and provided, further, that the Indemnifying Party shall not be required to pay for more than one such counsel for all indemnified parties in connection with any Claim. The parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any such Claim.

 

(b)

After any final judgment or award shall have been rendered by a court, arbitration board or administrative agency of competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement shall have been consummated, or the Indemnified Party and the Indemnifying Party shall have arrived at a mutually binding agreement with respect to a Claim hereunder, the Indemnified Party shall forward to the Indemnifying Party notice of any sums due and owing by the Indemnifying Party pursuant to this Agreement with respect to such matter and the Indemnifying Party shall be required to pay all of the sums so due and owing to the Indemnified Party by wire transfer of immediately available funds within 10 business days after the date of such notice.

 

(c)

The failure of the Indemnified Party to give reasonably prompt notice of any Claim shall not release, waive or otherwise affect the Indemnifying Party’s obligations with respect thereto except to the extent that the Indemnifying Party can demonstrate actual loss and prejudice as a result of such failure.

 

ARTICLE 10.

POST-CLOSING MATTERS

 

10.1       Within four business days of the Closing, Purchaser, Company and the Sellers agree to use all their best efforts to:

 

(a)

issue a news release reporting the Closing; and

 

(b)

file an amended Form 8-K with the Securities and Exchange Commission containing (i) audited financial statements of Company as well as any required pro forma financial information or other information of Company and Purchaser as required by the rules and regulations of the Securities and Exchange Commission, and (ii) such other material information in connection with the Agreement and Acquisition and the transactions contemplated thereof as required by the rules and regulations of the Securities and Exchange Commission.

  

 

ARTICLE 11. 

GENERAL PROVISIONS

 

11.1       Notices. All notices and other communications under this Agreement shall be in writing and shall be deemed given when delivered personally or mailed by certified mail, return receipt requested, to the parties (and shall also be transmitted by facsimile to the Persons receiving copies thereof) at the following addresses (or to such other address as a party may have specified by notice given to the other party pursuant to this provision):

 

If to Purchaser to:

  

SENTIENT BRANDS HOLDINGS INC.

590 Madison Avenue, 21^st Floor

New York, New York 10022

Facsimile:

 

with a copy to:

_____________________

_____________________

_____________________

_____________________

 

If to Company or Sellers to:

  

AIG-F&B, INC.

3363 NE 163 Street, Suite 611 

North Miami Beach, FL 33160

Facsimile: 

 

with a copy to:

_____________________

_____________________

_____________________

_____________________

 

All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt, and (iii) if delivered by courier to the address as provided for in this Section, be deemed given on the earlier of the second Business Day following the date sent by such courier or upon receipt. Any party from time to time may change its address or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

 

11.2       Payment of Sales, Use or Similar Taxes. All sales, use, transfer, intangible, recordation, documentary stamp or similar Taxes or charges, of any nature whatsoever, applicable to, or resulting from, the transactions contemplated by this Agreement shall be borne by the Sellers.

 

 

11.3       Expenses. Except as otherwise provided in this Agreement, the Sellers and the Purchaser shall each bear its own expenses incurred in connection with the negotiation and execution of this Agreement and each other agreement, document and instrument contemplated by this Agreement and the consummation of the transactions contemplated hereby and thereby, it being understood that in no event shall the Company bear any of such costs and expenses.

 

11.4       Specific Performance. The Company and Sellers acknowledge and agree that the breach of this Agreement would cause irreparable damage to the Purchaser and that the Purchaser will not have an adequate remedy at law. Therefore, the obligations of the Company and Sellers under this Agreement, including, without limitation, the Sellers’ obligation to sell the Shares to the Purchaser, shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise.

 

11.5       Further Assurances. The Sellers, the Company and the Purchaser each agrees to execute and deliver such other documents or agreements and to take such other action as may be reasonably necessary or desirable for the implementation of this Agreement and the consummation of the transactions contemplated hereby.

 

11.6      Submission to Jurisdiction; Consent to Service of Process.

 

(a)

The parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within the State of New York over any dispute arising out of or relating to this Agreement or any of the transactions contemplated hereby and each party hereby irrevocably agrees that all claims in respect of such dispute or any suit, action proceeding related thereto may be heard and determined in such courts. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.

 

(b)

Each of the parties hereto hereby consents to process being served by any party to this Agreement in any suit, action or proceeding by the mailing of a copy thereof in accordance with the provisions of Section 11.1.

 

11.7       Entire Agreement; Amendments and Waivers. This Agreement (including the schedules and exhibits hereto) represents the entire understanding and agreement between the parties hereto with respect to the subject matter hereof and can be amended, supplemented or changed, and any provision hereof can be waived, only by written instrument making specific reference to this Agreement signed by the party against whom enforcement of any such amendment, supplement, modification or waiver is sought. No action taken pursuant to this Agreement, including without limitation, any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein. The waiver by any party hereto of a breach of any provision of this Agreement shall not operate or be construed as a further or continuing waiver of such breach or as a waiver of any other or subsequent breach. No failure on the part of any party to exercise, and no delay in exercising, any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of such right, power or remedy by such party preclude any other or further exercise thereof or the exercise of any other right, power or remedy. All remedies hereunder are cumulative and are not exclusive of any other remedies provided by law.

 

11.8       Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada.

 

11.9       Headings. Section headings of this Agreement are for reference purposes only and are to be given no effect in the construction or interpretation of this Agreement.

 

 

11.10       Severability. If any provision of this Agreement is invalid or unenforceable, the balance of this Agreement shall remain in effect.

 

11.11       Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third-party beneficiary rights in any person or entity not a party to this Agreement except as provided below. No assignment of this Agreement or of any rights or obligations hereunder may be made by either the Sellers or the Purchaser (by operation of law or otherwise) without the prior written consent of the other parties hereto and any attempted assignment without the required consents shall be void; provided, however, that the Purchaser may assign this Agreement and any or all rights or obligations hereunder (including, without limitation, the Purchaser’s rights to purchase the Shares and the Purchaser’s rights to seek indemnification hereunder) to any Affiliate of the Purchaser. Upon any such permitted assignment, the references in this Agreement to the Purchaser shall also apply to any such assignee unless the context otherwise requires.

 

11.12       Counterparts. This Agreement may be executed in counterparts and by facsimile, each of which when executed by any party will be deemed to be an original and all of which counterparts will together constitute one and the same Agreement. Delivery of executed copies of this Agreement by telecopier will constitute proper delivery, provided that originally executed counterparts are delivered to the parties within a reasonable time thereafter.

 

[Remainder of page intentionally left blank / Signature Page Follows.]

 

 

IN WITNESS WHEREOF the parties have executed this Agreement effective as of the day and year first above written.

 

 

SENTIENT BRANDS HOLDINGS INC.
By:	/s/ Dante Jones
Name:	Dante Jones
Title:	Interim Chief Executive Officer
AIG F&B, INC.
By:	/s/ Sergey Knazev
Name:	Sergey Knazev
Title:	Interim Chief Executive Officer

  

SHAREHOLDER SIGNATURE PAGE FOLLOWS:

 

 

SHAREHOLDERS

  

American Industrial Group, Inc.			Z&O Bottling Innovations, LLC
By:	/s/ Yan Aronov		By:	/s/ Samuel Naparstek
Name:	Yan Aronov		Name:	Samuel Naparstek
Title:	Director		Title:	Managing Member

 

 

SCHEDULE A

 

Purpose:

 

To align incentives of the parties by:

 

(a)

creating a performance-based earnout schedule, whereby the Acquisition Shares shall be issued to the Sellers (and/or their designees) following the Closing after achieving certain Purchaser revenue growth with a minimum of EBITDA of 5%; and

 

(b)

establishing a commitment of the Company to increase Purchaser’s revenue and EBITDA for at least five (5) years.

 

The number of Acquisition Shares issued pursuant to the earnout schedule (the “Earnout Schedule”) will be based upon the greatest number of Acquisition Shares that would be issued calculated utilizing three (3) different earnout criteria methods, as set forth below.

 

Earnout Criteria:

 

1.

Annual Revenue Growth Method:

 

●

Acquisition Shares issued = (Purchaser Quarterly Revenue Growth relative to the same quarter in the previous year) / (Purchaser’s Trailing Average Share Price over the prior Quarter) where Purchaser’s Trailing Average Share Price is the average of the closing price of the Purchaser’s share price on its principal market for the quarter.

 

●

For Example: If revenue grew from $5,000,000 in quarter one 2024 to $10,000,000 in quarter one 2025 and the Purchaser’s Trailing Average Share Price is $.07, then: $5,000,000/$.07 = 71,428,571 acquisition shares to be issued.

 

2.

EBITDA Method:

 

●

Acquisition Shares issued = (Five (5) x Quarterly EBITDA Growth relative to the same quarter in the previous year) / (Purchaser’s Trailing Average Share Price over the prior Quarter).

 

●

For Example: If EBITDA grows from $200,000 in quarter one 2024 to $500,000 in quarter one 2025 and the Purchaser’s Trailing Average Share Price is $.07, then:

5 x $300,000 = $1,500,000/$.07 = 21,428,571 acquisition shares to be issued.

 

3.

Appraised Value of Rolled-in Assets Method:

 

●

Acquisition Shares issued = (Appraised Value of Rolled-in Assets relative to the same quarter in the previous year) / (Purchaser’s Trailing Average Share Price over the prior Quarter).

 

●

For Example: If assets in quarter one 2024 were $1,000,000 and assets in quarter one 2025 were $5,000,000 and the Purchaser’s Trailing Average Share Price is $.07, then: $4,000,000/$.07 = 57,142,857 acquisition shares to be issued.

 

 

Issuances of the Acquisition Shares to Sellers (and/or their designees) shall commence after the initial two (2) quarters of Purchaser’s revenue are disclosed in Purchaser’s periodic reports filed with the Securities and Exchange Commission on Form 10-Q and 10-K, as applicable, following the Closing. The number of Acquisition Shares shall be trued up at the end of Purchaser’s respective fiscal year (i.e., four (4) quarters of Purchaser’s revenue divided by Purchaser’s trailing average share price over the prior year).

 

This calculation shall be made prior to the issuance of shares for the 4^th quarter of a given year and the number of true up shares shall be added or deducted from the amount issued.

 

Earnout Calculation:

 

The number of Acquisition Shares to be issued to Sellers (and/or their designees) each quarter will be determined by calculating the three (3) above earnout criteria methods. The method which yields the largest number of Acquisition Shares will be utilized for the issuance of the Acquisition Shares to Sellers (and/or their designees) within the applicable quarterly period. The Sellers must designate any designees or assignees prior to the end of the quarter and must provide documentation sufficient to determine whether or not the designee’s or assignee’s shares are to be aggregated with any other recipient of shares for the purpose of determining the Maximum Issuance as set forth in Section 2.2(b).

 

Earnout Schedule:

 

(a)

The Acquisition Shares earnout period will last for up to five (5) years; provided, that in order for Acquisition Shares to be issued to Sellers (and/or their designees) in a given year, Purchaser’s revenue, with a minimum of 5% EBITDA in such year, must increase over the previous year, and the number of Acquisition Shares to be issued will be based upon such increase. The balance of the Acquisition Shares, if any, shall be issued to the Sellers (and/or their designees) at the end of the five (5) year period.

 

(b)

The Acquisition Shares will be issued to Sellers (and/or their designees) on a quarterly basis, based on the calculations outlined above and trued up at the end of each fiscal year of Purchaser, respectively.

 

Implementation:

 

1.

At the end of each fiscal quarter of Purchaser, the Purchaser will calculate the Acquisition Shares to be issued to Sellers (and/or their designees) using the three above earnout criteria methods.

 

2.

The method resulting in the largest number of Acquisition Shares will be selected for each quarter’s issuance of the Acquisition Shares to Sellers (and/or their designees).

 

3.

The applicable number of Acquisition Shares shall be transferred to the Sellers and/or their designees or assignees accordingly subject to the Maximum Issuance.

 

 

EXHIBIT A

  

Name		Shares Owned				Acquisition Shares Allocation Percentage
American Industrial Group, Inc.			8,500,000				85	%
Z&O Bottling Innovations, LLC			1,500,000				15	%
			10,000,000				100.00	%

 

 

EXHIBIT B

 

Form of Lock-Up Agreement

 

 

DISCLOSURE SCHEDULES

 

 

v3.24.2.u1

Cover	Sep. 03, 2024
Cover [Abstract]
Document Type	8-K
Amendment Flag	false
Document Period End Date	Sep. 03, 2024
Entity File Number	001-34861
Entity Registrant Name	SENTIENT BRANDS HOLDINGS INC.
Entity Central Index Key	0001358633
Entity Tax Identification Number	86-3765910
Entity Incorporation, State or Country Code	NV
Entity Address, Address Line One	590 Madison Avenue
Entity Address, Address Line Two	21st Floor
Entity Address, City or Town	New York
Entity Address, State or Province	NY
Entity Address, Postal Zip Code	10022
City Area Code	646
Local Phone Number	202-2897
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false

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