UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the Fiscal Year Ended
OR
For the Transition Period From ____________ to ____________
Commission
File Number:
(f/k/a Canbiola, Inc.)
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) |
(Address of principal executive offices)
Registrant’s telephone number, including area code:
None
Securities Registered Pursuant to Section 12(b) of the Act:
Tile of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
None | CANB | N/A |
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Nil par value per share
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging Growth Company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒
The
aggregate market value of voting stock held by non-affiliates of the registrant on June 30, 2022, was $
As of April 10, 2023, the registrant had outstanding shares of common stock, $0.00 par value per share.
Can B̅ Corp.
2022 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained or incorporated by reference in this Annual Report on Form 10-K are considered forward-looking statements (within the meaning of the Private Securities Litigation Reform Act of 1995) concerning our business, results of operations, economic performance and/or financial condition, based on management’s current expectations, plans, estimates, assumptions and projections. Forward-looking statements are included, for example, in the discussions about:
● | strategy; | |
● | new product discovery and development; | |
● | current or pending clinical trials; | |
● | our products’ ability to demonstrate efficacy or an acceptable safety profile; | |
● | actions by regulatory authorities; | |
● | product manufacturing, including our arrangements with third-party suppliers; | |
● | product introduction and sales; | |
● | royalties and contract revenues; | |
● | expenses and net income; | |
● | credit and foreign exchange risk management; | |
● | liquidity; | |
● | asset and liability risk management; | |
● | the outcome of litigation and other proceedings; | |
● | intellectual property rights and protection; | |
● | economic factors; | |
● | competition; and | |
● | legal risks. |
Any statements contained in this report that are not statements of historical fact may be deemed forward-looking statements. Forward-looking statements generally are identified by the words “expects,” “anticipates,” “believes,” “intends,” “estimates,” “aims,” “plans,” “may,” “could,” “will,” “will continue,” “seeks,” “should,” “predict,” “potential,” “outlook,” “guidance,” “target,” “forecast,” “probable,” “possible” or the negative of such terms and similar expressions. Forward-looking statements are subject to change and may be affected by risks and uncertainties, most of which are difficult to predict and are generally beyond our control. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update any forward-looking statement in light of new information or future events, except as required by law, although we intend to continue to meet our ongoing disclosure obligations under the U.S. securities laws and other applicable laws.
We caution you that a number of important factors could cause actual results or outcomes to differ materially from those expressed in, or implied by, the forward-looking statements, and therefore you should not place too much reliance on them. These factors include, among others, those described herein, under “Risk Factors” and elsewhere in this Annual Report and in our other public reports filed with the Securities and Exchange Commission. It is not possible to predict or identify all such factors, and therefore the factors that are noted are not intended to be a complete discussion of all potential risks or uncertainties that may affect forward-looking statements. If these or other risks and uncertainties materialize, or if the assumptions underlying any of the forward-looking statements prove incorrect, our actual performance and future actions may be materially different from those expressed in, or implied by, such forward-looking statements. We can offer no assurance that our estimates or expectations will prove accurate or that we will be able to achieve our strategic and operational goals.
Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements.
Moreover, new risks regularly emerge, and it is not possible for our management to predict or articulate all risks we face, nor can we assess the impact of all risks on our business or the extent to which any risk, or combination of risks, may cause actual results to differ from those contained in any forward-looking statements. All forward-looking statements included in this prospectus are based on information available to us on the date of this Annual Report. Except to the extent required by applicable laws or rules, we undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this Annual Report.
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PART I
Item 1. | Business |
Organization
We were originally incorporated as WrapMail, Inc. (“Wrap”) in Florida on October 11, 2005 in order to tap into a largely un-serviced segment of the web-based advertising industry. Effective January 5, 2015, WRAP acquired 100% ownership of Prosperity Systems, Inc., a New York corporation incorporated on April 2, 2008, in order to acquire Prosperity’s office productivity software suite as a complement to WRAP’s existing intellectual property. After its acquisition, the Company transferred Prosperity’s operations to WRAP; however, the Company does not currently actively operate its WRAP or Prosperity divisions.
Around the first quarter of 2017, the Company began to transition into the health and wellness space, including the development, processing and sale of hemp derived products, and now operates three distinct divisions: retail sales, R&D and manufacturing, and durable medical devices. The Company also has a hemp cultivation division which is currently non-operational.
On May 15, 2017, WRAP changed its name to Canbiola, Inc. to reflect its transition. On March 6, 2020 CANB changed its name to “Can B̅ Corp.” in order to segregate its corporate identity from its lead products branded under the Canbiola™ brand.
Effective December 27, 2010, WRAP effected a 10 for 1 forward stock split of its common stock. Effective June 4, 2013, WRAP effected a 1 for 10 reverse stock split of its common stock. On March 6, 2020, Can B̅ effected a 1 for 300 reverse stock split of its common stock. On March 13, 2022, the Company effectuated a 1 for 15 reverse split of its stock. The accompanying consolidated financial statements retroactively reflect these stock splits.
Business Divisions
The Company is in the business of promoting health and wellness through its development, manufacture and sale of products containing cannabinoids derived from hemp biomass and the licensing of durable medical devices.
Hemp is thought to contain anywhere from 60 to over 100 naturally occurring compounds (cannabinoids) thought to interact with cannabinoid receptors present on the surface of cells in various parts of the central nervous system. The effects of cannabinoids are thought to depend on the area of the brain involved. Cannabidiol (“CBD”) is probably one of the most well-known of these compounds, thought to have many beneficial uses. CBD is incorporated into many of the Company’s products; however, the Company has recently begun extracting and processing cannabinol (“CBN”), cannabigerol (“CBG”), delta-10 and delta-8 for its products and for wholesale to third-parties looking to incorporate such compounds into their products. The Company has all of its hemp based raw materials to incorporate into products tested by a 3rd party independent laboratory. The Company aims to be the premier provider of the highest quality natural hemp cannabinoid products on the market through sourcing the very best raw material and developing a variety of products it believes will improve people’s lives in a variety of areas.
I- | Pure Health Products |
Pure Health Products, LLC, a New York limited liability company (“PHP” or “Pure Health Products”) is the Company’s manufacturing arm. PHP manufactures all of the Company’s CBD products and also provides white label manufacturing and production services to third parties and performs research and development for the Company. Through PHP, the Company is able to control the manufacturing process of its products while reducing its production costs. Pasquale Ferro is the president of PHP.
In December, 2018, the Company acquired 100% of the membership interests in Pure Health Products, with which it then had and currently has an exclusive production agreement, pursuant to an Acquisition Agreement (“PHP Acquisition Agreement”). In January, 2019, PHP acquired certain assets from Seven Chakras, LLC (“Seven Chakras”), a former competitor, which assets included the rights and title to (i) Seven Chakras’ proprietary formulas, methods, trade secrets, and know-how related to the production of Seven Chakras’ CBD products, (ii) Seven Chakras’ tradename, domain name, and social media sites, and (iii) other assets of Seven Chakras including but not limited to raw materials, equipment, packaging and labeling materials, mailing lists, and marketing materials.
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The Company currently has four in-house branded CBD products that are manufactured by PHP and sold to consumers, Canbiola™, Nu Wellness™, Seven Chakras™ and Pure Leaf Oil™.
The Company’s Canbiola™ CBD products are sold via medical professionals under distribution agreements and directly by the Company via its website and vending machines. The Canbiola™ assets are held directly by the Company and include tinctures, soaps, bath soaks, cryo-gel, salves, massage oils, powders, capsules and roll-ons.
The Company’s Pure Leaf Oil™ assets are held by PHP. Pure Leaf Oil™ CBD products are sold via PHP’s website, direct to consumer via walk-in business, and through distributors and are meant for retail customers not referred through the medical community. Pure Leaf Oil™ products include massage oils, joint salves, bath salts, nano sprays, drops, and cryo-gels. PHP also holds the assets related to its Seven Chakras™ brand. Seven Chakras™ is targeted toward health clubs, spas, and beauty lines and CBD products include lotion, massage oils, roll-ons, isolate, powders, capsules, and bath soaks. Severn Chakras™ has its own internet website and direct markets to its customer base.
PHP has also created a new brand, Nu Wellness™, which it intends to market through distributors as an independent pharmacy brand targeted towards independent retail drug stores. Nu Wellness™ has yet to launch or make sales, which are intended to occur sometime in 2022.
All finished products are stored for time- quality measurement, and each batch of every product is sent to an independent third-party lab for a Certificate of Analysis (“COA”) of the finished products. These COA’s are both listed on our web site and available via the QR code on every retail package.
In the 4th quarter of 2022 PHP signed an agreement to produce Superfood drink mix products for its Imbibe Wellness Solutions LLC sister company under the Longevity Brand for Brooke Burke Body, Inc. (“BBB”) The agreement provides that PHP will manufacture, label, and ship to Forever Brands customers across the USA under a subscription program promoted by Forever Brands and BBB.
II- | Hemp Operating Division |
The Company’s hemp operating division performs R&D for the Company including for CBN, CBG, delta-8 and delta-10. It also produces industrial hemp and processes hemp biomass, isolate and isomers.
Around March 17, 2021, the Company acquired assets through its newly-formed, wholly-owned subsidiary, Botanical Biotech, LLC, a Nevada limited liability company (“BB” or “Botanical Biotech”). Such assets include certain materials and manufacturing equipment and marketing or promotional designs, brochures, advertisements, concepts, literature, books, media rights, rights against any other person or entity in respect of any of the foregoing and all other promotional properties, in each case primarily used, developed or acquired by the Sellers for use in connection with the ownership and operation of the BB Assets.
Around August 12, 2021, the Company and CO Botanicals LLC, a Nevada limited liability company and wholly owned subsidiary of CANB (“COB”), acquired hemp processing assets from TWS Pharma, LLC, a Wisconsin limited liability company and L7 TWS Pharma, LLC, a Wisconsin limited liability company. COB operates out of Mead, CO.
Around August 13, 2021 the Company and TN Botanicals LLC, a Nevada limited liability company and wholly owned subsidiary of CANB (“TNB”), acquired assets from Music City Botanicals, LLC, a Wisconsin limited liability company (“MCB”) including certain equipment, inventory, and intellectual property. In late 2022 the assets from TN Botanicals LLC were moved into consolidated operations under CO Botanicals, LLC in Ft. Morgan, CO.
From its Miami lab, the Company processes hemp isolate into isomers such as CBN, CBG, delta-8 and delta-10. At its Tennessee location, the Company produces industrial hemp, processes hemp biomass to isolate, processes isolate to isomers such as CBN, CBG, delta-8 and delta-10, and performs research and development on cannabinoids such as such as CBN, CBG, delta-8, delta-10, CBD and CBDA. At its Colorado facilities, the Company produces industrial hemp and processes hemp biomass to isolate. The biomass and isolate processed by the Company may be produced by the Company or purchased from third parties. All of the Company’s end products contain .3% or less of THC (delta-9). In late 2022 the Company also closed its FL facility and moved the operating assets to Ft. Morgan, CO under the CO Botanicals, LLC operations.
III- | Durable Medical Equipment |
Through its medical device division, Duramed, Inc. (“Duramed”) and Duramed MI LLC, a Nevada limited liability company fka DuramedNJ, LLC (“Duramed MI”), the Company serves the post-surgery medical patient arena aiming to aid in recovery and pain reduction.
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In November 2018, the Company formed Duramed, Inc. to facilitate the manufacture and sale of durable medical equipment (“DME”) incorporating CBD. On January 14, 2019, Duramed entered into a Memorandum of Understanding (the “Sam MOU”) with Sam International (“Sam”) and ZetrOZ Systems LLC (“ZetrOZ” and, collectively with Sam, the “Manufacturers”). Pursuant to the Sam MOU, the Manufacturers granted Duramed the exclusive right to distribute sam® Pro 2.0 (SA271) and sam® Gel Coupling Patches (UB-14-72) within the United States for the Personal Injury Protection/No Fault Market during the term of the Sam MOU. Duramed has agreed to purchase monthly minimums from the Manufacturers at a price per Unit of $2,447. The exclusivity of the Distribution License granted to Duramed under the Sam MOU was dependent upon meeting the monthly minimum, which did not happen. In addition, Duramed was granted the right to distribute sam® Gel Capture Patches (UB-14-24). Duramed will get rebates of 2%-3% based on the volume of products sold by it. The Company did not meet the monthly minimums as contemplated by the Sam MOU and as such is currently distributing the aforementioned products on an at-will, non-exclusive basis.
On May 29, 2019, the Company created Duramed MI to execute the same business strategy into the no-fault insurance market in New Jersey that it had developed in New York; however, Duramed MI is not currently operating in NJ and fully developed its operations in Michigan.None of Duramed’s products are reimbursable under any federal program. Duramed has also expanded its product offerings to include certain back support braces which are sold to the doctor offices and through no-fault insurance programs.
IV- | Green Grow Farms |
Green Grow Farms, Inc., a New York corporation (“GGFI” or “Green Grow”) served as the Company’s hemp cultivation arm. Through GGFI, the Company grew its own hemp in New York and partnered with third party growers in other states whereby GGFI provided the farmers with seed and training and splits profits with the farmers. GGFI was to supply the Company with all hemp needed for the Company to produce its CBD products, which hemp would be processed by a third party and shipped to the Company’s production facility in Lacey, WA. Notwithstanding the foregoing, currently, it is less expensive to buy crude oil and isolate than to produce such from hemp grown by the Company. Accordingly, the Company has stopped its Green Grow operations in favor of buying raw products from third parties. If and when it makes economic sense to grow its own hemp again, the Company will resume Green Grow operations.
V- | Imbibe Wellness Solutions |
On February 22, 2021, the Company entered into an agreement to purchase additional CBD brand assets from Imbibe Health Solutions, LLC, a Delaware limited liability company. The assets have been placed into the Company’s wholly owned subsidiary, Imbibe Wellness Solutions, LLC, a Nevada limited liability company (fka Radical Tactical LLC) (“Imbibe Wellness”), and include the intellectual property rights, including trademarks, logos, know how, formulations, productions procedures, copyrights, social media accounts, domain names and marketing materials relating to the Imbibe™ branded products, including a muscle and joint salve, unscented fizzy bath soak, CALM massage oil, Me x 3 Metabolic Energy (energy and dietary supplement), and Muscle, Joints & Back CBD Cryo Gel. Imbibe Wellness has a Purchas Order and contract with Forever Brands LLC to produce Longevity Brand Superfood drink mix for Brooke Burke Body, Inc. utilizing sister company Pure Health Products , LLC as the production arm. The Superfood drink is plant-based, non-dairy, gluten free and is produced in a variety of flavors. Walter Hoelzel is the president of Imbibe Wellness.
FDA DISCLAIMER
The statements found herein have not been evaluated by the Food and Drug Administration (FDA) and the Company’s products are not intended to diagnose, treat, cure or prevent any disease or medical condition.
Competitive Conditions
The CBD and cannabis markets are flooded with competition ranging from mom and pop operations to multi-million-dollar conglomerates, many with longer operating histories, more capital and/or more industry knowledge than the Company. The Company hopes to partner with or engage industry specialists to help set it apart from its numerous competitors. The Company believes that one of those points of differentiation will be its 3rd party independent testing “Certificate of Analysis” conducted on all of the CBD isolate products it purchases and posting of those lab results on its website. The three largest CBD companies known to the Company are Elixinol LLC, a UK based company with $37 million revenue, GW Pharmaceuticals also UK based with $19 million revenue, and Aurora Cannabis based in Canada with just over $19 million revenue. The top USA companies include Medical Marijuana, CV Sciences, Gaia Herbs, and Charlotte’s Web with respective revenues of $59, $48, $45, and $17 million. Worthy of note is that Charlotte’s Web is on the shelf right next to us at Northwell Health.
Hemp biomass and its derivative products have glutted the US market, benefiting our manufacturing divisions with less expensive product but causing our hemp cultivation and processing division to become financially imprudent until the oversupply issue has resolved. Thus, we have halted operations in such division for the time being but may resume such operations should a sound opportunity present. Although we have contract farm agreements in place to grow and harvest hemp biomass, other raw materials for our finished products have at least three sources of supply in the open market and we have little risk of any ingredient supply at this time.
Intellectual Property
The Company employs, through its Pure Health Product LLC division product researchers and developers and technology experts who, on a daily basis, set the quality standards and new product development status and time-line agendas under the direct supervision of the Company’s management team.
The Company has not been granted any patents or trademarks by the USPTO or by any patent or trademark office of a foreign nation.
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Employees
The Company, directly or through its subsidiaries, currently has 20 full-time employees.
Reports to Security Holders
Our common stock is registered under the Exchange Act and we are required to file current, quarterly and annual reports and other information with the SEC. You may read and copy any document that we file at the SEC’s public reference facilities at 100 F. Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-732-0330 for more information about its public reference facilities. Our SEC filings are available to you free of charge at the SEC’s web site at www.sec.gov. We are an electronic filer with the SEC and, as such, our information is available through the Internet site maintained by the SEC that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. This information may be found at www.sec.gov and posted on our website at www.canbcorp.com.
Government Regulation
The cultivation and sale of hemp and hemp products is federally regulated under the United States Farm Bill. The 2018 Farm Bill removed hemp as a Schedule 1 Substance under the Controlled Substances Act; however, rules and regulations relating to manufacture and sale of CBD and other hemp derivative products under the Farm Bill must still be promulgated and are expected to impact the Company’s operations. As the industry and our product lines expand, it is uncertain what other statutory schemes and agencies will start to regulate our products. The FDA currently still considers the addition of CBD to food products, cosmetics or supplements to be illegal and prohibits the advertisement of CBD products with health claims. The Company must also comply with each state’s laws relating to the sale and manufacture, as applicable, of hemp-based products, with some states allowing the sale of cannabinoid products, some states limiting to medical purposes and some states banning outright. These regulations may affect, among others, the way the Company manufactures and distributes its products, the way the Company is taxed, the way the Company banks, the location of the Company’s facilities, the content and testing of the Company’s products, and the quality of the Company’s services. The Company has not sought or received approval of any of its products from the FDA or any state agency. Should the Company be sanctioned by the FDA or state agencies, it could materially, negatively impact the Company’s operations and revenue sources.
We are also subject to general business regulations and laws as well as Federal and state regulations and laws specifically governing the Internet and e-commerce. Existing and future laws and regulations may impede the growth of the Internet, e-commerce or other online services, and increase the cost of providing online services. These regulations and laws may cover sweepstakes, taxation, tariffs, user privacy, data protection, pricing, content, copyrights, distribution, electronic contracts and other communications, consumer protection, broadband residential Internet access and the characteristics and quality of services. It is not clear how existing laws governing issues such as property ownership, sales, use and other taxes, libel and personal privacy apply to the Internet and e-commerce. Unfavorable resolution of these issues may harm our business and results of operations. CBD sales are additionally state regulated for shipping and the Company maintains a current list.
Transfer Agent
We have engaged Transhare Corporation located at 2849 Executive Drive, Suite 200, Clearwater, FL 33762 as our transfer agent.
Item 1A. | Risk Factors |
RISK FACTORS
Investing in our securities involves a high degree of risk. Before investing in our securities, you should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including our consolidated financial statements and related notes. If any of the following risks materialize, our business, financial condition, operating results and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to our Common Stock
We are subject to the reporting requirements of federal securities laws, which is expensive.
We are a public reporting company in the United States and, accordingly, subject to the information and reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders causes our expenses to be higher than they would be if we remained a privately-held company.
Our stock price may be volatile, which may result in losses to our stockholders.
The stock markets have experienced significant price and trading volume fluctuations, and the trading of our common stock has generally been very volatile and experienced sharp share-price and trading-volume changes. The trading price of our securities is likely to remain volatile and could fluctuate widely in response to many factors, including but not limited to the following, some of which are beyond our control:
● | variations in our operating results; | |
● | changes in expectations of our future financial performance, including financial estimates by securities analysts and investors; | |
● | changes in operating and stock price performance of other companies in our industry; | |
● | additions or departures of key personnel; and | |
● | future sales of our common stock. |
Domestic and international stock markets often experience significant price and volume fluctuations. These fluctuations, as well as general economic and political conditions unrelated to our performance, may adversely affect the price of our common stock.
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In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.
Our common stock is thinly-traded, and in the future, may continue to be thinly-traded, and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate such shares.
We cannot predict the extent to which an active public market for our common stock will develop or be sustained due to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors, and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned and viable. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. We cannot give you any assurance that a broader or more active public trading market for our common stock will develop or be sustained, or that current trading levels will be sustained.
The market price for our common stock may be particularly volatile given that we are a relatively small company and have experienced losses from operations that could lead to wide fluctuations in our share price. You may be unable to sell your common stock at or above your purchase price if at all, which may result in substantial losses to you.
We do not anticipate paying any cash dividends.
We presently do not anticipate that we will pay any dividends on any of our common stock in the foreseeable future. The payment of dividends, if any, would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any dividends will be within the discretion of our Board of Directors (the “Board”). We presently intend to retain all earnings to implement our business plan; accordingly, we do not anticipate the declaration of any dividends in the foreseeable future.
Our common stock may be subject to penny stock rules, which may make it more difficult for our stockholders to sell their common stock.
Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than $5.00 per share. The penny stock rules require a broker-dealer, prior to a purchase or sale of a penny stock not otherwise exempt from the rules, to deliver to the customer a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules.
We may need additional capital, and the sale of additional shares or other equity securities could result in additional dilution to our stockholders.
We may require additional capital for the development and commercialization of our products and may require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our stockholders. The incurrence of additional indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
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Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject to stockholder approval.
Certain of our executive officers, directors and large stockholders own a significant percentage of our outstanding capital stock. Our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially own shares representing more than a majority of the eligible votes of the Company. Accordingly, our directors and executive officers have significant influence over our affairs due to their substantial ownership coupled with their positions on our management team and have substantial voting power to approve matters requiring the approval of our stockholders. For example, these stockholders may be able to control elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate transaction. This concentration of ownership may prevent or discourage unsolicited acquisition proposals or offers for our common stock that some of our stockholders may believe is in their best interest.
If we are unable to implement and maintain effective internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our reported financial information and the market price of our common stock may be negatively affected.
As a public company, we are required to maintain internal control over financial reporting and to report any material weaknesses in such internal control. Section 404 of the Sarbanes-Oxley Act requires that we evaluate and determine the effectiveness of our internal control over financial reporting and provide a management report on the internal control over financial reporting. If we have a material weakness in our internal control over financial reporting, we may not detect errors on a timely basis and our consolidated financial statements may be materially misstated. We may not be able to complete our evaluation, testing and any required remediation in a timely fashion. During the evaluation and testing process, if we identify one or more material weaknesses in our internal control over financial reporting, our management will be unable to conclude that our internal control over financial reporting is effective. Moreover, when we are no longer a smaller reporting company, our independent registered public accounting firm will be required to issue an attestation report on the effectiveness of our internal control over financial reporting. Even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls or the level at which our internal controls are documented, designed, implemented or reviewed.
If we are unable to conclude that our internal control over financial reporting is effective, or when we are no longer a smaller reporting company, if our auditors were to express an adverse opinion on the effectiveness of our internal control over financial reporting because we had one or more material weaknesses, investors could lose confidence in the accuracy and completeness of our financial disclosures, which could cause the price of our common stock to decline. Internal control deficiencies could also result in a restatement of our financial results in the future. We have concluded that are internal controls have not been sufficient; however, we have begun to take steps to remediate such insufficiencies. We have communicated to our accounting review firm and audit that we have accomplished the following: (i) we have transitioned each operating subsidiary to a separate bookkeeping system (QuickBooks) and input data at each operating location on a daily basis vs. previously batching data and inputting at corporate office. Corporate then verifies data prior to accepting, (ii) we have a QuickBooks trained person with who inputs data on a real-time basis but not allowed at subsidiary level to access or make certain changes, (iii) we have installed for the hemp division companies (Botanical Biotech (Miami), TN Botanicals (TN), Co botanicals (CO) daily tracking procedures whereby every ounce and pound of raw materials (biomass or crude) is tracked by lot number from input to processing through to finished product, (iv) our accounts receivable tracking system, which is essentially our Duramed Division receivables, is now tracking by medical device unit number, by doctor, by location, by insurance billing company, and we have a far more refined software track and billing system than we did prior quarters, (v) we have consolidate banking to a master account with our primary bank (Investors Bank) by subsidiary and only have one independent subsidiary bank in TN for TN Botanicals which is managed for balances through Investors Bank, (vi) we have instituted a new procedure for any payables which requires double signatures to release any funds for any reason, (vii) we have changed merchant accounts to a single user to better tie out to bank balances and accounts receivable, and (viii) Pure Health Products, LLC, our production facility in Lacey WA in mid-November just received NSF Certification (National Sanitation Foundation), the highest certification possible which now allows us to bid and product products for major national retailers but also has the highest certification and maintenance program in the food supplement industry. NSF uses a sophisticated MARKOV software system to track ever incoming product and package, manage the formulation process and makes appropriate adjustments to every material and unit down to the gram.
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If securities or industry analysts do not publish research or reports about our business, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock could be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not currently have and may never obtain research coverage by industry or financial analysts. If no or few analysts commence coverage of us, the trading price of our stock would likely decrease. Even if we do obtain analyst coverage, if one or more of the analysts who cover us downgrade our stock, our stock price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We may not register or qualify our securities with any state agency pursuant to blue sky regulations.
The holders of our shares of common stock and persons who desire to purchase them in the future should be aware that there may be significant state law restrictions upon the ability of investors to resell our shares. We currently do not intend to and may not be able to qualify securities for resale in states which require shares to be qualified before they can be resold by our shareholders.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. The Section 107 of the JOBS Act provides that we may elect to utilize the extended transition period for complying with new or revised accounting standards and such election is irrevocable if made. As such, we have made the election to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act. Please refer to a discussion under “Risk Factors” of the effect on our financial statements of such election.
As an emerging growth company we are exempt from Section 404(b) of the Sarbanes Oxley Act. Section 404(a) requires Issuers to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures. Section 404(b) requires that the registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting. As an emerging growth company, we are also exempt from Section 14A (a) and (b) of the Exchange, which require the shareholder approval of executive compensation and golden parachutes.
We have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(2) of the JOBS Act, that allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.
We could face significant penalties for our failure to comply with the terms of our outstanding convertible notes.
Our various convertible notes contain positive and negative covenants and customary events of default including requiring us in many cases to timely file SEC reports. In the event we fail to timely file our SEC reports in the future, or any other events of defaults occur under the notes, we could face significant penalties and/or liquidated damages and/or the conversion price of such notes could be adjusted downward significantly, all of which could have a material adverse effect on our results of operations and financial condition, or cause any investment in the Company to decline in value or become worthless.
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The issuance and sale of common stock upon conversion of our convertible notes may depress the market price of our common stock.
If sequential conversions of the convertible notes and sales of such converted shares take place, the price of our common stock may decline, and as a result, the holders of the convertible notes will be entitled to receive an increasing number of shares in connection with conversions, which shares could then be sold in the market, triggering further price declines and conversions for even larger numbers of shares, to the detriment of our investors. The shares of common stock which the convertible notes are convertible into may be sold without restriction pursuant to Rule 144. As a result, the sale of these shares may adversely affect the market price, if any, of our common stock.
We have established preferred stock which can be designated by the Company’s Board of Directors without shareholder approval.
The Company has 5,000,000 shares of preferred stock authorized. The shares of preferred stock of the Company may be issued from time to time in one or more series, each of which shall have a distinctive designation or title as shall be determined by the board of directors of the Company prior to the issuance of any shares thereof. The preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by the board of directors. Because the board of directors is able to designate the powers and preferences of the preferred stock without the vote of a majority of the Company’s shareholders, shareholders of the Company will have no control over what designations and preferences the Company’s preferred stock will have. The issuance of shares of preferred stock or the rights associated therewith, could cause substantial dilution to our existing shareholders. Additionally, the dilutive effect of any preferred stock which we may issue may be exacerbated given the fact that such preferred stock may have voting rights and/or other rights or preferences which could provide the preferred shareholders with substantial voting control over us and/or give those holders the power to prevent or cause a change in control, even if that change in control might benefit our shareholders. As a result, the issuance of shares of preferred stock may cause the value of our securities to decrease.
Risks Related to our Business
Since we have a limited operating history in our industry, it is difficult for potential investors to evaluate our business.
Our short operating history in our industry may hinder our ability to successfully meet our objectives and makes it difficult for potential investors to evaluate our business or prospective operations. As an early stage company, we are subject to all the risks inherent in the financing, expenditures, operations, complications and delays inherent in a new business. Accordingly, our business and success faces risks from uncertainties faced by developing companies in a competitive environment. There can be no assurance that our efforts will be successful or that we will ultimately be able to attain profitability.
We may not be able to raise capital when needed, if at all, which would force us to delay, reduce or eliminate our product development programs or commercialization efforts and could cause our business to fail.
We expect to need substantial additional funding to pursue additional product development and launch and commercialize our products. There are no assurances that future funding will be available on favorable terms or at all. If additional funding is not obtained, we may need to reduce, defer or cancel additional product development or overhead expenditures to the extent necessary. The failure to fund our operating and capital requirements could have a material adverse effect on our business, financial condition and results of operations.
If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or any future commercialization efforts. Any of these events could significantly harm our business, financial condition and prospects.
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Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern.
Our historical financial statements have been prepared under the assumption that we will continue as a going concern. Our independent registered public accounting firm has expressed substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to obtain additional equity financing or other capital, attain further operating efficiencies, reduce expenditures, and, ultimately, generate more revenue. The doubt regarding our potential ability to continue as a going concern may adversely affect our ability to obtain new financing on reasonable terms or at all. Additionally, if we are unable to continue as a going concern, our stockholders may lose some or all of their investment in the Company.
We depend heavily on key personnel, and turnover of key senior management could harm our business.
Our future business and results of operations depend in significant part upon the continued contributions of our senior management personnel. If we lose their services or if they fail to perform in their current positions, or if we are not able to attract and retain skilled personnel as needed, our business could suffer. Significant turnover in our senior management could significantly deplete our institutional knowledge held by our existing senior management team. We depend on the skills and abilities of these key personnel in managing the product acquisition, marketing and sales aspects of our business, any part of which could be harmed by turnover in the future. We do not have any key person insurance.
We expect to face intense competition, often from companies with greater resources and experience than we have.
The health and wellness and hemp derivative industries are highly competitive and subject to rapid change. The industry continues to expand and evolve as an increasing number of competitors and potential competitors enter the market. Many of these competitors and potential competitors have substantially greater financial, technological, managerial and research and development resources and experience than we have. Some of these competitors and potential competitors have more experience than we have in the development of hemp products, including validation procedures and regulatory matters. Moreover, some of these competitors may have patents or pending patent applications that our products infringe and for which we would need a license to become free to operate. In addition, our products compete with product offerings from large and well-established companies that have greater marketing and sales experience and capabilities than we or our collaboration partners have. If we are unable to compete successfully, we may be unable to grow and sustain our revenue.
We have substantial capital requirements that, if not met, may hinder our operations.
We anticipate that we will make substantial capital expenditures for research and product development work and acquisitions. If we cannot raise sufficient capital, we may have limited ability to expend the capital necessary to undertake or complete research and product development work and acquisitions. There can be no assurance that debt or equity financing will be available or sufficient to meet these requirements or for other corporate purposes, or if debt or equity financing is available, that it will be on terms acceptable to us. Moreover, future activities may require us to alter our capitalization significantly. Our inability to access sufficient capital for our operations could have a material adverse effect on our financial condition, results of operations or prospects.
Current global financial conditions have been characterized by increased volatility which could negatively impact our business, prospects, liquidity and financial condition.
Current global financial conditions and recent market events have been characterized by increased volatility and the resulting tightening of the credit and capital markets has reduced the amount of available liquidity and overall economic activity. We cannot guaranty that debt or equity financing, the ability to borrow funds or cash generated by operations will be available or sufficient to meet or satisfy our initiatives, objectives or requirements. Our inability to access sufficient amounts of capital on terms acceptable to us for our operations will negatively impact our business, prospects, liquidity and financial condition.
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We will need to grow the size of our organization, and we may experience difficulties in managing any growth we may achieve.
As our development and commercialization plans and strategies develop, we expect to need additional research, development, managerial, operational, sales, marketing, financial, accounting, legal, and other resources. Future growth would impose significant added responsibilities on members of management. Our management may not be able to accommodate those added responsibilities, and our failure to do so could prevent us from effectively managing future growth, if any, and successfully growing our company.
We may expend our limited resources to pursue a particular product and may fail to capitalize on products that may be more profitable or for which there is a greater likelihood of success.
Because we have limited financial and managerial resources, we have focused our efforts on particular products. As a result, we may forego or delay pursuit of opportunities with other products that later prove to have greater commercial potential. Our resource allocation decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Any failure to improperly assess potential products could result in missed opportunities and/or our focus on products with low market potential, which would harm our business and financial condition.
We engage in transactions with related parties and such transactions present possible conflicts of interest that could have an adverse effect on us.
We have entered, and may continue to enter, into transactions with related parties for financing, corporate, business development and operational services, as detailed herein. Such transactions may not have been entered into on an arm’s-length basis, and we may have achieved more or less favorable terms because such transactions were entered into with our related parties. We rely, and will continue to rely, on our related parties to maintain these services. If the pricing for these services changes, or if our related parties cease to provide these services, including by terminating agreements with us, we may be unable to obtain replacements for these services on the same terms without disruption to our business. This could have a material effect on our business, results of operations and financial condition.
Such conflicts could cause an individual in our management to seek to advance his or her economic interests or the economic interests of certain related parties above ours. Further, the appearance of conflicts of interest created by related party transactions could impair the confidence of our investors, which could have a material adverse effect on our liquidity, results of operations and financial condition.
Any inability to protect our intellectual property rights could reduce the value of our technologies and brands, which could adversely affect our financial condition, results of operations and business.
Our business is dependent upon our trademarks, trade secrets and other intellectual property rights. There is a risk of certain valuable trade secrets being exposed to potential misappropriation. The efforts we have taken to protect our proprietary rights may not be sufficient or effective. Any significant impairment of our intellectual property rights could harm our business or our ability to compete. There is a risk that we may have insufficient resources to counter adequately such misappropriation or infringement through negotiation or the use of legal remedies. It may not be practicable or cost effective for us to fully protect our intellectual property rights in some countries or jurisdictions. If we are unable to successfully identify and stop unauthorized use of our intellectual property, we could lose potential revenue and experience increased operational and enforcement costs, which could adversely affect our financial condition, results of operations and business.
Our potential for rapid growth and our entry into new markets make it difficult for us to evaluate our current and future business prospects, and we may be unable to effectively manage any growth associated with these new markets, which may increase the risk of your investment and could harm our business, financial condition, results of operations and cash flow.
Our entry into the rapidly growing CBD, CBN, CBG and delta-8 markets may place a significant strain on our resources and increase demands on our executive management, personnel and systems, and our operational, administrative and financial resources may be inadequate. We may also not be able to effectively manage any expanded operations, or achieve planned growth on a timely or profitable basis, particularly if the number of customers using our technology significantly increases or their demands and needs change as our business expands. If we are unable to manage expanded operations effectively, we may experience operating inefficiencies, the quality of our products and services could deteriorate, and our business and results of operations could be materially adversely affected.
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If we are unable to develop and maintain our brand and reputation for our product offerings, our business and prospects could be materially harmed.
Our business and prospects depend, in part, on developing and then maintaining and strengthening our brands and reputation in the markets we serve. If problems with our products or technologies cause customers to experience operational disruption or failure or delays, our brand and reputation could be diminished. If we fail to develop, promote and maintain our brand and reputation successfully, our business and prospects could be materially harmed.
If we or any of our suppliers or third-parties on which we rely for the development, manufacturing, marketing, or sale of our products fails to comply with regulatory requirements applicable to the development, manufacturing, marketing, and sale of our product candidates, regulatory agencies may take action against us or them, which could significantly harm our business.
Our product candidates, along with the development process, the manufacturing processes, labeling, advertising, and promotional activities for these products, are subject to continual requirements and review by the FDA and state and foreign regulatory bodies. Regulatory authorities subject a marketed product, its manufacturer, and the manufacturing facilities to continual review and periodic inspections. We, our suppliers, third-parties on which we rely, and our and their respective contractors, suppliers and vendors, will be subject to ongoing regulatory requirements, including complying with regulations and laws regarding advertising, promotion and sales of products (including applicable anti-kickback, fraud and abuse and other health care laws and regulations), required submissions of safety and other post-market information and reports, registration requirements, Clinical Good Manufacturing Practices (cGMP) regulations (including requirements relating to quality control and quality assurance, as well as the corresponding maintenance of records and documentation), and the requirements regarding the distribution of samples to physicians and recordkeeping requirements. Regulatory agencies may change existing requirements or adopt new requirements or policies. We, our suppliers, third-parties on which we rely, and our and their respective contractors, suppliers, and vendors, may be slow to adapt or may not be able to adapt to these changes or new requirements.
Failure to comply with regulatory requirements may result in any of the following:
● | restrictions on our product candidates or manufacturing processes; | |
● | warning letters; | |
● | withdrawal of the products from the market; | |
● | voluntary or mandatory recall; | |
● | fines; | |
● | suspension or withdrawal of regulatory approvals; | |
● | refusal to approve pending applications or supplements to approved applications that we submit; | |
● | product seizure; | |
● | injunctions; or | |
● | imposition of civil or criminal penalties. |
We could be subject to costly product liability claims related to our products.
Since most of our products are intended for human use, we face the risk that the use of our products may result in adverse side effects to people. We face even greater risks upon further commercialization of our products. An individual may bring a product liability claim against us alleging that one of our products causes, or is claimed to have caused, an injury or is found to be unsuitable for consumer use. Any product liability claim brought against us, with or without merit, could result in:
● | the inability to commercialize our products; | |
● | decreased demand for our products; | |
● | regulatory investigations that could require costly recalls or product modifications; |
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● | loss of revenue; | |
● | substantial costs of litigation; | |
● | liabilities that substantially exceed our product liability insurance, which we would then be required to pay ourselves; | |
● | an increase in our product liability insurance rates or the inability to maintain insurance coverage in the future on acceptable terms, if at all; | |
● | the diversion of management’s attention from our business; and | |
● | damage to our reputation and the reputation of our products. |
Product liability claims may subject us to the foregoing and other risks, which could have a material adverse effect on our business, results of operations, financial condition, and prospects.
The Company could be subject to enforcement action by the FDA and certain state regulatory agencies for its products containing CBD or THC compounds.
In 2018, the federal Farm Bill removed hemp as a Schedule I drug under the Controlled Substances Act and hemp may now be grown as a commodity crop, with restrictions; however, the 2018 Farm Bill did not specifically legalize CBD. Until Congress promulgates rules and regulations relating to hemp derived cannabinoids, the “legal” status of such, or the processes the Company may have to implement (and at what expense), are still unknowns. A similar paradigm exists under various state laws with which the Company will have to comply. Further, the FDA currently considers the addition of CBD to food products, cosmetics or supplements to be illegal and also prohibits the advertisement of CBD products with health claims. In addition, the FTC under the Federal Trade Commission Act (“FTC Act”) requires that product advertising is truthful, substantiated and non-misleading. We believe that our advertising meets these guidelines; however, the FTC may bring a challenge at any time to evaluate our compliance with the FTC Act.
Further, the FDA has recently increased its review of and enforcement against CBD companies for violations of the Federal Food, Drug, and Cosmetic Act (“FCDA”), particularly with respect to the sale of food products containing CBD, claiming that CBD can treat medical conditions in humans or animals, promoting CBD products as dietary supplements, and adding CBD to human and animal foods. Should the Company become subject to enforcement action by the FDA, it could be forced to spend significant sums defending against such enforcement, pay significant fines and ultimately could be forced to stop offering some or all of its CBD products, which would materially, negatively affect the Company’s business and shareholders’ investments. The FDA can also subject individuals to criminal penalties, including fines and imprisonment, for violating certain provisions of the FDCA related to CBD products. In addition, notwithstanding the intense pressure on FDA to fast-track the CBD approval process, it is likely that the approval process for use of CBD or other cannabinoids in foods, cosmetics or supplements will take years and possible that it could never occur at all.
Due to the controversy over the cannabis plant within the United States, we face challenges getting our products into stores and into the hands of the end user.
The Company intends to release products that contain CBD derived from hemp that are legal within the U.S. However, it is possible we may face scrutiny and run into issues getting our products into stores due to hesitation by stores to carry any product at all affiliated with the cannabis plant, as well as federal, state and local regulations that may restrict our ability to sell cannabinoid products.
The Company’s production of Delta-8 THC and Delta-10 THC could subject it to enforcement action by certain federal and state regulatory agencies.
Delta-8 THC and delta-10 THC are cannabis compounds that can cause effects similar to delta-9 THC, the main compound in cannabis that causes psychoactive effects. Delta-8 THC and delta-10 THC can be extracted from either hemp or marijuana, but all of the Company’s delta-8 products are made with hemp containing no more than 0.3% THC. Because of the 2018 Farm Bill, hemp can be legally grown and used for extractions all over the United States. Notwithstanding the foregoing, the legality of hemp-derived delta-8 THC and delta-10 THC is in a gray area and varies from state-to-state, with some states allowing, some not addressing specifically, and others banning due to similarity to delta-9 THC. Although the federal legality of delta-8 THC and delta-10 THC is still unclear, the FDA has recently issued Warning Letters to five companies for selling products labeled as containing delta-8 tetrahydrocannabinol, noting that delta-8 THC has psychoactive and intoxicating effects and may be dangerous to consumers. The Warning Letters were primarily targeted at companies marketing the compound as unapproved treatments for various medical conditions or for other therapeutic uses, without adequate directions for use, or the addition of delta-8 THC in foods. Should the Company become subject to enforcement action by federal or state agencies, it could be forced to spend significant sums defending against such enforcement and ultimately could be forced to stop offering some or all of its delta-8 THC and/or delta-10 THC products and/or be subject to other civil or criminal sanctions, which would materially, negatively affect the Company’s business and shareholders’ investments.
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The novel coronavirus disease of 2019 (“COVID-19”) has had, and continues to have, broad impacts on multiple sectors of the global economy, making it difficult to predict the extent of its impact on our business.
On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spreads globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
The full impact of the COVID-19 outbreak continues to evolve as of the date of this Report. As such, it is uncertain as to the full magnitude that the pandemic will have on our financial condition, liquidity, and future results of operations. Management is actively monitoring the impact of the global situation on our financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, we are not able to estimate the effects of the COVID-19 outbreak on our results of operations, financial condition, or liquidity for the foreseeable future. We have experienced negative impacts from COVID in the form of reduced sales, delayed operations, inability to effectuate certain business plans, supply chain issues and the like.
Our acquisitions may expose us to unknown liabilities.
Because we have acquired, and expect generally to acquire, all (or a majority of) the outstanding securities of certain of our acquisition targets, our investment in those companies are or will be subject to all of their liabilities other than their respective debts which we paid or will pay at the time of the acquisitions. If there are unknown liabilities or other obligations, our business could be materially affected. We may also experience issues relating to internal controls over financial reporting that could affect our ability to comply with the Sarbanes-Oxley Act, or that could affect our ability to comply with other applicable laws.
If we fail to comply with government laws and regulations it could have a materially adverse effect on our business.
Our industry is subject to extensive federal, state and local laws and regulations that are extremely complex and for which, in many instances, the industry does not have the benefit of significant regulatory or judicial interpretation. We exercise care in structuring our operations to comply in all material respects with applicable laws to the extent possible. We will also take such laws into account when planning future operations and acquisitions. The laws, rules and regulations described above are complex and subject to interpretation. In the event of a determination that we are in violation of such laws, rules or regulations, or if further changes in the regulatory framework occur, any such determination or changes could have a material adverse effect on our business. There can be no assurance however that we will not be found in noncompliance in any particular situation.
Any failure to comply with all applicable federal and state anti-kickback laws may result in fines and other liabilities, which may adversely affect the Company’s results of operations and reputation.
The federal anti-kickback statute (the “AKS”) applies to Medicare, Medicaid and other state and federal programs. AKS prohibits the solicitation, offer, payment or receipt of remuneration in return for referrals or the purchase, or in return for recommending or arranging for the referral or purchase, of goods, including drugs, covered by the federal health care programs. At present, the Company does not participate in any federal programs and its products are not reimbursed by Medicare, Medicaid or any other state or federal program. The AKS is a criminal statute with criminal penalties, as well as potential civil and administrative penalties. The AKS, however, provides several statutory exceptions and regulatory “safe harbors” for particular types of transactions. Many states have similar fraud and abuse laws and their own anti-kickback laws, some of which can apply to all payors, and not just governmental payors. While the Company believes that it is in material compliance with both federal and state AKS laws, the AKS laws present different levels of risks as to two of the Company’s lines of business: (1) sale of the Company’s medical foods, and (2) sale of the Company’s medical devices.
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At present, the Company’s products are not reimbursable under any federal program. If, however, that changes in the future and it were determined that the Company was not in compliance with the AKS, the Company could be subject to liability, and its operations could be curtailed, which could have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, if the activities of its customers or other entity with which the Company has a business relationship were found to constitute a violation of the AKS and the Company, as a result of the provision of products or services to such customer or entity, were found to have knowingly participated in such activities, the Company could be subject to sanctions or liability under such laws, including civil and/or criminal penalties, as well as exclusion from government health programs. As a result of exclusion from government health programs, neither products nor services could be provided to any beneficiaries of any federal healthcare program.
We may not maintain sufficient insurance coverage for the risks associated with our business operations.
Risks associated with our business and operations include, but are not limited to, claims for wrongful acts committed by our officers, directors, and other representatives, the loss of intellectual property rights, the loss of key personnel, risks posed by natural disasters and risks of lawsuits from customers who are injured from or dissatisfied with our products. Any of these risks may result in significant losses. We cannot provide any assurance that our insurance coverage is sufficient to cover any losses that we may sustain, or that we will be able to successfully claim our losses under our insurance policies on a timely basis or at all. If we incur any loss not covered by our insurance policies, or the compensated amount is significantly less than our actual loss or is not timely paid, our business, financial condition and results of operations could be materially and adversely affected.
Our ability to service our indebtedness will depend on our ability to generate cash in the future.
Our ability to make payments on our indebtedness will depend on our ability to generate cash in the future. Our ability to generate cash is subject to general economic and market conditions and financial, competitive, legislative, regulatory and other factors that are beyond our control. Our business may not generate sufficient cash to fund our working capital requirements, capital expenditure, debt service and other liquidity needs, which could result in our inability to comply with financial and other covenants contained in our debt agreements, our being unable to repay or pay interest on our indebtedness, and our inability to fund our other liquidity needs. If we are unable to service our debt obligations, fund our other liquidity needs and maintain compliance with our financial and other covenants, we could be forced to curtail our operations, our creditors could accelerate our indebtedness and exercise other remedies and we could be required to pursue one or more alternative strategies, such as selling assets or refinancing or restructuring our indebtedness. However, such alternatives may not be feasible or adequate.
Item 1B. | Unresolved Staff Comments |
Not applicable.
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Item 2. | Properties |
The Company does not currently own any real property. We do however lease office space in Hicksville, New York for $3,917 per month, out of which all subsidiaries other than PHP operate. The Company’s wholly-owned subsidiary, Pure Health Products, operates its manufacturing facility in Lacey, Washington with lease payments equal to $2,345 per month. The Company has leases for three (3) properties, as described below.
The Company leases an approximately 14,300 square foot building and related parcel located at 14320 Longs Peak Court, Mead, CO 80504 (the “LPC Property”) for base rent equal to $13,764 for the first year of the lease. Following the first year of the lease, on September 1 of each year, the base rent for the LPC Property will be increased by the greater of (i) 3%, or (ii) the difference between the Consumer Price Index for All Urban Consumers (as published by the Bureau of Labor Statistics) (“CPI”) for August 2021 compared to the CPI for August of the applicable year.
CO Botanicals, LLC (“COB”), a wholly-owned subsidiary of Can B̅ Corp. leases the real properties located at 17171 County Road 21, Fort Morgan, CO 80701 and 12555 Energy Road, Fort Morgan, CO 80701 (collectively, the “Fort Morgan Properties”) on a month-to-month basis. Base rent for the Fort Morgan Properties is $22,250 per month.
Item 3. | Legal Proceedings |
On April 28, 2021, the Company was served with a commercial legal action against the Company and certain officers by David Weissberg and Donna Marino, who are investors in the Company (collectively, the “Investors”). The complaint was filed in the Supreme Court of the State of New York, County of Nassau, Index No. 605191/2021. The complaint alleges four causes of action.
The first cause of action alleges that the Company breached Securities Purchase Agreements with the Investors by failing to assist the Investors in getting opinion letters to remove the restrictive legends from their shares, even though the Company made introductions and requests to the Company’s counsel, provided supporting documents for the Investor’s shares, and ultimately the opinion letters could not be rendered because the Investors failed to submit required documentation to counsel.
The second cause of action is similar to the first but related to alleged misrepresentations regarding removing the restrictive legends from shares that were issued for services rather than purchased.
The third cause of action alleges that the Company mislead the Investors to invest $500,000. The final cause of action alleges that officers of the Company made misrepresentations regarding the value of the Company’s stock, which caused David Weissberg to owe more in taxes than he was expecting.
We have consulted with attorneys and believe the Investors’ claims are meritless, factually inaccurate, and frivolous. We intend to vigorously defend ourselves against the aforementioned legal action and will likely bring counterclaims against the Investors.
Approximately November 24, 2021, a vendor of the Company filed amended suit against the Company in Florida, Case No. 2021 CA 001797, for monies allegedly owed and civil theft relating to such monies and related products and fraud in the inducement. We do not believe we owe such vendor any amount. The court has entered a default judgement against the Company for our failure to timely answer the complaint, which default has since been overturned. Subsequently the case has been set for interrogatories and document production which activities are being fulfilled.
On or about August 11, 2022, a Complaint was filed by Evexia Plus, LLC against Can B Corp. in a product payment trade dispute. Case Number 63-CV-2022-900692.00 in the Circuit Court of Tuscaloosa County, AL. On 1-26-2023 the court ordered a Summary Judgement in the amount of $336,924. The parties are trying to work out a payment schedule tied to production to satisfy the judgement.
Other than above, we are not aware of any pending or threatened legal proceedings in which we are involved.
Item 4. | Mine Safety Disclosures |
Not applicable.
Item 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Market Information
Our common stock is listed for quotation on OTC Market’s OTCQB® Venture Market under the symbol “CANB.” Our common stock began trading in April 2011. Trading in our common stock has historically lacked consistent volume, and the market price has been volatile.
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Record Holders
As of April 10, 2023, there were 5,396,682 shares of common stock issued and outstanding and held by approximately 250 shareholders of record.
Dividends
The Company paid $0 in in-kind dividends on its Series B Preferred Stock by the issuance of common stock to the Series B holders in 2020 and 2019. Each share of Series B Preferred Stock has the first preference to dividends, distributions and payments upon liquidation, dissolution and winding-up of the Company, and is entitled to an accrued cumulative but not compounding dividend at the rate of 5% per annum whether or not declared. After six months of the issuance date, such share and any accrued but unpaid dividends can be converted into common stock at the conversion price which is the lower of (i) $0.0101; or (ii) the lower of the dollar volume weighted average price of CANB common stock on the trading day prior to the conversion day or the dollar volume weighted average price of CANB common stock on the conversion day. The Series B Preferred Stock have no voting rights. There are no currently outstanding shares of Series B Preferred Stock*.
We do not anticipate paying any cash dividends in the foreseeable future. Except for its Series B Preferred Stock, of which there are none issued and outstanding*, the payment of dividends is within the discretion of our Board of Directors and will depend on our earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit our ability to pay dividends on our common stock other than those generally imposed by applicable state law.
* It has come to our attention that the Company’s transfer agent still shows 227,590 Series B Preferred shares as being held by RedDiamond Partners LLC (“RedDiamond”) due to an administrative oversight. Nonetheless, such shares were retired in exchange for 97,608 shares of common stock and rights to acquire an additional 35,667 shares of common stock issued to RedDiamond pursuant to an Exchange Agreement dated August 13, 2019.
Securities Authorized for Issuance under Equity Compensation Plans
On July 28, 2020, the Company adopted an Incentive Stock Option Plan (“ISO”). The purpose of this Can B Corp. 2020 ISO (the “Plan”) is to attract, retain, and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of the Company and its Related Companies by providing them the opportunity to acquire a proprietary interest in the Company and to align their interests and efforts to the long-term interests of the Company’s stockholders. The Plan is administered by the Compensation Committee or, in the Board’s sole discretion, the Board. The Compensation Committee shall be composed of two or more directors, each of whom is a “non-employee director” within the meaning of Rule 16b-3(b)(3) promulgated under the Exchange Act, or any successor definition adopted by the Securities and Exchange Commission. As used in this Plan, the term “Compensation Committee” shall be construed as if followed by the words “(if any);” and nothing in this Plan requires the Board to have a Compensation Committee. Except for the terms and conditions explicitly set forth in the Plan and to the extent permitted by applicable law, the Committee shall have full power and exclusive authority, subject to such orders or resolutions not inconsistent with the provisions of the Plan as may from time to time be adopted by the Board or a Committee composed of members of the Board, to (i) select the Eligible Persons to whom Awards may from time to time be granted under the Plan; (ii) determine the type or types of Award to be granted to each Participant under the Plan; (iii) determine the number of shares of Preferred Stock and/or Common Stock (collectively, “Stock”) to be covered by each Award granted under the Plan; (iv) determine the terms and conditions of any Award granted under the Plan; (v) approve the forms of notice or agreement for use under the Plan; (vi) determine whether, to what extent and under what circumstances Awards may be settled in cash, shares of Preferred Stock and/or Common Stock or other property or canceled or suspended; (vii) determine whether, to what extent and under what circumstances cash, shares of Stock, other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant; (viii) interpret and administer the Plan and any instrument evidencing an Award, notice or agreement executed or entered into under the Plan; (ix) establish such rules and regulations as it shall deem appropriate for the proper administration of the Plan; (x) delegate ministerial duties to such of the Company’s employees as it so determines; and (xi) make any other determination and take any other action that the Committee deems necessary or desirable for administration of the Plan. Subject to adjustment from time to time, a maximum of two thousand (2,000) shares of Class C Preferred Stock and ten million (10,000,000) shares of Common Stock shall be available for issuance under the Plan. Shares issued under the Plan shall be drawn from authorized and unissued shares or shares now held or subsequently acquired by the Company as treasury shares. The Committee shall also, without limitation, have the authority to grant Awards as an alternative to or as the form of payment for grants or rights earned or due under other compensation plans or arrangements of the Company. Subject to earlier termination in accordance with the terms of the Plan and the instrument evidencing the Option, the maximum term of an Option shall be ten years from the Grant Date. An Award may be granted to any employee, officer or director of the Company or a Related Company whom the Committee from time to time selects. An Award may also be granted to any consultant, agent, advisor or independent contractor for bona fide services rendered to the Company or any Related Company that (a) are not in connection with the offer and sale of the Company’s securities in a capital-raising transaction and (b) do not directly or indirectly promote or maintain a market for the Company’s securities.
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Equity Compensation Plan Information
Plan Category | Number of Securities to be Issued Upon Excise of Outstanding Options, Warrants and Rights | Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuances Under Equity Compensation Plans* | |||||||||
Equity compensation plans approved by security holders | 1,187,199 | $ | 0.36 | 58,812.801 | ||||||||
Equity compensation plans not approved by security holders | - | - | - | |||||||||
Total | 1,187,199 | $ | 0.36 | 58,812,801 |
* | Represents 2,000 Series C Preferred Shares on an as-converted basis and 8,812,801 shares of common stock available under the Plan. |
Recent Sales of Unregistered Securities
On February 24, 2022, the Company converted 15 Shares of Series A Preferred Stock to 33,345 shares of common stock.
From January 1, 2022 through December 31, 2022 the Company issued an aggregate of 51,282 shares of Common Stock under a Reg A-1 registration and an additional 1,270,616 shares of common stock to various consultants for service.
From January 1, 2022 through December 31, 2022 the Company issued an aggregate of 204,209 shares of Common Stock under various asset acquisition agreements.
From January 1, 2022 through December 31, 2022 the Company issued an aggregate of 10,150 shares of Common Stock under various note and related interest conversion agreements.
From January 1, 2022 through December 31, 2022 the Company issued an aggregate of 18,227 shares of Common Stock resulting from the exercise of warrants.
With respect to the transactions noted above, each of the recipients of securities of the Company was an accredited investor, or is considered by the Company to be a “sophisticated person”, inasmuch as each of them has such knowledge and experience in financial and business matters that they are capable of evaluating the merits and risks of receiving securities of the Company. No solicitation was made and no underwriting discounts were given or paid in connection with these transactions. The Company believes that the issuance of its securities as described above was exempt from registration with the Securities and Exchange Commission pursuant to Section 4(a)(2) and/or Regulation D of the Securities Act of 1933.
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Item 6. | Selected Financial Data |
Not required for smaller reporting companies.
Item 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
General
Can B̅ Corp. was originally formed as a Florida corporation on October 11, 2005, under the name of WrapMail, Inc. Effective January 5, 2015, we acquired 100% ownership of Prosperity Systems, Inc., which the Company is in the process of dissolving. Effective December 28, 2018, we acquired 100% ownership of Pure Health Products. In November 2018, we formed Duramed as a wholly-owned subsidiary. The Company is presently in the process of dissolving Prosperity.
The Company is in the business of promoting health and wellness through its development, manufacture and sale of products containing cannabinoids derived from hemp biomass and the licensing of durable medical devises. Can B̅’s products include oils, creams, moisturizers, isolate, gel caps, spa products, and concentrates and lifestyle products. Can B̅ develops its own line of proprietary products as well seeks synergistic value through acquisitions in the hemp industry. Can B̅ aims to be the premier provider of the highest quality hemp derived products on the market through sourcing the best raw material and offering a variety of products we believe will improve people’s lives in a variety of areas.
Results of Operations
Year Ended | ||||||||||||||||
December 31, | ||||||||||||||||
2022 | 2021 | $ Change | % Change | |||||||||||||
Revenues | ||||||||||||||||
Product sales | $ | 5,524,036 | $ | 4,156,281 | $ | 1,367,755 | 32.9 | % | ||||||||
Service revenue | 1,161,483 | 447,548 | 713,935 | 159.5 | % | |||||||||||
Total revenues | 6,685,519 | 4,603,829 | 2,081,690 | 45.2 | % | |||||||||||
Cost of revenues | 4,071,144 | 1,611,730 | 2,459,414 | 152.6 | % | |||||||||||
Gross profit | 2,614,375 | 2,992,099 | (377,724 | ) | -12.6 | % | ||||||||||
Operating expenses | 16,782,522 | 13,258,106 | 3,524,416 | 26.6 | % | |||||||||||
Loss from operations | (14,168,147 | ) | (10,266,007 | ) | (3,902,140 | ) | 38.0 | % | ||||||||
Other (expense) income: | ||||||||||||||||
Other income | - | 2,991 | (2,991 | ) | -100.0 | % | ||||||||||
Change in fair value of warrant liability | 154,010 | - | 154,010 | NA | ||||||||||||
Gain on debt extinguishment | - | 196,889 | (196,889 | ) | -100.0 | % | ||||||||||
Interest expense | (902,130 | ) | (2,102,193 | ) | 1,200,063 | -57.1 | % | |||||||||
Other expense | (7,115 | ) | - | (7,115 | ) | NA | ||||||||||
Other expense | (755,235 | ) | (1,902,313 | ) | 1,147,078 | -60.3 | % | |||||||||
Loss before provision for income taxes | (14,923,382 | ) | (12,168,320 | ) | (2,755,062 | ) | 22.6 | % | ||||||||
Provision for income taxes | 793 | 1,075 | (282 | ) | -26.2 | % | ||||||||||
Net loss | $ | (14,924,175 | ) | $ | (12,169,395 | ) | $ | (2,754,780 | ) | 22.6 | % |
Year Ended December 31, 2022 compared with Year Ended December 31, 2021:
Revenues increased $2,081,690 from $4,603,829 in 2021 to $6,685,519 in 2022. The increase largely due to an increase in the Company’s Duramed division of approximately $1,785,000 in fiscal 2022 compared to fiscal 2021 due to increased surgical procedures and healthcare services which enabled the Company to continue to grow within the ultrasound device sales associated with patient recovery.
Compensation expenses increased $2,201,970 from $4,997,155 in 2021 to $7,199,125 primarily related to an increase in non-cash stock based compensation expense.
Consulting and professional fees increased $1,447,262 from $3,968,744 in 2021 to $5,416,006 in 2022. The 2022 expense amount includes legal, accounting, and other consulting fees and services incurred during the year ending December 31, 2022. The increase was related to an increase in legal fees and increase in consulting fees related to expansion of our durable medical device offerings as well as additional consulting fees related to formulation and development consulting related to hemp product development and other product enhancements.
Depreciation of property and equipment increased $914,405 from $593,656 in 2021 to $1,408,061 in 2022 related to the acquisition of property and equipment via asset purchases.
Other operating expenses increased $1,721,365 from 2021 to 2022 which is mainly due to bad debt expense of $313,228 and a loss on disposal of assets of $929,417.
Net loss increased $2,754,780 from $12,169,395 in 2021 to $14,924,175 in 2022. The loss is related to additional incurred costs to jump start the Company’s operations within Miami and Tennessee during the first quarter of 2022 and a decrease in the Company’s gross margin due to unforeseen integration issues within the Company’s operations in Miami and Tennessee.
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Liquidity and Capital Resources
As of December 31, 2022, the Company had cash and cash equivalents of $73,194 and negative working capital of $3,281,494. Cash and cash equivalents decreased $375,807 from $449,001 at December 31, 2021 to $73,194 at December 31, 2022. For the year ended December 31, 2022, $3,571,617 was provided by financing activities, and $3,947,424 was used in operating activities.
In March 2023, the Company completed the sale of a promissory note (the “Note”) in the principal amount of $1,823,529 and a warrant (the “Warrant”) to purchase 1,307,190 shares of Common Stock to an investor (the “Investor”) pursuant to a Securities Purchase Agreement dated as of February 27, 2023. The purchase price of the Note was $1,550,000, representing a 15% original issue discount. The Note is non-interest bearing, except in the case of the event of a default, in which case interest will accrue from the date of the default at a rate equal to the lower of 18% per annum or the maximum rate permitted by law.
The Note is payable in nine (9) monthly installments of $232,500 each, consisting of a $227,941 principal reduction payment and a $4,559 redemption fee, commencing on April 27, 2023. The Company’s obligations under the note are secured by a security interest in the Company’s deposit accounts and the deposit accounts of the Company’s subsidiaries. In addition, each the Company’s subsidiaries has agreed that if an event of default occurs under the Note, the subsidiary will pay to the Investor an amount equal to 10% of revenues received during the prior month from the sale of goods or services or collections of accounts receivable.
The Company may elect to pay all or a portion of a monthly installment due under the Note by converting such amount into shares of the Company’s common stock at a price of $4.00 per share, subject to adjustment in accordance with the terms of the Note. If the Company does not pay an installment when due it is deemed an election by the Company to convert the installment payment into common stock at a price equal to the lower of $4.00 per share or 90% of the lowest daily volume weighted average price of the common stock during the five trading days preceding the conversion date. The Investor may elect at any time to convert amounts payable under the Note into shares of the Company’s common stock at a conversion price of $4.00 per share, subject to adjustment in accordance with the terms of the Note.
Contemporaneous with the sale of the Note and Warrant to the Investor, Arena Special Opportunities Partners I, L.P. and Arena Special Opportunities Fund, L.P. (collectively, “Arena”), who hold promissory notes with an unpaid principal balance of approximately $3,877,000 which became due on April 30, 2022 (the “Arena Notes”), entered into a Forbearance Agreement with the Company pursuant to which they agreed to forbear from exercising remedies under the Arena Notes until December 31, 2024 provided that the Company does not default on its obligations under the Forbearance Agreement.
The Forbearance Agreement requires the Company and/or Company’s subsidiaries, Duramed, Inc. and Duramed MI, LLC (together the “Duramed Subsidiaries”) to remit to Arena on a monthly basis certain accounts receivable collected by the Company and/or the Duramed Subsidiaries until the total amount collected is $5,700,000. The Company and the Duramed Subsidiaries have assigned their rights to these receivables to Arena.
If Arena fully exercises warrants to purchase shares of the Company’s common stock that were previously issued to it, and the aggregate market value of the shares acquired is less than $1,500,000, the Company must pay to Arena an amount equal to such difference.
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As a condition to the closing of the sale of the Note and Warrant to the Investor, certain terms of certain promissory notes previously issued by the Company were amended, including the following:
● | the maturity date of a promissory note in the principal amount of $62,500 was extended from June 6, 2023 to September 1, 2023; provided, however, that the holder can require full payment if the Company completes an offering of its common stock that results in an uplisting of its common stock to a national securities exchange; | |
● | in consideration of the Company repaying an aggregate of $200,000 under notes issued in March 2022, the holders of the notes agreed to extend the maturity dates of the notes until September 1, 2023 and reduce the percentage of the cash proceeds received by the Company from the issuance of equity or debt that the holders of the notes can require the Company to apply to the repayment of the notes from 50% to 33%; | |
● | in consideration of an increase in the aggregate principal amount by $10,000 and an increase in the interest rate to 18% per annum, the holder of notes in the aggregate principal amount of $150,000 agreed to waive his right to require the Company to repay a $50,000 note upon the Company’s receipt of $1,500,000 of financing and extend maturity dates from November 18,2021 and January 22, 2023 to September 1, 2023; | |
● | in consideration of the Company’s agreement to provide a product credit for future orders of $50,000, the holder of a promissory note in the principal amount of $150,000 agreed to extend the maturity date from August 10,2022 to September 1, 2023; | |
● | the maturity date of a promissory note in the principal amount of $1,250,000 was extended from August 12, 2022 until the earlier of September 1, 2023 or the date that the Company completes an offering resulting in an uplisting of its common stock to the Nasdaq Capital Market; | |
● | in consideration of the repayment of a total of $232,500 under the notes, the holders of promissory notes in the aggregate principal amount of $435,000 issued in October and November 2022 that bore interest at 18% per annum and were past due agreed to exchange the notes for new notes that mature on September 1, 2023 and bear interest at 15% per annum; and | |
● | in consideration of an increase in the aggregate principal amount to $937,000, the holder of notes in the aggregate principal amount of $852,000 having maturity dates between August 24, 2022 and April 12, 2023 agreed to exchange the notes for a single note that matures on September 1, 2023. |
The Company currently has no agreements, arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources.
We currently have no commitments with any person for any capital expenditures.
We have no off-balance sheet arrangements. It is anticipated that Green Grow will again begin operations later in 2022 as Pure Health Products revenue increases and the need for additional isolate is present. Today, the available oversupply of isolate makes it cheaper to buy quality product at the market than to grow, harvest, and extract from scratch. Duramed, Inc. is beginning to show improvements in office utilization of its ultrasound device as more surgery centers are reopening.
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Item 7A. | Quantitative and Qualitative Disclosure About Market Risk |
Not applicable.
Item 8. | Financial Statements and Supplementary Data |
Our Consolidated Financial Statements and Notes thereto, for the fiscal years ended December 31, 2021 and 2020 and the report of BF Borgers CPA PC, our independent registered public accounting firm, are set forth on pages F-1 through F-25 of this Annual Report.
Item 9 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure |
N/A
Item 9A. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer (CEO), as appropriate, to allow timely decisions regarding required disclosure. Based on the evaluation, the CEO has concluded that our disclosure controls and procedures are ineffective to ensure that information disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. This determination was based on the small size of our accounting staff and the lack of segregation of duties.
To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.
Management Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control system was designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
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Any internal control system, no matter how well designed, has inherent limitations and may not prevent or detect misstatements. Accordingly, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Management, with the participation of our Chief Executive Officer, has evaluated the effectiveness of our internal control over financial reporting as of December 31, 2022 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, because of the Company’s limited resources and limited number of employees, and the absence of an audit committee, management concluded that, as of December 31, 2022, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principle, which creates a material weakness. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. A material weakness means there is a risk that our financial reports or other filings may contain an error or inaccuracy or not submitted timely.
There was a material weakness in the Company’s internal control over financial reporting due to the fact that the Company did not have an adequate process established to ensure appropriate levels of review of accounting and financial reporting matters, which resulted in our closing process not identifying all required adjustments and disclosures in a timely fashion. We expect that the Company will need to hire accounting personnel with the requisite knowledge to improve the levels of review of accounting and financial reporting matters. The Company may experience delays in doing so and any such additional employees would require time and training to learn the Company’s business and operating processes and procedures. For the near-term future, until such personnel are in place, this will continue to constitute a material weakness in the Company’s internal control over financial reporting that could result in material misstatements in the Company’s financial statements not being prevented or detected.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934) during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. | Other Information |
None.
Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
Not Applicable.
Item 10. | Directors, Executive Officers and Corporate Governance |
Our board of directors is to be elected annually by our shareholders. The board of directors elects our executive officers annually. Our directors and executive officers as of March 31, 2023 are as follows:
Name | Age | Position | ||
Marco Alfonsi | 62 | CEO, Director and Chairman since June 15, 2017 | ||
Stanley L. Teeple | 74 | CFO, Secretary and Director since October 1, 2018 | ||
Frederick Alger Boyer, Jr. | 54 | Independent Director appointed October 9, 2019 | ||
Ronald A. Silver | 87 | Independent Director appointed October 9, 2019 | ||
James F. Murphy | 75 | Independent Director appointed October 9, 2019 | ||
Pasquale Ferro | 61 | President of Pure Health Products |
Marco Alfonsi, CEO and Chairman Director has been a financial service professional for the past 20 years. Mr. Alfonsi was appointed director and CEO of the Company in or around January 2015. Immediately prior to that, he spent eight years serving as the CEO of Prosperity Systems, Inc.
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Throughout his career, Mr. Alfonsi was directly and indirectly involved in raising over $100 million dollars for small and medium sized business. Prior to his involvement in the financial services industry, Mr. Alfonsi has owned, operated, financed and sold several businesses. Mr. Alfonsi successfully started and managed two companies (ExecuteDirect.com, and Bakers Express of New York, Inc.), and held senior management positions with a number of financial institutions, including: Global American Investments, Clark Street Capital and Basic Investors.
Stanley L. Teeple –Mr. Teeple, CFO, Secretary, Director, was engaged from 2017-2018 with Solis Tek, Inc. (OTCQB:SLTK) a California based publicly traded corporation as Senior Vice President, Corporate Secretary , and Chief Compliance Officer. Solis Tek, Inc. a NV Corporation, is a developer of lighting and nutrient products, and most recently in cultivation and processing for the cannabis industry. Previously, from 2015-2016 Mr. Teeple was Chief Financial Officer and Secretary for Zonzia Media, Inc. (OTC:ZONX), a provider of streaming video and content to cable subscribers and hotel networks throughout the eastern US. From 2008 to 2014 Mr. Teeple was Chief Financial Officer and Secretary of Indigo-Energy, Inc. (OTC:IDGG) a publicly traded company in the oil and gas exploration business. Over the prior three plus decades Mr. Teeple through his turnaround consulting business, Stan Teeple, Inc., has held numerous senior management positions in several public and private companies across a broad spectrum of industries. Additionally, he has operated and worked for various court appointed trustees and principals as CEO, COO, and CFO in the entertainment, pharmaceuticals, food, travel, and tech industries. He operated his consulting business on a project-to-project basis and holds various other directorships. His businesses operational strengths include knowing how to manage and maximize the resources and preserve the integrity of a company from start-up through to maturity and corporate compliance in a regulatory environment.
Frederick Alger Boyer, Jr. Independent Director, is President & CEO of Advance Care Medical, Inc. - Mr. Boyer has over 25 years of Wall Street experience having worked on both the investment side as well as the banking side of the business Most recently he served as Head of Equities for the New York based investment bank H.C. Wainwright & Co. where he had overseen efforts in capital markets, sales, and trading. Prior to that he worked and or supervised teams at Rodman & Renshaw, Oppenheimer, Piper Jaffray, and Credit Suisse in New York, San Francisco, and Minneapolis. In his various roles he has advised hundreds of companies in their financing efforts both publicly and privately. Mr. Boyer has numerous securities licenses and is a graduate of the University of California at Berkeley.
Ronald A. Silver, Independent Director, was first elected to the Florida House of Representatives In 1978 and continued his tenure in that body until 1992. While in the Florida House, Silver served in major positions including Majority Whip (1984-1986) and Majority Leader (1986-1988). He also chaired various committees including the Select Committee on Juvenile Justice, Criminal Justice, Ethics and Elections and the subcommittee of Appropriations on General Government. He was then elected to the Florida Senate in 1992 and subsequently re-elected, serving as the Majority (Democratic) leader for the 1994 session. During his last term in the Senate he was designated by both the House and Senate as the Dean of the Legislature recognizing his standing as the longest serving member. His career as a lawmaker has yielded a vast and extensive knowledge of public policy issues and the legislative process, allowing him to be an advocate and servant for his diverse community. Throughout his tenure in the House and Senate, Mr. Silver has been known to tackle tough issues, transcend partisanship and build strong coalitions and in addition served on the Judiciary committee, which heard all condominium issues. As Senator, he served on a variety of committees, and was chairman of both the Appropriations Subcommittee on Health and Human Services and Criminal Justice. His career in the Senate has earned praise from his colleagues, in both the legislature and other branches of government throughout the nation. In 1993 Mr. Silver was elected Chairman of the Southern Legislative Conference (17 Southern States) of the Council of State Governments. Most recently, a new prescription drug plan of Medicare-eligible senior citizens in the State of Florida has been named “Silver Saver” in his honor. Since his retirement from the Senate in 2002, Mr. Silver also functions as President of his own consulting firm (Ron Silver & Associates) and maintains his law practice in Miami Beach, Florida. Mr. Silver is married with two children and three grandchildren.
James F. Murphy, Independent Director, brings more than 40 years of investigative and consulting experience as the Founder and President of Sutton Associates. From 1980 to 1984, Mr. Murphy was an Assistant Special Agent in Charge with the Federal Bureau of Investigation, responsible for a territory encompassing more than seven million people. His investigative specialties included organized crime, white-collar crime, labor racketeering and political corruption. From 1976 to 1980, Mr. Murphy was assigned to the Office of Planning and Evaluation at FBI headquarters, Washington, D.C. In this capacity, he evaluated and recommended changes in the FBI’s administrative and investigative programs. Since entering the private sector in 1984, Mr. Murphy has advanced the industry by developing systematic and professional protocols for performing due diligence, as well as other investigative services.
Pasquale Ferro (“Pat” to his friends and co-workers), President of Pure Health Products LLC, built Pure Health Products from the ground up inside a vacant warehouse including all mechanical, electrical, environmental, regulatory, and lab-quality specifications. Right out of school Pat began a career in real estate development both on the retail and commercial side of the business. Pat formed a company that would take new or distressed buildings (or anything in-between) and rehab and repair the facilities so they were commercially viable and move-in ready. During the course of this career Pat was often in charge of multiple work crews, union and non-union, for work in demolition, construction, plumbing, electrical, grounds crew and other professionally skilled tradesmen required to complete a building project.
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Pat had his first foray into the manufacturing process in 2015 when he started Pure Health Products, LLC, which he developed into a regional research laboratory, new product development resource, and full-on production facility capable of producing capsules, tinctures, drops, salves, tablets and other products for the supplement and custom label community. Later in 2015, Pat connected with Marco Alfonsi, CEO of the Company, and became the production facility for all of the Company’s CBD based products. In late 2018, Pat sold Pure Health Products to the Company and became the President of that wholly-owned facility which he operates and manages today under a long term employment services agreement.
Board Committees
We have established an audit committee, compensation committee, or nominating committee. With one of the independent Directors sitting as chair of each committee. Mr. Ron Silver is Chairman of the Nominating Committee, Mr. James Murphy is Chairman of the Audit Committee, and Mr. Alger Boyer is Chairman of the Compensation Committee.
Family Relationships
There are no familial relationships between any of our officers and directors.
Director or Officer Involvement in Certain Legal Proceedings
Our current directors and executive officers have not been involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.
Director Independence
The Company is not currently listed on any national securities exchange that has a requirement that the board of directors be independent. However, in anticipation of a possible exchange up listing, and in an effort toward better Board oversight, the company has engaged three independent Directors making the independent outside directors a majority on the Board of Directors.
Code of Ethics
We have adopted a Code of Ethics that applies to all of our employees and officers, and the members of our Board of Directors. This Code of Ethics is posted on the Company’s website www.canbiola.com and applies to all executive officers including CEO, CFO and COO.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than 10% of a registered class of our equity securities, to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on our review of the reports filed by Reporting Persons, we believe that, during the year ended December 31, 2022, the following Reporting Persons did not meet all applicable Section 16(a) filing requirements: (i) Stanley Teeple, (ii) Phil Scala and (iii) Marco Alfonsi. Otherwise, we believe that the Reporting Persons met such filing requirements.
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Item 11. | Executive Compensation |
The table below summarizes all compensation awarded to, earned by, or paid to our executive officers and directors for all services rendered in all capacities to us during the fiscal years ended December 31, 2022 and 2021.
Name and principal position | Year | Salary | Bonus | Stock awards | Option awards (5) | Non-equity incentive plan comp. | Non-qualified deferred comp. earnings | All other comp. | Total | |||||||||||||||||||||||||||
Marco Alfonsi (1) | 2022 | $ | 25,962 | $ | 0 | $ | 500,100 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 626,062 | |||||||||||||||||||
2021 | $ | 107,142 | $ | 0 | $ | 2,512,500 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 2,719,642 | ||||||||||||||||||||
Stanley L. Teeple (2) | 2022 | $ | 25,962 | $ | 0 | $ | 500,100 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 626,062 | |||||||||||||||||||
2021 | $ | 90,000 | $ | 0 | $ | 2,512,500 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 2,702,500 | ||||||||||||||||||||
Pasquale Ferro (3) | 2022 | $ | 25,962 | $ | 0 | $ | 500,100 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 626,062 | |||||||||||||||||||
2021 | $ | 98,654 | $ | 0 | $ | 2,512,500 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 2,711,154 | ||||||||||||||||||||
Phil Scala (4) | 2022 | $ | 15,000 | $ | 0 | $ | 61,6740 | $ | 100,000 | $ | 0 | $ | 0 | $ | 0 | $ | 176,674 | |||||||||||||||||||
2021 | $ | 52,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 52,000 |
(1) Pursuant to an employment agreement entered on or around May 14, 2015, Marco Alfonsi was entitled to receive compensation of $6,000 per month through September 31, 2017 when the contract expired. On or around October 3, 2017, the Company entered into a new employment agreement with Mr. Alfonsi whereby he was entitled to receive $10,000 per month for a period of three years. Mr. Alfonsi also received one share of Series A Preferred Stock upon his execution of the new agreement. In addition, on or around October 4, 2017, the Company authorized the issuance of an additional two shares of Series A Preferred Stock to Mr. Alfonsi in consideration for cancellation of approximately $120,000 of deferred income owed to Mr. Alfonsi. The Company entered into a new employment agreement dated October 21, 2018 Mr. Alfonsi, pursuant to which Mr. Alfonsi agreed to continue to serve as the Company’s Chief Executive Officer (“CEO”) and accept appointment as Chairman of the Board of Directors (“Chairman”) for an initial term of four (4) years. He is entitled to receive $15,000 per month and other compensation under the new agreement. On December 28, 2020, Marco Alfonsi signed a three year Employment Agreement. Under that agreement, he is to receive a i) base salary of fifteen thousand dollars ($15,000.00) per month, ii) is eligible to receive cash and or stock bonuses, iii) shall receive a stock bonus in accordance with the Company’s Incentive Stock Option Plan (“ISOP”) in an amount of one-hundred thousand dollars ($100,000) per year of the Agreement, iv) 200 shares of the Company’s Series C Preferred stock, and v) usual and customary benefits including expense reimbursement, health and life insurance plan reimbursements and allowances. Actual salary compensation was paid for the 1st quarter of 2022 only.
(2) Pursuant to an employment agreement entered on or around October 15, 2018, Mr. Teeple serves as the Company’s Chief Financial Officer and Secretary for a term of 4 years. The Agreement also provided for compensation to Mr. Teeple of $15,000 cash per month and the issuance of 1 share of Series A Preferred Stock upon execution of the Agreement. The fair value of the Series A preferred share is $578,000 and has a conversion vesting (but not voting) period of four years. An additional three shares of Series A Preferred Stock were issued in April 2019 per a new employment Agreement. The fair value of the Series A Preferred share issued in April 2019 is $992,250 and has a conversion (but not voting) vesting period of three years. In 2020 and 2019, the amortized portion of Series A preferred shares is $469,301 and $372,667, respectively. On December 28, 2020, Stanley Teeple signed a new three-year Employment Agreement. Under that agreement, he is to receive a i) base salary of fifteen thousand dollars ($15,000.00) per month, ii) is eligible to receive cash and or stock bonuses, iii) shall receive a stock bonus in accordance with the Company’s ISOP in an amount of one-hundred thousand dollars ($100,000) per year of the Agreement, iv) 200 shares of the Company’s Series C Preferred stock, and v) usual and customary benefits including expense reimbursement, health and life insurance plan reimbursements and allowances. Actual salary compensation was paid for the 1st quarter of 2022 only.
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(3) On December 28, 2018, the Company executed an Executive Service Agreement (“Ferro Agreement”) with Pasquale Ferro. The Ferro Agreement provides that Mr. Ferro serves as the President of Pure Health Products, LLC for a term of 4 years. The Ferro Agreement also provides for compensation to Mr. Ferro of $15,000 cash per month and the issuance of 5 shares of Series A Preferred Stock upon execution of the Ferro Agreement. The fair value of the Series A preferred shares is $2,109,700 and has a conversion (but not voting) vesting period of four years. In 2019, the amortized portion of Series A preferred stock is $527,425. On December 28, 2020, Pasquale Ferro signed a three year Employment Agreement. Under that agreement, he is to receive a i) base salary of fifteen thousand dollars ($15,000.00) per month, ii) is eligible to receive cash and or stock bonuses, iii) shall receive a stock bonus in accordance with the Company’s ISOP in an amount of one-hundred thousand dollars ($100,000) per year of the Agreement, iv) 200 shares of the Company’s Series C Preferred stock, and v) usual and customary benefits including expense reimbursement, health and life insurance plan reimbursements and allowances. Actual salary compensation was paid for the 1st quarter of 2022 only.
(4) On October 11, 2019, the Company executed an Executive Service Agreement (“Scala Agreement”) with Phil Scala. The Scala Agreement provided that Mr. Scala served as the Interim Chief Operating Officer for a term of 90 days. The Scala Agreement also provided for compensation to Mr. Scala of $2,500 cash per month. On January 1, 2020, Scala and the Company extended the engagement until March 31, 2020. On December 28, 2020, Phil Scala signed a three-year Employment Agreement. Under that agreement, he was to receive a i) base salary of fifty-two thousand dollars per year, ii) was eligible to receive cash and or stock bonuses, iii) a stock bonus in accordance with the Company’s ISOP in an amount of one-hundred thousand dollars ($100,000), iv) 20 shares of the Company’s Series C Preferred stock, and v) usual and customary benefits including expense reimbursement, health and life insurance plan reimbursements and allowances. Actual salary compensation was paid for the 1st quarter of 2022 only. Mr. Scala resigned his position as an officer of the Company in March 2023.
As of December 31, 2022, there were Incentive Stock Option Awards issued to Marco Alfonsi, Pasquale Ferro, Stanley Teeple, and Phil Scala in the amount of $100,000 each. The Options were issued on December 29, 2020 under the ISO Plan, at a strike price of $.361 per share for 277,008 shares for each of the 4 persons named.
(5) The amounts reported in this column represent the grant date fair value of option awards granted during the years ended December 31, 2022 and 2021 in accordance with FASB ASC 718. The assumptions used in the calculation of these awards are discussed in Note 11 to the Consolidated Financial Statements included in this Report.
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The table below summarizes all compensation awarded to, earned by, or paid to our non-interested directors for all services rendered in all capacities to us during the previous two fiscal years, as of December 31, 2022.
Non-Interested Director Summary Compensation Table | ||||||||||||||||||||||||||||||
Name and principal position | Year | Fees Earned or Paid in Cash | Stock awards (1) | Option awards (2) | Non-equity incentive plan comp. | Non-qualified deferred comp. earnings | All other com. | Total | ||||||||||||||||||||||
Frederick A. Boyer | 2022 | $ | 0 | $ | 100,020 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 100,020 | |||||||||||||||
Director | 2021 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||
Ronald Silver | 2022 | $ | 0 | $ | 100,020 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 100,020 | |||||||||||||||
Director | 2021 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | |||||||||||||||
James F. Murphy | 2022 | $ | 0 | $ | 100,020 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 100,020 | |||||||||||||||
Director | 2021 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
1) | Each of the 3 non-interested independent directors was issued 20 Preferred C shares in 2022. | |
2) | As of December 31, 2022, Directors Boyer, Silver and Murphy each owned 10,000 options to exercise and purchase stock at $.30 at any time until 2023.
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No director has received cash compensation for their directorship. We do have a compensation committee and compensation for our directors and officers is determined by our board of directors.
We reimburse Non-Employee Directors for actual out-of-pocket costs incurred to attend board meetings. No additional compensation is paid for attendance in person or by telephone at board meetings.
The table below summarizes all outstanding equity awards for officers, as of December 31, 2022.
Outstanding Equity Awards at Fiscal Year-End | ||||||||||||||||||
Name and principal position | Grant Date | Grant Type | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Options Unexercisable | Option Exercise Price | Option Expiration Date | ||||||||||||
Stanley Teeple – CFO | 10/21/2018 | Stock Options | 667 | 0 | $ | 4.50 | 10/20/2023 | |||||||||||
Johnny Mack PhD – Ex COO | 9/9/2019 | Stock Options | 1,778 | 0 | $ | 4.50 | 9/8/2024 | |||||||||||
Frederick A. Boyer – Director | 10/15/2019 | Stock Options | 667 | 0 | $ | 4.50 | 10/14/2024 | |||||||||||
Ronald Silver – Director | 10/15/2019 | Stock Options | 667 | 0 | $ | 4.50 | 10/14/2024 | |||||||||||
James F. Murphy – Director | 10/15/2019 | Stock Options | 667 | 0 | $ | 4.50 | 10/14/2024 | |||||||||||
Ronald Silver – Director | 12/9/2020 | Stock Options | 833 | 0 | $ | 7.50 | 12/9/2025 | |||||||||||
Stanley Teeple – CFO | 12/29/2020 | Stock Options | 18,467 | 0 | $ | 5.42 | 12/29/2025 | |||||||||||
Pasquale Ferro – President | 12/29/2020 | Stock Options | 18,467 | 0 | $ | 5.42 | 12/29/2025 | |||||||||||
Phil Scala – COO | 12/29/2020 | Stock Options | 18,467 | 0 | $ | 5.42 | 12/29/2025 | |||||||||||
Marco Alfonsi – CEO | 12/29/2020 | Stock Options | 18,467 | 0 | $ | 5.42 | 12/29/2025 | |||||||||||
Stanley Teeple – CFO | 7/15/2021 | Stock Options | 19,608 | 0 | $ | 6.60 | 7/15/2026 | |||||||||||
Pasquale Ferro – President | 7/15/2021 | Stock Options | 19,608 | 0 | $ | 6.60 | 7/15/2026 | |||||||||||
Marco Alfonsi – CEO | 7/15/2021 | Stock Options | 19,608 | 0 | $ | 6.60 | 7/15/2026 | |||||||||||
Marco Alfonsi – CEO | 4/26/2021 | Stock Options | 3,401 | 0 | $ | 7.50 | 4/26/2026 | |||||||||||
Marco Alfonsi – CEO | 1/6/2022 | Stock Options | 19,753 | 0 | $ | 7.35 | 1/5/2027 | |||||||||||
Pasquale Ferro – President | 1/6/2022 | Stock Options | 19,753 | 0 | $ | 7.35 | 1/5/2027 | |||||||||||
Phil Scala – COO | 1/6/2022 | Stock Options | 19,753 | 0 | $ | 7.35 | 1/5/2027 | |||||||||||
Stanley Teeple – CFO | 1/6/2022 | Stock Options | 19,753 | 0 | $ | 7.35 | 1/5/2027 | |||||||||||
Marco Alfonsi – CEO | 8/28/2022 | Stock Options | 100,000 | 0 | $ | 3.00 | 8/27/2027 | |||||||||||
Pasquale Ferro – President | 8/28/2022 | Stock Options | 100,000 | 0 | $ | 3.00 | 8/27/2027 | |||||||||||
Phil Scala – COO | 8/28/2022 | Stock Options | 50,000 | 0 | $ | 3.00 | 8/27/2027 | |||||||||||
Stanley Teeple – CFO | 8/28/2022 | Stock Options | 100,000 | 0 | $ | 3.00 | 8/27/2027 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table sets forth the ownership, as of April 10, 2023, of our common stock, Series C Preferred Stock and Series D Preferred Stock by (i) each person known by us to be the beneficial own of more than five (5%) percent of the applicable class; (ii) each of the Company’s executive officers and directors; and (iii) the Company’s directors and executive officers as a group. To the best of our knowledge, the persons named have sole voting and investment power with respect to such shares, except as otherwise noted. There are not any pending or anticipated arrangements that may cause a change in control. The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities.
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Shares
Beneficially Owned(1)
As of April 10, 2023
Name and Address of Beneficial Owner(2): | Common Stock | Percent of Class(3) | Series C Preferred Stock | Percent of Class(4) | Series D Preferred Stock | Percent of Class(5) | Percent of Total Voting Power | |||||||||||||||||||||
Marco Alfonsi, CEO and Director | 1,000,512 | (6) | 16.6 | % | 300 | 27.3 | % | 1,250 | 31.3 | % | 18.3 | % | ||||||||||||||||
Stanley L. Teeple, CFO and Director | 981,946 | (7) | 16.3 | % | 300 | 27.3 | % | 1,250 | 31.3 | % | 18.1 | % | ||||||||||||||||
Frederick A. Boyer, Director | 8,668 | (8) | 0.16 | % | – | – | – | – | 0.09 | % | ||||||||||||||||||
Ronald Silver, Director | 9,280 | (9) | 0.17 | % | – | – | – | – | 0.09 | % | ||||||||||||||||||
James F. Murphey, Director | 8,668 | (10) | 0.16 | % | – | – | – | - | 0.09 | % | ||||||||||||||||||
All directors and executive officers as a group (5 persons) | 2,009,074 | 30.1 | % | 600 | 10.4 | % | 2,500 | 62.5 | % | 36.7 | % | |||||||||||||||||
Pasquale Ferro | 990,884 | (11) | 16.4 | % | 300 | 27.3 | % | 1,250 | 31.3 | % | 16.8 | % | ||||||||||||||||
Arena Special Opportunities Fund, L.P | 592,976 | (12) | 9.9 | % | – | – | – | – | 5.7 | % | ||||||||||||||||||
Walleye Opportunities Master Fund LTD | 592,976 | (13) | 9.9 | % | 5.7 | % |
(1) | Shares of common stock subject to stock options, warrants or convertible securities currently exercisable or convertible, or exercisable or convertible within 60 days of April 10, 2023 are deemed to be outstanding for computing the percentage ownership of the person holding such options, warrants or convertible securities and the percentage ownership of any group of which the holder is a member, but are not deemed outstanding for computing the percentage ownership of any other person. |
(2) | Except as otherwise indicated, the address of each beneficial owner is c/o Can B Corp., 960 South Broadway, Suite 120, Hempstead, New York 11801. |
(3) | Based on 5,396,682 shares of common stock issued and outstanding as of April 10, 2023. |
(4) | Based on 1,100 shares of Series C Preferred Stock issued and outstanding as of April 10, 2023. Shares of Series C Preferred Stock entitle their holders to vote on an as converted basis (1,667 shares of common stock per share of Series C Preferred Stock). |
(5) | Based on 4,000 shares of Series D Preferred Stock issued and outstanding as of April 10, 2023. Holders of Series D Preferred Stock are entitled to 667 votes per share. |
(6) | Includes 142,672 shares of common stock issuable upon the exercise of options and 500,100 shares of common stock issuable upon the exercise of 300 shares of Series C Preferred Stock. Does not include 42,343 shares of common stock held by adult members of Mr. Alfonsi’s family. |
(7) | Includes 139,361 shares of common stock issuable upon the exercise of options and 500,100 shares of common stock issuable upon the exercise of 300 shares of Series C Preferred Stock. |
(8) | Includes 667 shares of common stock issuable upon the exercise of options. |
(9) | Includes 1,500 shares of common stock issuable upon the exercise of options. |
(10) | Includes 667 shares of common stock issuable upon the exercise of options. |
(11) | Includes 139,361 shares of common stock issuable upon the exercise of options and 500,100 shares of common stock issuable upon exercise of 300 shares of Series C Preferred Stock. |
(12) | Includes shares beneficially owned by the shareholder’s affiliates, Arena Investors, LP and Arena Special Opportunities Partners I, LP, and 542,391 shares issuable upon conversion of convertible securities and exercise of warrants that contain a 9.99% beneficial ownership limitation. The address of this shareholder is 405 Lexington Avenue, 59th Floor, New York, New York 10174. |
(13) | Includes 492,976 shares of common stock issuable upon conversion of convertible notes and exercise of warrants that contain a 9.99% beneficial ownership limitation. The address of this shareholder is 2800 Niagara Lane North, Plymouth Minnesota 55447. |
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Item 13. | Certain Relationships and Related Party Transactions, and Director Independence |
Can B̅ Corp.’s Corporate Governance Guidelines establish standards for evaluating Director independence and requires that a majority of Directors be independent. The Board determines the independence of each Director under Nasdaq governance standards. Those standards identify the types of relationships that, if material, could impair independence. The Board determined that, under the Nasdaq listing standards, the following non-employee Directors are independent: Frederick A. Boyer, Ronald Silver and James F. Murphy. Our non-independent directors are Marco Alfonsi and Stanley L. Teeple.
Except as described herein (or within the section entitled Executive Compensation of this report), none of the following parties (each a “Related Party”) has, in our fiscal years ended 2022 and 2021, had any material interest, direct or indirect, in any transaction with us or in any presently proposed transaction that has or will materially affect us:
● | any of our directors or officers; | |
● | any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our outstanding shares of common stock; or | |
● | any member of the immediate family (including spouse, parents, children, siblings and in- laws) of any of the above persons. |
LI Accounting Associates, LLC (“LIA”), an entity controlled by a relative of the Managing Member PHP, is a vendor of Can B̅ Corp. As of December 31, 2022, the Company had accounts payable due to LIA of $5,000. For the twelve months ended December 31, 2022, the Company had expenses to LIA of $17,100.
Pasquale Ferro, President of Pure Health Products LLC, manages the R&D and manufacturing of the Company products sold via other subsidiary companies. Mr. Ferro is also a substantial shareholder of the Company but receives no direct compensation from Can B, Corp. other than outlined in his Employment Agreement.
At December 31, 2022, the Company has amounts due to a director of the Company of approximately $295,245 which are expected to be repaid in the next twelve months.
Item 14. | Principal Accounting Fees and Services |
The following table sets forth fees billed to us by BF Borgers CPA PC, our independent registered public accounting firm during the fiscal years ended December 31, 2022 and December 31, 2021 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements; (ii) services by our independent registered public accounting firms that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as audit fees; (iii) services rendered in connection with tax compliance, tax advice and tax planning; and (iv) all other fees for services rendered.
December 31, 2022 | December 31, 2021 | |||||||
Audit Fees | $ | 197,300 | $ | 103,312 | ||||
Audited Related Fees | $ | 0 | $ | 0 | ||||
Tax Fees | $ | 0 | $ | 0 | ||||
All Other Fees | $ | 0 | $ | 0 |
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PART IV
Item 15. | Exhibits, Financial Statement Schedules. |
Exhibits Schedule
The following exhibits are filed with this Annual Report:
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34 |
(1) | Filed with the Annual Report on Form 10-K filed with the SEC on April 2, 2020 and incorporated herein by reference. |
(2) | Filed with the Form S-1 Registration Statement filed with the SEC on December 2, 2015 and incorporated herein by reference. |
(3) | Filed with the Current Report on Form 8-K filed with the SEC on January 30, 2019 and incorporated herein by reference. |
(4) | Filed with the Current Report on Form 8-K filed with the SEC on December 6, 2019 and incorporated herein by reference. |
(5) | Filed with the Current Report on Form 8-K filed with the SEC on February 18, 2020 and incorporated herein by reference. |
(6) | Filed with the Current Report on Form 8-K filed with the SEC on January 15, 2019 and incorporated herein by reference. |
(7) | Filed with the Form 1-A/A, Part II, filed with the SEC on July 17, 2020 and incorporated herein by reference. |
(8) | Filed with the Form 1-A POS, Part II, filed with the SEC on September 11, 2020 and incorporated herein by reference. |
(9) | Filed with the Current Report on Form 8-K filed with the SEC on November 23, 2020 and incorporated herein by reference. |
(10) | Filed with the Annual Report on Form 10-K filed with the SEC on April 15, 2022 and incorporated herein by reference. |
(11) | Filed with the Quarterly Report on Form 10-Q filed with the SEC on May 21, 2021 and incorporated herein by reference. |
(12) | Filed with the Current Report on Form 8-K filed with the SEC on August 17, 2021 and incorporated herein by reference. |
(13) | Filed with the Current Report on Form 8-K filed with the SEC on September 1, 2021 and incorporated herein by reference. |
(14) | Filed with the Current Report on Form 8-K filed with the SEC on March 31, 2022 and incorporated herein by reference. |
(15) | Filed with the Form 10-K filed with the SEC on April 15, 2022 and incorporated herein by reference. |
(16) | Filed with the Current Report on Form 8-K filed with the SEC on April 29, 2022 and incorporated herein by reference. |
(17) | Filed with Form S-1/A filed with the SEC on February 14, 2022 and incorporated herein by reference. |
(18) | Filed with Form S-1/A filed with the SEC on May 25, 2022 and incorporated herein by reference. |
(19) | Filed with the Current Report on Form 8-K filed with the SEC on June 15, 2022 and incorporated herein by reference. |
(20) | Filed with Form S-1/A filed with the SEC on May 25, 2022 and incorporated herein by reference. |
(21) | Filed with the Current Report on Form 8-K filed with the SEC on July 25, 2022 and incorporated herein by reference. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Can B̅ Corp. | ||
Date: April 17, 2023 | By: | /s/ Marco Alfonsi |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
(Principal Executive Officer and Principal Accounting Officer) | ||
Date: April 17, 2023 | By: | /s/ Stanley L. Teeple |
Name: | Stanley L. Teeple | |
Title: | Chief Financial Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature | Title | Date | ||
/s/ Marco Alfonsi | Chief Executive Officer, Director and Chairman | April 17, 2023 | ||
Marco Alfonsi | (Principal Executive Officer) | |||
/s/ Stanley L. Teeple | Secretary, CFO and Director | April 17, 2023 | ||
Stanley L. Teeple | (Principal Financial and Accounting Officer) | |||
/s/ Frederick Alger Boyer Jr. | Independent Director | April 17, 2023 | ||
Frederick Alger Boyer Jr. | ||||
/s/ Ron Silver | Independent Director | April 17, 2023 | ||
Ron Silver | ||||
/s/ James Murphy | Independent Director | April 17, 2023 | ||
James Murphy |
36 |
Can B Corp. and Subsidiaries | |
Index to Financial Statements | |
Consolidated Financial Statements | |
Report of Independent Registered Public Accounting Firm | F-2 |
Consolidated Balance Sheets | F-3 |
Consolidated Statements of Operations | F-4 |
Consolidated Statements of Stockholders’ Equity | F-5 |
Consolidated Statements of Cash Flows | F-6 |
Notes to Consolidated Financial Statements. | F-7 |
F-1 |
Report of Independent Registered Public Accounting Firm
To the shareholders and the board of directors of Can B Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Can B Corp. as of December 31, 2022 and 2021, the related statements of operations, stockholders' equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.
Substantial Doubt about the Company’s Ability to Continue as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.
We determined that there are no critical audit matters.
/S/
We have served as the Company’s auditor since 2021
April 17, 2023
F-2 |
Can B̅ Corp. and Subsidiaries
Consolidated Balance Sheets
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, less allowance for
doubtful accounts of $ | ||||||||
Inventory | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Other assets: | ||||||||
Deposits | ||||||||
Intangible assets, net | ||||||||
Property and equipment, net | ||||||||
Right of use assets, net | ||||||||
Other noncurrent assets | ||||||||
Total other assets | ||||||||
Total assets | $ | $ | ||||||
Liabilities and Stockholders’ Equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Due to related party | ||||||||
Notes and loans payable, net | ||||||||
Warrant liabilities | ||||||||
Operating lease liability - current | ||||||||
Total current liabilities | ||||||||
Long-term liabilities: | ||||||||
Operating lease liability - noncurrent | ||||||||
Total long-term liabilities | ||||||||
Total liabilities | $ | $ | ||||||
Commitments and contingencies (Note 14) | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, authorized | shares:||||||||
Series A Preferred stock, | par value: shares authorized, shares and shares issued and outstanding at December 31, 2022 and 2021, respectively||||||||
Series B Preferred stock, $ | par value: shares authorized, issued and outstanding||||||||
Series C Preferred stock, $ | par value: shares authorized, and issued and outstanding at December 31, 2022 and 2021, respectfully||||||||
Series D Preferred stock, $ | par value: shares authorized, and issued and outstanding at December 31, 2022 and 2021, respectfully||||||||
Common stock, | par value; shares authorized, and issued and outstanding at December 31, 2022 and 2021, respectively||||||||
Common stock issuable, | ||||||||
Treasury stock | ( | ) | ( | ) | ||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ |
See notes to consolidated financial statements
F-3 |
Can B̅ Corp. and Subsidiaries
Consolidated Statement of Operations
Year Ended | ||||||||
December 31, | ||||||||
2022 | 2021 | |||||||
Revenues | ||||||||
Product sales | $ | $ | ||||||
Service revenue | ||||||||
Total revenues | ||||||||
Cost of revenues | ||||||||
Gross profit | ||||||||
Operating Expenses | ||||||||
Compensation | ||||||||
Consulting and professional fees | ||||||||
Rent and utilities | ||||||||
Other operating expenses | ||||||||
Total operating expenses | ||||||||
Loss from operations | ( | ) | ( | ) | ||||
Other (expense) income: | ||||||||
Other income | ||||||||
Change in fair value of warrant liability | ||||||||
Gain on debt extinguishment | ||||||||
Interest expense | ( | ) | ( | ) | ||||
Other expense | ( | ) | ||||||
Other expense | ( | ) | ( | ) | ||||
Loss before provision for income taxes | ( | ) | ( | ) | ||||
Provision for income taxes | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | ||
Weighted average shares outstanding - basic and diluted |
See notes to consolidated financial statements
F-4 |
Can B̅ Corp. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
Years ended December 31, 2022 and 2021
Series A | Series B | Series C | Series D | Common | Additional | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Stock | Treasury Stock | Paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Issuable | Shares | Amount | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of preferred stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Series C Preferred stock to common stock | - | - | ( | ) | ( | ) | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of common stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in lieu of note repayments | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services rendered | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for asset acquisitions | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock warrants and commitment shares in connection with convertible promissory note | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in lieu of interest payments | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2021 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Series A Preferred stock to Common stock | ( | ) | ( | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of preferred stock | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of common stock | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in lieu of note interest repayments | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services rendered | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for equipment | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for asset acquisition | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock resulting from the exercise of warrants | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2022 | $ | | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ |
See notes to consolidated financial statements
F-5 |
Can B̅ Corp. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended | ||||||||
December 31, | ||||||||
2022 | 2021 | |||||||
Operating activities: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Stock-based compensation | ||||||||
Depreciation | ||||||||
Amortization of intangible assets | ||||||||
Amortization of original-issue-discounts | ||||||||
Bad debt expense | ||||||||
Impairment of intangible assets | ||||||||
Loss on sale of property and equipment | ||||||||
Change in fair value of warrant liability | ( | ) | ||||||
Gain on debt extinguishment | ( | ) | ||||||
Stock-based interest expense | ||||||||
Stock-based consulting expense | ||||||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Inventory | ( | ) | ||||||
Prepaid expenses | ( | ) | ||||||
Deposits | ( | ) | ||||||
Other noncurrent assets | ||||||||
Operating lease right-of-use asset | ( | ) | ( | ) | ||||
Accounts payable | ||||||||
Accrued expenses | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
Investing activities: | ||||||||
Purchase of property and equipment | ( | ) | ||||||
Purchase of intangible assets | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ||||||
Financing activities: | ||||||||
Net proceeds received from notes and loans payable | ||||||||
Proceeds from issuance of Series D Preferred Stock | ||||||||
Proceeds from sale of common stock | ||||||||
Repayments of notes and loans payable | ( | ) | ( | ) | ||||
Deferred financing costs | ( | ) | ||||||
Amounts received from related parties, net | ||||||||
Net cash provided by financing activities | ||||||||
Decrease in cash and cash equivalents | ( | ) | ( | ) | ||||
Cash and cash equivalents, beginning of period | ||||||||
Cash and cash equivalents, end of period | $ | $ | ||||||
Supplemental Cash Flow Information: | ||||||||
Income taxes paid | $ | $ | ||||||
Interest paid | $ | $ | ||||||
Non-cash Investing and Financing Activities: | ||||||||
Issuance of common stock in lieu of repayment of notes payable | $ | $ | ||||||
Issuance of common stock in asset acquisitions | $ | $ | ||||||
Assets acquired through common stock payable | $ | |||||||
Assets acquired through issuance of promissory note | $ | |||||||
Debt discount associated with warrant liability | $ | $ | ||||||
Issuance of common stock resulting from the exercise of warrants | $ | $ | ||||||
Issuance of common stock warrants and commitment shares in connection with convertible promissory note | $ | $ |
See notes to consolidated financial statements
F-6 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Note 1 – Organization and Description of Business
Can B̅ Corp. was originally incorporated as WrapMail, Inc. (“WRAP”) in Florida on October 11, 2005. On May 15, 2017, WRAP changed its name to Canbiola, Inc. On January 16, 2020 Canbiola, Inc. changed its name to Can B̅ Corp. (the “Company”, “we”, “us”, “our”, “CANB”, “Can B̅” or “Registrant”).
The Company acquired 100% of the membership interests in Pure Health Products, LLC, a New York limited liability company (“PHP” or “Pure Health Products”) effective December 28, 2018. The Company runs it manufacturing operations through PHP and holds and sells several of its brands through PHP as well. The Company’s durable equipment products, such as sam® units with and without CBD infused pads, are marketed and sold through its wholly-owned subsidiaries, Duramed Inc. (incorporated on November 29, 2018) and Duramed MI LLC (fka DuramedNJ, LLC) (incorporated on May 29, 2019) (collectively, “Duramed”). Duramed began operating on or about February 1, 2019. Most of the Company’s consumer products include hemp derived cannabidiol (“CBD”); however, the Company has just recently begun extracting cannabinol (“CBN”) and cannabigerol (“CBG”) for wholesale to third-parties looking to incorporate such compounds into their products through its wholly owned subsidiaries, Botanical Biotech, LLC (incorporated March 10, 2021), TN Botanicals, LLC and CO Botanicals LLC (both incorporated in August 2021). These three subsidiaries have also begun synthesizing Delta-8 and Delta-10 from hemp. Delta-8 and Delta-10 can produce similar, though less potent, effects as delta-9 (commonly referred to as THC); however, the legality of hemp derived Delta-8 and Delta-10 are in a gray area and considered a potential loophole at this point due to the 2018 hemp bill. The Company’s other subsidiaries did not have operations during the year ended December 31, 2022.
The Company is in the business of promoting health and wellness through its development, manufacture and sale of products containing cannabinoids derived from hemp biomass and the licensing of durable medical devises. Can B̅’s products include oils, creams, moisturizers, isolate, gel caps, spa products, and concentrates and lifestyle products. Can B̅ develops its own line of proprietary products as well seeks synergistic value through acquisitions in the hemp industry. Can B̅ aims to be the premier provider of the highest quality hemp derived products on the market through sourcing the best raw material and offering a variety of products we believe will improve people’s lives in a variety of areas.
Note 2 – Going Concern
The
consolidated financial statements have been prepared on a “going concern” basis, which contemplates the realization of assets
and liquidation of liabilities in a normal course of business. As of December 31, 2022, the Company had cash and cash equivalents of
$
After careful consideration and analysis of the economics, supply chain, processing logistics, and management of manpower the Company decided to consolidate operations in its CO operations in Mead and Ft. Morgan. The company remains fully vertically integrated in legal hemp operations and sales with processing of hemp biomass and crude hemp oil into distillate, isolate, and ultimately into isomers. The Company moved all of its help processing equipment previously located in its Miami, FL operation under Botanical Biotech, LLC to its main hemp processing center in CO. The Company also terminated its lease with the Miami landlord. The Company moved all of the hemp processing equipment previously located in its McMinnville, TN operation under TN Botanicals, LLC to its main hemp processing center in CO.
As a result of these equipment moves, the Colorado operation will, once fully operational, improve operating efficiencies, increase management oversight, and be able to increase throughput by double verse the prior three independent operating facilities. Senior management of the Company will be on-site in CO during this consolidation period to ensure maximum efficiencies and continue operations during this rebuilding period. Immediate impact of the consolidation is elimination of duplicate lines, better coordination of customer orders, reduction in transportation charges, and manpower efficiencies with larger batch sizes and reduced personnel.
The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.
Note 3 – Basis of Presentation and Summary of Significant Accounting Policies
Basis of presentation
The accompanying consolidated financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
On
February 8, 2022,
Principles of Consolidation
The consolidated financial statements contained herein include the accounts of Can B Corp. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.
F-7 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Covid-19
Commencing in December 2019, the novel strain of coronavirus (“COVID-19”) began spreading throughout the world, including the first outbreak in the US in February 2020. On March 11, 2020, the World Health Organization declared COVID-19 a global pandemic and recommended containment and mitigation measures worldwide. COVID-19 has disrupted and continues to significantly disrupt local, regional, and global economies and businesses. The
COVID-19 outbreak is disrupting supply chains and affecting production and sales across a range of industries. The extent of the impact of COVID-19 on the Company’s operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on the Company’s customers, employees and vendors, all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact the Company’s financial condition and/or results of operations is uncertain.
In response to COVID-19, the Company put into place certain restrictions, requirements and guidelines to protect the health of its employees and clients, including requiring that certain conditions be met before employees return to the Company’s offices. Also, to protect the health and safety of its employees, the Company’s daily execution has evolved into a largely virtual model. The Company plans to continue to monitor the current environment and may take further actions that may be required by federal, state or local authorities or that it determines to be in the interests of its employees, customers, and partners.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales (or revenues) and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that estimates made as of the date of the financial statements could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from those estimates. Significant accounting estimates reflected in the Company’s consolidated financial statements include, but are not limited to, revenue recognition, allowance for doubtful accounts, recognition and measurement of income tax assets, valuation of share-based compensation, and the valuation of net assets acquired.
Asset Acquisitions
When applicable, the Company accounts for the acquisition of a business in accordance with the accounting standards codification (“ASC”) guidance for business combinations, whereby the total purchase consideration transferred is allocated to the assets acquired and liabilities assumed, including amounts attributable to non-controlling interests, when applicable, based on their respective estimated fair values as of the date of acquisition. Goodwill represents the excess of purchase consideration transferred over the estimated fair value of the identifiable net assets acquired in a business combination.
Assigning estimated fair values to the net assets acquired requires the use of significant estimates, judgments, inputs, and assumptions regarding the fair value of the assets acquired and liabilities assumed. Estimated fair values of assets acquired and liabilities assumed are generally based on available historical information, independent valuations or appraisals, future expectations, and assumptions determined to be reasonable but are inherently uncertain with respect to future events, including economic conditions, competition, the useful life of the acquired assets, and other factors. The company may refine the estimated fair values of assets acquired and liabilities assumed, if necessary, over a period not to exceed one year from the date of acquisition by taking into consideration new information that, if known at the date of acquisition, would have affected the estimated fair values ascribed to the assets acquired and liabilities assumed. The judgments made in determining the estimated fair value assigned to assets acquired and liabilities assumed, as well as the estimated useful life and depreciation or amortization method of each asset, can materially impact the net earnings of the periods subsequent to the acquisition through depreciation and amortization, and in certain instances through impairment charges, if the asset becomes impaired in the future. During the measurement period, any purchase price allocation changes that impact the carrying value of goodwill affects any measurement of goodwill impairment taken during the measurement period, if applicable. If necessary, purchase price allocation revisions that occur outside of the measurement period are recorded within cost of sales or selling, general and administrative expense within the Consolidated Statements of Earnings depending on the nature of the adjustment.
F-8 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
When an acquisition does not meet the definition of a business combination because either: (i) substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset, or group of similar identified assets, or (ii) the acquired entity does not have an input and a substantive process that together significantly contribute to the ability to create outputs, the company accounts for the acquisition as an asset acquisition. In an asset acquisition, goodwill is not recognized, but rather, any excess purchase consideration over the fair value of the net assets acquired is allocated on a relative fair value basis to the identifiable net assets as of the acquisition date and any direct acquisition-related transaction costs are capitalized as part of the purchase consideration.
Revenue Recognition
The Company recognizes revenue in accordance with the Financial Accounting Standards Board (“FASB”) ASC 606, Revenue from Contracts with Customers, which requires that five basic steps be followed to recognize revenue: (1) a legally enforceable contract that meets criterial standards as to composition and substance is identified; (2) performance obligations relating to provision of goods or services to the customer are identified; (3) the transaction price, with consideration given to any variable, noncash, or other relevant consideration, is determined; (4) the transaction price is allocated to the performance obligations; and (5) revenue is recognized when control of goods or services is transferred to the customer with consideration given, whether that control happens over time or not. Determination of criteria (3) and (4) are based on our management’s judgments regarding the fixed nature of the selling prices of the products and services delivered and the collectability of those amounts.
Private Label Customers are wholesale distributors of the Company’s product, under their own wholesale private label brand. The products are made to Company specifications and shipped directly to the wholesaler. The pricing is predicated upon a volume discount negotiated at the time of the placement of the orders. Product is produced and labeled in the Washington manufacturing facility and shipped directly to the Private Label customer who re-distributes to their retail and other customers. The products are fully paid when shipped.
Revenue from product sales is recognized when an order has been obtained, the price is fixed and determinable, the product is shipped, title has transferred, and collectability is reasonably assured.
The Company’s Duramed Division provides a sam® Pro 2.0 medical device to patients through a doctor program whereby the physician evaluates the patients’ needs for medical necessity, and if determined that the device use would be beneficial, writes a prescription for the patient who signs a rental form, for a 35-day cycle for the unit, that is submitted to Duramed who bills the appropriate insurance company. The insurance company pays the invoice, or a negotiated amount via arbitration, and that revenue is reported as revenue when invoiced to the insurance carrier. The collected amount is reconciled with the invoice amount on a daily basis.
Service revenue consists of hemp processing services provided by the Company to other hemp related entities. Services revenues are recorded when services are rendered.
Freight billed to customers is included within sales on the consolidated statement of operations. The related freight charged to the Company is included within cost of revenues. Sales tax collected from customers is remitted to governmental authorities on a net basis.
Cost of Revenues
The cost of revenues is the total cost incurred to obtain a sale, the cost of the goods sold, and costs related to the processing of hem for outside parties. The Company’s policy is to recognize it in the same manner as, and in conjunction with, revenue recognition. Cost of revenues primarily consist of the costs directly attributable to revenue recognized and includes expenses related to the production, packaging and labeling of our CBD products and durable medical goods.
F-9 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Cash, cash equivalents and restricted cash
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents.
Accounts receivables, net
Trade receivables arise from granting credit to customers in the normal course of business, are unsecured and are presented net of an allowance for doubtful accounts. The allowance is based on a number of factors, including the length of time the receivable is past due, the Company’s previous loss history, the customer’s current ability to pay, and the general condition of the economy and industry as a whole. Depending on the customer, payment is due between 30 and 60 days after the customer receives an invoice. Certain receivables related to durable medical devices can have collection periods of 18 to 24 months due to the inherent nature of no-fault insurance claims. The Company has taken this into consideration when assessing receivables related to durable medical devices. Other accounts that are more than 45 days past due are individually analyzed for collectability. When all collection efforts have been exhausted, the accounts are written off. Historically, the Company has not suffered significant losses with respect to its trade receivables.
Inventories
Inventories, which consist of purchased components for resale, are valued at the lower of average cost (which approximates the first-in, first-out method) and net realizable value. The Company reduces the carrying value of inventory for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or other economic factors.
Long-lived assets
Property and equipment are recorded at cost and presented net of accumulated depreciation. Major additions and betterments are capitalized while maintenance and repairs, which do not improve or extend the life of the respective assets, are expensed. Property and equipment are depreciated on the straight-line basis over their estimated useful lives.
Definite-lived intangible assets arising from asset acquisitions include intellectual property, patents, trademarks, and certain hemp processing registrations. Definite-lived intangible assets are amortized over the estimated period during which the asset is expected to contribute directly or indirectly to future cash flows.
The Company reviews its long-lived assets for impairment whenever events or circumstances exist that indicate the carrying amount of an asset or asset group may not be recoverable. The recoverability of long-lived assets is measured by a comparison of the carrying amount of the asset or asset group to the future undiscounted cash flows expected to
be generated by that asset group. If the asset or asset group is considered to be impaired, an impairment loss would be recorded to adjust the carrying amounts to the estimated fair value. No such impairment was recorded during the periods covered by this report.
F-10 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Leases
The Company determines if an arrangement is or contains a lease at contract inception. In arrangements that involve an identified asset, there is also judgment in evaluating if we have the right to direct the use of that asset.
The Company does not have any finance leases. Operating leases are recorded in our consolidated balance sheets. Right-of-use (“ROU”) assets and lease liabilities are measured at the lease commencement date based on the present value of the remaining lease payments over the lease term, determined using the discount rate for the lease at the commencement date. Because the rate implicit in our leases is not readily determinable, we use our incremental borrowing rate as the discount rate, which approximates the interest rate at which we could borrow on a collateralized basis with similar terms and payments and in similar economic environments. As of December 31, 2022, our leases had remaining lease terms of up to 3 years, some of which included options to extend the lease for up to 14 years and options to terminate the lease within 1 year. Optional periods to extend the lease, including by not exercising a termination option, are included in the lease term when it is reasonably certain that the option will be exercised. Operating lease expense is recognized on a straight-line basis over the lease term. We account for lease and non-lease components, principally common area maintenance for our facilities leases, as a single lease component.
In accordance with accounting requirements, leases with an initial term of 12 months or less are recorded on the balance sheet, with lease expense for these leases recognized on a straight-line basis over the lease term.
Income taxes
Income taxes are accounted for under the asset and liability method pursuant to ASC Topic 740, Income Taxes (ASC 740), whereby deferred tax assets and liabilities are recognized for the expected future consequences attributable to the differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the period of the change. Further, deferred tax assets are recognized for the expected realization of available net operating loss and tax credit carryforwards. A valuation allowance is recorded on gross deferred tax assets when it is “more likely than not” that such asset will not be realized. When evaluating the realizability of deferred tax assets, all evidence, both positive and negative, is evaluated. Items considered in this analysis include the ability to carry back losses, the reversal of temporary differences, tax planning strategies, and expectations of future earnings. The Company reviews its deferred tax assets on a quarterly basis to determine if a valuation allowance is required based upon these factors. Changes in the Company’s assessment of the need for a valuation allowance could give rise to a change in such allowance, potentially resulting in additional expense or benefit in the period of change.
The Company’s income tax provision or benefit includes U.S. federal, state and local income taxes and is based on pre-tax income or loss. In determining the annual effective income tax rate, the Company analyzed various factors, including its annual earnings and taxing jurisdictions in which the earnings were generated, the impact of state and local income taxes, and its ability to use tax credits and net operating loss carryforwards.
F-11 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Under ASC 740, the amount of tax benefit to be recognized is the amount of benefit that is “more likely than not” to be sustained upon examination. The Company analyzes its tax filing positions in all of the U.S. federal, state, local,
and foreign tax jurisdictions where it is required to file income tax returns, as well as for all open tax years in these jurisdictions. If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established in the consolidated financial statements. The Company recognizes accrued interest and penalties related to unrecognized tax positions in the provision for income taxes.
The Company’s income tax returns are subject to examination by federal and state authorities in accordance with prescribed statutes.
Stock-based compensation
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation—Stock Compensation (“ASC 718”), by recognizing compensation expense based upon the estimated fair value of the awards on the date of grant. The Company determines the estimated grant-date fair value of restricted shares using the closing price on the date of the grant and the grant-date fair value of stock options using the Black-Scholes-Merton model. In order to calculate the fair value of the options, certain assumptions are made regarding the components of the model, including risk-free interest rate, volatility, expected dividend yield and expected option life. Changes to the assumptions could cause significant adjustments to the valuation. The Company recognizes compensation costs ratably over the period of service using the straight-line method.
Due to the limited trading history of the Company’s common stock, estimated volatility was based on a peer group of public companies and took into consideration the increased short-term volatility in historical data due to COVID-19.
Pursuant to ASC Topic 260, Earnings Per Share, basic net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding during the reporting periods, including vested but undelivered stock options.
Diluted net loss per share is based on the weighted average number of shares outstanding during the periods plus the effect, if any, of the potential exercise or conversion of securities, such as warrants and restricted stock units that would cause the issuance of additional shares of common stock. In computing the basic and diluted net loss per share applicable to common stockholders during the periods listed in the consolidated statements of operations, the weighted average number of shares are the same for both basic and diluted net loss per share due to the fact that when a net loss exists, dilutive shares are not included in the calculation as the impact is anti-dilutive. An anti-dilutive impact is an increase in earnings per share or a decrease in net loss per share that would result from the conversion, exercise, or issuance of certain contingent securities.
Concentration of business and credit risk
Financial
instruments, which potentially subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents and
accounts receivable. Cash held by the Company, in financial institutions, may exceed the federally insured limit of $
No
customer accounted for more than
Fair value of financial instruments
Fair value is the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact, and it considers assumptions that market participants would use when pricing the asset or liability.
F-12 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
ASC Topic 820, Fair Value Measurements and Disclosures provides a fair value hierarchy, which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement as follows:
● | Level 1 — inputs are based upon unadjusted quoted prices for identical assets or liabilities traded in active markets. | |
● | Level 2 — inputs are based upon quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
● | Level 3 — inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. |
Assets measured at fair value on a non-recurring basis include goodwill, and tangible and intangible assets. Such assets are reviewed annually for impairment indicators. If a triggering event has occurred, the assets are re-measured when the estimated fair value of the corresponding asset group is less than the carrying value. The fair value measurements, in such instances, are based on significant unobservable inputs (Level 3).
The carrying amounts of the Company’s financial instruments, which include accounts receivables, accounts payable and accrued expenses and debt at floating interest rates, approximate their fair values, principally due to their short-term nature, maturities or nature of interest rates.
Advertising and vendor considerations
Advertising costs are expensed as incurred.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Segment reporting
The Company operates as a single operating segment. The Chief Executive Officer, who is the chief operating decision maker, manages the Company as a single profit center in order to promote collaboration, provide comprehensive service offerings across the entire customer base, and provide incentives to employees based on the success of the organization as a whole. Although certain information regarding selected products or services is discussed for purposes of promoting an understanding of the Company’s business, the chief operating decision maker manages the Company and allocates resources at the consolidated level.
Recently Adopted Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issued the following accounting pronouncement which became effective for the Company in 2021, and which did not have a material impact on its condensed consolidated financial statements:
F-13 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
In May 2021, the FASB issued ASU No. 2021-04, Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU No. 2021-04”), which provides guidance for a modification or an exchange of a freestanding equity-classified written call option that is not within the scope of another Topic. Under ASU 2021-04, an entity is required to treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option, that remains equity classified, as an exchange of the original instrument for a new instrument. ASU 2021-04 also provides guidance on the measurement of the effect of a modification or exchange and requires entities to recognize the effect of any such modification or exchange on the basis of the substance of the transaction.
ASU No. 2021-04 was effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Entities were required to apply the amendments prospectively to modifications or exchanges that occurred on or after the effective date. ASU No. 2021-04 was effective for the Company on January 1, 2022. The adoption did not materially impact the Company’s financial condition or results as the Company’s treatment of such modifications were already consistent with the guidance in ASU 2021-04.
Recently issued accounting standards
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated balance sheets, statements of changes in equity, statements of operations and statements of cash flows.
Note 4 – Fair Value Measurements
The carrying value and fair value of the Company’s financial instruments are as follows:
December 31, 2022 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Liabilities | ||||||||||||||||
Warrant liabilities | $ | $ | $ | $ |
As of December 31, 2021 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Liabilities | ||||||||||||||||
Warrant liabilities | $ | $ | $ | $ |
The fair value of the warrants outstanding was estimated using the Black-Scholes model. The application of the Black-Scholes model requires the use of a number of inputs and significant assumptions including volatility. The following reflects the inputs and assumptions used:
As of | December 31, 2022 | December 31, 2021 | ||||||
Stock price | $ | N/A | ||||||
Exercise price | $ | N/A | ||||||
Remaining term (in years) | N/A | |||||||
Volatility | % | N/A | ||||||
Risk-free rate | % | N/A | ||||||
Expected dividend yield | % | — |
The warrant liabilities will be remeasured at each reporting period with changes in fair value recorded in other income (expense), net on the consolidated statements of operations. The change in fair value of the warrant liabilities was as follows:
Warrant liabilities | ||||
Estimated fair value at December 31, 2021 | $ | |||
Issuance of warrant liabilities | ||||
Change in fair value | ( | ) | ||
Estimated fair value at December 31, 2022 | $ |
F-14 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Note 5 – Asset Acquisitions
Botanical Biotech Asset Acquisition
On
March 11, 2021, Company entered into an Asset Acquisition Agreement, which was fully executed on March 17, 2021, with multiple sellers
(each, a “Seller” and, collectively, the “Sellers”), pursuant to which the Sellers agreed to sell certain assets
to Company, and to transfer such assets to Botanical Biotech, LLC, a newly-formed, wholly-owned subsidiary of the Company (“Transferee”
or “BB”). The assets purchased (“BB Assets”) include certain materials and manufacturing equipment, marketing
or promotional designs, brochures, advertisements, concepts, literature, books, media rights, rights against any other person or entity
in respect of any of the foregoing and all other promotional properties, in each case primarily used, developed or acquired by the Sellers
for use in connection with the ownership and operation of the BB Assets. In exchange for the BB Assets the Company will pay the Seller
a maximum of $
In conjunction with the BB asset acquisition, the Company entered into consulting agreements with two sellers to coordinate the new start-up. All consideration was related to the acquisition of equipment and supplies. No liabilities were acquired.
The Company and BB entered into an employment agreement with Lebsock dated March 11, 2021 (the “Lebsock Agreement”) pursuant to which Lebsock will serve as the President of BB for a term of three (3) years. The term of the Lebsock Agreement will automatically renew for an additional 3-year term unless other terminated by either party.
Lebsock
will receive a base salary equal to $
Effective
March 16, 2021, BB entered into a Consulting Agreement (the “Schlosser Agreement”) with Schlosser pursuant to which Schlosser
has agreed to provide consulting services to BB for a period of 3 months in exchange for compensation equal to $
F-15 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
CO Botanicals Asset Acquisition
On August 12, 2021, The Company and CO Botanicals LLC (“COB”), a newly-formed, wholly-owned subsidiary of the Company entered into an Equipment Acquisition Agreement (the “TWS Agreement”) with TWS Pharma, LLC,
(“TWS
Pharma”) and L7 TWS Pharma, LLC (“L7 TWS” and, collectively with TWS Pharma, “TWS”). Pursuant to the TWS
Agreement, COB agreed to purchase certain equipment and other assets from TWS (the “TWS Assets”) for a total purchase price
equal to $
TN Botanicals Asset Acquisition
On
August 13, 2021 the Company and TN Botanicals LLC (“TNB”), a newly-formed, wholly-owned subsidiary of the Company, entered
into an Asset Purchase Agreement (the “MCB Agreement”) with Music City Botanicals, LLC, pursuant to which TNB agreed to purchase
certain equipment, other assets, and intellectual property from MCB (the “MCB Assets”) for a total purchase price equal to
$
Imbibe Health Solutions Asset Acquisition
On
February 22, 2021, Can B̅ Corp. (the “Company”) entered into a material definitive agreement (“Acquisition Agreement”)
with Imbibe Health Solutions, LLC, a Delaware limited liability company (“Imbibe”), pursuant to which Imbibe agreed to sell
certain of its assets to the Company. The assets to be purchased (“Assets”) include the intellectual property rights and
other intangible assets relating to its branded products containing CBD. In exchange for the Assets, the Company has agreed to pay Imbibe
$
Note 6 – Inventories
Inventories consist of hemp biomass that is received in bulk. The CBD biomass is initially processed by extraction into winterized crude oil. The winterized crude oil is then processed into distillate and then into CBD isolate. These three processes are continuous as raw materials are converted from biomass to isolate in back-to-back operations so work in process is just a matter of hours in the processing cycle from biomass to CBD isolate. The isolate is then sold at wholesale or further processed into isomers. Inventories consistent of the following:
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Raw materials | $ | $ | ||||||
Finished goods | ||||||||
Total | $ | $ |
F-16 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Note 7 – Property and Equipment
Property and equipment consist of:
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Furniture and fixtures | $ | $ | ||||||
Office equipment | ||||||||
Manufacturing equipment | ||||||||
Medical equipment | ||||||||
Leasehold improvements | ||||||||
Total | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Net | $ | $ |
Depreciation
expense related to property and equipment was $
Note 8 –Intangible Assets
Intangible assets consist of:
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Technology, IP and patents | $ | $ | ||||||
Total | ||||||||
Accumulated amortization | ( | ) | ( | ) | ||||
$ | $ |
Amortization
expense, related to technology, IP, and patents was $
Amortization expense for each of the next five years ending and thereafter is estimated to be as follows:
Years ending December 31, | ||||
2023 | $ | |||
2024 | ||||
2025 | ||||
2026 | ||||
2027 | ||||
Thereafter | ||||
$ |
F-17 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Note 9 – Notes and Loans Payable
Convertible Promissory Notes
In
December 2020, the Company entered into a convertible promissory note (“ASOP Note I”) with Arena Special Opportunities Partners
I, LP (“ASOP”). The principal balance of the note is $
In
December 2020, the Company entered into a convertible promissory note (“ASOF Note I”) with Arena Special Opportunities Fund,
LP (“ASOF”). The principal balance of the note is $
In
May 2021, the Company entered into a convertible promissory note (“ASOP Note II”) with Arena Special Opportunities Partners
I, LP. The principal balance of the note is $
In
May 2021, the Company entered into a convertible promissory note (“ASOF Note II”) with Arena Special Opportunities Fund,
LP. The principal balance of the note is $
The
maturity dates for the above notes were extended to April 30, 2022 on April 14, 2022 in exchange for the Company’s promise to pay
the holders $
F-18 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
On
January 1, 2022, the Company entered into a convertible promissory note (“Empire Note”) with Empire Properties, LLC (“Empire”).
The principal balance of the note is $
In
February 2022, the Company entered into a convertible promissory note (“Tysadco Note”) with Tysadco Partners, LLC (“Tysadco”).
The principal balance of the note is $
In
March 2022, the Company entered into a convertible promissory note (“BL Note”) with Blue Lake Partners, LLC (“BL”).
The principal balance of the note is $
In
March 2022, the Company entered into a convertible promissory note (“MH Note”) with Mast Hill Fund, LP (“MH”).
The principal balance of the note is $
In
April 2022, the Company entered into a convertible promissory note (“FM Note”) with Fourth Man, LLC (“FM”). The
principal balance of the note is $
F-19 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
In
June 2022, the Company entered into a convertible promissory note (“Alumni Note”) with Alumni Capital, LP (“Alumni”).
The principal balance of the note is $
In
June 2022, the Company entered into a convertible promissory note (“Tysadco Note II”) with Tysadco Partners, LLC. The principal
balance of the note is $
In
August 2022, the Company entered into a convertible promissory note (“WN”) with Walleye Opportunities Master Fund Ltd. (“WOMF”).
The principal balance of the note is $
In
August 2022, the Company entered into a convertible promissory note (“Tysadco Note III”) with Tysadco. The principal balance
of the note is $
In
September 2022, the Company entered into a convertible promissory note (“Tysadco Note IV”) with Tysadco. The principal balance
of the note is $
In
October 2022, the Company entered into a convertible promissory note (“Tysadco Note V”) with Tysadco. The principal balance
of the note is $
F-20 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
TWS Note
On
August 12, 2021, pursuant to an Equipment Acquisition Agreement, the Company entered into a twelve-month promissory note of $
Other Loans
On
November 18, 2021, the Company entered into a $
During
the year ended December 31, 2022, the Company entered into various agreements relating to the sales of future receivables for an aggregate
purchase amount of approximately $
On
February 11, 2022, the Company entered into a $
On
August 18, 2022, the Company entered into a $
On
October 14, 2022, the Company entered into a $
On
October 14, 2022, the Company entered into a $
On
November 17, 2022, the Company entered into a $
Note 10 – Stockholders’ Equity
Preferred Stock
F-21 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Each share of Series C Preferred Stock has preference to payment of dividends, if and when declared by the Company, compared to shares of our common stock. Each Preferred Series C share is convertible into shares of common stock. The shares of Series C Preferred Stock have voting rights as if fully converted. During the year ended December 31, 2022 the Company issued shares of Series C preferred stock.
On
February 8, 2021, the Company’s Board of Directors approved the designation of the Series D Preferred Shares and the number of
shares constituting such series, and the rights, powers, preferences, privileges and restrictions relating to such series. On March 27,
2021, the Company filed an amendment to its articles of incorporation to authorize
Common Stock
For the year ended December 31, 2022, the Company issued an aggregate of shares of Common Stock under its Offering Statement on Form 1-A (File No. 024-11233) (the “Regulation A Offering”).
In addition, for the year ended December 31, 2022, the Company issued an aggregate of , , , , and of Common Stock for asset acquisitions, property and equipment, services rendered, exercise of warrants, and in lieu of interest repayments, respectively.
F-22 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
The Company has an employee share option plan, which is shareholder-approved, permits the grant of share options and shares to its employees. The Company believes that such awards better align the interests of its employees with those of its shareholders. Option awards are generally granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Share awards generally vest over five years.
The fair value of each option award is estimated on the date of grant using a lattice-based option valuation model that uses the assumptions noted in the following table. Because lattice-based option valuation models incorporate ranges of assumptions for inputs, those ranges are disclosed. Expected volatilities are based on implied volatilities from traded options on the Company’s stock, historical volatility of the Company’s stock, and other factors. The expected term of options granted is derived from the output of the option valuation model and represents the period of time that options granted are expected to be outstanding; the range given below results from certain groups of employees exhibiting different behavior. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
December 31, 2022 | December 31, 2021 | |||||||
Per share fair value at grant date | $ | | $ | | ||||
Risk free interest rate | ||||||||
Expected volatility | % | % | ||||||
Dividend yield | % | % | ||||||
Expected life in years |
Option Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life (Years) | ||||||||||
Outstanding, January 1, 2021 | $ | |||||||||||
Granted | $ | |||||||||||
Outstanding, December 31, 2021 | $ | | ||||||||||
Granted | $ | |||||||||||
Exercised | - | |||||||||||
Forfeited | - | |||||||||||
Expired | - | |||||||||||
Outstanding and exercisable, December 31, 2022 | $ |
At December 31, 2022 all stock options are
intrinsic value.
As of December 31, 2022, there was no unrecognized compensation cost related to nonvested stock-based compensation arrangements granted under the share option plan. The Company recognized $of stock-based compensation expense during the year ended December 31, 2022.
F-23 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Note 12 – Income Taxes
The provision for income taxes consisted of the following:
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
State franchise tax | $ | | $ |
The Company’s effective income tax rate differs from the federal statutory rate primarily as a result of certain expenses being deductible for financial reporting purposes that are not deductible for tax purposes, the existence of research and development tax credits, operating loss carryforwards, and adjustments to previously recorded deferred tax assets and liabilities due to the enactment of the Tax Cuts and Jobs Act in 2017.
The difference in the provision for income taxes and the amount computed by applying the statutory federal income tax rates consists of the following:
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Expected income tax benefit | $ | ( | ) | $ | ( | ) | ||
State franchise tax | ||||||||
Non-deductible stock-based compensation | ||||||||
Non-deductible stock-based interest | ||||||||
Increase in deferred income tax assets valuation allowance | ||||||||
Provision for income taxes | $ | $ |
Principal components of the Company’s deferred tax assets as of December 31, 2022 and December 31, 2021 were as follows:
December 31, | December 31, | |||||||
2022 | 2021 | |||||||
Net operating loss carryforward | $ | ( | ) | $ | ( | ) | ||
Valuation allowance | ||||||||
Net | $ | $ |
At
December 31, 2022, the Company had net operating loss carryforwards of approximately $
The Company files a federal income tax return and separate income tax returns in various states. For federal and certain states, the 2019 through 2022 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations.
The
Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit
use of the existing deferred tax assets. A significant component of objective negative evidence identified during management’s
evaluation was the cumulative loss incurred over the three-year period ended December 31, 2022. Such objective evidence limits the ability
to consider other subjective evidence, such as our forecasts of future taxable income and tax planning strategies. On the basis of this
evaluation as of December 31, 2022 and 2021, the Company recognized a full valuation allowance against its net deferred tax assets, pursuant
to ASC 740, as of December 31, 2022. Based on the Company’s evaluation, it was determined that
Note 13 – Related Party Transactions
For
the years ended December 31, 2022 and 2021, the Company paid fees to a service provider that is a relative of a director for professional
services in the amount of $
At
December 31, 2022, the Company has amounts due to directors of the Company of approximately $
F-24 |
Can B̅ Corp. and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 2022 and 2021
Note 14 – Commitments and Contingencies
Employment Agreements
On
December 28, 2020, the Company entered into new three-year Employment Agreements with CEO Marco Alfonsi, CFO Stanley Teeple, and Pure
Health Products LLC Pasquale Ferro. Under these agreements, they are to receive a i) base salary of fifteen thousand dollars ($
Consulting Agreements
On
July 15, 2020, we engaged an advisor to provide consulting services under an Investor Relations and Advisory Agreement (the “Advisory
Agreement”). Pursuant to the Advisory Agreement, we agreed to pay the Consulting Firm a restricted common stock monthly fee of
$
Lease Agreements
The Company leases office space in numerous medical facilities offices under month-to-month agreements. The Company determines if a contract contains a lease at inception. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date of the lease based on the present value of lease payments over the lease term. The Company uses the incremental borrowing rate to determine the present value of lease payments, as the implicit rate is not readily determinable. The ROU asset also includes any lease payments made. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Rent
expense for the years ended December 31, 2022 and 2021 was $
At December 31, 2022, the total future minimum lease payments were as follows:
2023 | $ | |||
2024 | ||||
Total future minimum lease payments | $ | |||
Less: Interest | ( | ) | ||
Total present value of lease liabilities | $ |
As of December 31,
2022, the Company had a weighted average remaining lease term of
Note 15 – Subsequent Events
Issuance of OID Note and Warrant
On
March 2, 2023, the Company completed the sale of a promissory note (the “Note”) in the principal amount of $
The
Note is payable in nine (9) monthly installments of $
The Note requires the Company to use reasonable commercial efforts to complete an offering which will result in an uplisting of its common stock to a national securities exchange within a reasonable time following the issuance of the Note. The Note contains certain negative covenants, including a prohibition on the incurrence of debt that is senior or pari passu to the indebtedness represented by the Note, the creation of liens on the Company’s assets, the payment of dividends and other distributions on the Company’s common stock, the repurchase of the Company’s common stock, the sale of a significant portion of the Company’s assets and the repayment of indebtedness other than existing indebtedness.
F-25 |
The
Company may elect to pay all or a portion of a monthly installment due under the Note by converting such amount into shares of the Company’s
common stock at a price of $
If the Company receives cash proceeds from any source, including payments from customers or from the issuance of equity or debt, the Investor can require the Company to apply 100% of such proceeds to the repayment of the Note.
If the Company completes a placement of securities, the Investor will have the right to accept such new securities in lieu of the Note and Warrant. For so long as the Note is outstanding, if the Company issues a security or amends the terms of a security issued before the issue date of the Note, and the Investor believes that terms of the new or amended security are more favorable to the holder than the terms provided to the Investor, the Investor may require that such terms become part of Investor’s transaction documents with the Company.
In
the event of a default under the Note, the Company shall be required to pay the Investor an amount equal to the amount determined by
multiplying the principal amount then outstanding plus default interest by
The Investor has been granted a right of first refusal to participate in future financing transactions conducted by the Company.
As
additional consideration for the purchase of the Note, the Company issued the Investor a warrant (the “Warrant”) to purchase
The Company has entered into a Registration Rights Agreement with the Investor pursuant to which the Company has agreed to file a registration statement with the Securities and Exchange Commission by April 13, 2023 to register the shares of common stock issuable upon the conversion of the Note and the exercise of the Warrant for public resale. If the Company fails to file the registration statement by April 13, 2023 or have the registration statement declared effective by the deadlines set forth in the Registration Rights Agreement, the Company will be required to make a payment of 2% of the amount then owed under the Note for each 30 day period after the applicable deadline that the Company does not file the registration statement or the registration statement is not declared. The Investor has also been granted piggyback registration rights with respect to the shares of common stock issuable upon the conversion of the Note and the exercise of the Warrant. Each of the Note and Warrant grants full ratchet anti-dilution protection to the Investor in the event that the Company issues common stock or rights to purchase common stock at a price less than the conversion or exercise price then in effect.
F-26 |
Each
of the Note and Warrant contains provisions pursuant to which the Investor has agreed not to effect a conversion of the Note or exercise
of the Warrant if the conversion or exercise would result in the Investor becoming the beneficial owner of more than
Forbearance and Amendment of Outstanding Notes.
Contemporaneous
with the sale of the Note and Warrant to the Investor, Arena Special Opportunities Partners I, L.P. and Arena Special Opportunities Fund,
L.P. (collectively, “Arena”), who hold promissory notes with an unpaid principal balance of approximately $
The
Forbearance Agreement requires the Company and/or Company’s subsidiaries, Duramed, Inc. and Duramed MI, LLC (together the “Duramed
Subsidiaries”) to remit to Arena on a monthly basis certain accounts receivable collected by the Company and/or the
Duramed Subsidiaries until the total amount collected is $
If
Arena fully exercises warrants to purchase shares of the Company’s common stock that were previously issued to it, and the aggregate
market value of the shares acquired is less than $
As a condition to the closing of the sale of the Note and Warrant to the Investor, certain terms of certain promissory notes previously issued by the Company were amended, including the following:
● | the
maturity date of a promissory note in the principal amount of $ | |
● | in
consideration of the Company repaying an aggregate of $ | |
● | in
consideration of an increase in the aggregate principal amount by $ | |
● | in
consideration of the Company’s agreement to provide a product credit for future orders of $ | |
● | the
maturity date of a promissory note in the principal amount of $ | |
● | in
consideration of the repayment of a total of $ | |
● | in
consideration of an increase in the aggregate principal amount to $ |
F-27 |
Exhibit 10.49
Exhibit 10.50
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of February 27, 2023, by and between CAN B̅ CORP., a Florida corporation, with headquarters located at 960 South Broadway, Suite 120, Hicksville, NY 11801 (the “Company”), and the buyer identified on the signature page hereto (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act;
B. Buyer desires to purchase from the Company, and the Company desires to issue and sell to the Buyer, upon the terms and conditions set forth in this Agreement, a promissory note of the Company, in the aggregate principal amount identified on the signature page hereto (as the principal amount thereof may be increased pursuant to the terms thereof, and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof) in the form attached hereto as Exhibit A, convertible into shares of common stock, nil par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note;
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of the Note as is set forth immediately below its name on the signature pages hereto; and
D. The Company wishes to issue a common stock purchase warrant to purchase the number of shares of Common Stock identified on the signature page hereto in the form attached hereto as Exhibit B (the “Warrant”, together with this Agreement, the Note, all exhibits and schedules thereto, and any other documents or agreements executed in connection with the transactions contemplated hereunder, the “Transaction Documents”) to the Buyer as additional consideration for the purchase of the Note, which shall be earned in full as of the Closing Date, as further provided herein.
NOW THEREFORE, in consideration of the foregoing and of the agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Buyer hereby agree as follows:
1. Purchase and Sale of Note and Warrant.
(a) Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer, and the Buyer agrees to purchase from the Company, the Note, as further provided herein. As used in this Agreement, the term “Business Day” shall mean any day other than a Saturday, Sunday, or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed; provided, for the avoidance of doubt, that no such commercial banks shall be considered to be authorized or required by law or executive order to remain closed as a result of “stay at home”, “shelter-in-place”, “non-essential employee” or other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of such commercial banks are generally open for sue by customers on such day.
(b) Form of Payment. On the Closing Date: (i) the Buyer shall pay the amount identified on the signature page hereto as the actual amount of the purchase price of the Note (the “Purchase Price”), to be issued and sold to it at the Closing (as defined below), by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note, and (ii) the Company shall deliver such duly executed Note and Warrant, on behalf of the Company, to the Buyer, against delivery of such Purchase Price. At the Closing, the Company shall reimburse the Buyer for $50,000 of Buyer’s legal fees in connection with the transactions contemplated by this Agreement, which amount may be withheld from the Purchase Price at the Buyer’s discretion.
(c) Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be on the date that the Purchase Price for the Note is paid by Buyer pursuant to terms of this Agreement.
(d) Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties (including via exchange of electronic signatures).
(e) Warrant. On or before the Closing Date, the Company shall issue the Warrant to the Buyer pursuant to the terms contained therein, which shall be earned in full as of the Closing Date.
2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company as of the Closing Date that:
(a) Investment Purpose. As of the Closing Date, the Buyer is purchasing the Note and the Warrant (the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (the “Conversion Shares”), and the shares of Common Stock issuable upon exercise of or otherwise pursuant to the Warrant (the “Exercise Shares”)), together with the Note and the Warrant shall collectively be referred to herein as the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
(b) Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
(c) Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
(d) Information. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, afforded the opportunity to ask questions of the Company regarding its business and affairs. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information regarding the Company or otherwise and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.
(e) Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
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(f) Transfer or Re-sale. The Buyer understands that (i) the sale or resale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (1) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (2) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel (which may be the Legal Counsel Opinion (as defined below)) that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (3) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (4) the Securities are sold pursuant to Rule 144 or other applicable exemption, or (5) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged in connection with a bona fide margin account or other lending arrangement secured by the Securities, and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and the Buyer in effecting such pledge of Securities shall be not required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or otherwise.
(g) Legends. The Buyer understands that until such time as the Securities have been registered under the 1933 Act or may be sold pursuant to Rule 144, Rule 144A under the 1933 Act, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S, OR OTHER APPLICABLE EXEMPTION UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate or book entry statement for the applicable shares of Common Stock without such legend to the holder of any Security upon which it is stamped or (as requested by such holder) issue the applicable shares of Common Stock to such holder by electronic delivery by crediting the account of such holder’s broker with The Depository Trust Company (“DTC”), if, unless otherwise required by applicable state securities laws, (i) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (ii) the Company or the Buyer provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(n) hereof) to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption at the Deadline (as defined in the Note), it will be considered an Event of Default under Section 4.1(c) of the Note.
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(h) Authorization; Enforcement. This Agreement has been duly and validly authorized by the Buyer and has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and except as may be limited by the exercise of judicial discretion in applying principles of equity.
3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer as of the Closing Date that:
(a) Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. The Company owns, directly or indirectly, all of the capital stock or other equity interests of each Subsidiary, if any, free and clear of any liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued and are fully paid. Neither the Company nor any of its Subsidiaries are in violation nor default of any of the provisions of its respective certificate or articles of incorporation, bylaws or other organizational or charter documents. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiary” means any corporation, limited liability company or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
(b) Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note, and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Warrant, the Note, Conversion Shares, and the Exercise Shares by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note, Warrant, as well as the issuance and reservation for issuance of the Conversion Shares and Exercise Shares issuable upon conversion of the Note and/or exercise of the Warrant) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, its shareholders, or its debt holders is required, (iii) the Transaction Documents have been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign such Transaction Documents and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Transaction Documents, each of such instruments will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms.
(c) Capitalization; Governing Documents. As of January 23, 2023, the authorized capital stock of the Company consisted of: 1,500,000,000 authorized shares of Common Stock, of which 4,595,182 shares were issued and outstanding, and 5,000,000 authorized shares of preferred stock, of which 1,077 shares of Series C Preferred Stock, and 4,000 shares of Series D Preferred Stock were issued and outstanding. All of such outstanding shares of capital stock of the Company, the Conversion Shares, and the Exercise Shares are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement, other than as disclosed on Schedule 3(c), (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of any of the Securities. The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock and the material rights of the holders thereof in respect thereto.
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(d) Issuance of Conversion Shares and Exercise Shares. The Conversion Shares and Exercise Shares are duly authorized and reserved for issuance and, upon conversion of the Note and/or exercise of the Warrant in accordance with its terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
(e) Issuance of Warrant. The issuance of the Warrant is duly authorized and will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
(f) Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect of the Conversion Shares and Exercise Shares to the Common Stock upon the conversion of the Note and/or exercise of the Warrant. The Company further acknowledges that its obligation to issue, upon conversion of the Note and/or exercise of the Warrant, the Conversion Shares and/or Exercise Shares, are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
(g) No Conflicts. The execution, delivery and performance of the Transaction Documents by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares and Exercise Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, note, evidence of indebtedness, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities is subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect), or (iv) except as disclosed on Schedule 3(c)(iii) trigger any anti-dilution and/or ratchet provision contained in any other contract in which the Company is a party thereto or any security issued by the Company. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under the Transaction Documents in accordance with the terms hereof or thereof or to issue and sell the Note or the Warrant in accordance with the terms hereof and, upon conversion of the Note and/or exercise of the Warrant, issue the Conversion Shares and/or Exercise Shares as applicable. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Principal Market (as defined herein) and does not reasonably anticipate that the Common Stock will be delisted by the Principal Market in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing. The “Principal Market” shall mean the principal securities exchange or trading market where such Common Stock is listed or traded, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
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(h) SEC Documents; Financial Statements. The Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 2022, 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 such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act. The Company has never been a “shell company” as described in Rule 144(i)(1)(i).
(i) Absence of Certain Changes. Since December 31, 2022, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
(j) Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. The SEC Documents contain a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
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(k) Intellectual Property. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
(l) No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
(m) Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
(n) Transactions with Affiliates. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options described in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
(o) Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
(p) Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’s purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
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(q) No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
(r) No Brokers; No Solicitation. Other than as set forth on Schedule 3(r), the Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement, or the transactions contemplated hereby. The Company acknowledges and agrees that neither the Buyer nor its employee(s), member(s), beneficial owner(s), or partner(s) solicited the Company to enter into this Agreement and consummate the transactions described in this Agreement.
(s) Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since December 31, 2022, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
(t) Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under any Environmental Laws, and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
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(u) Title to Property; Liens. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(u), if attached hereto, or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.
(v) Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company reasonably believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.
(w) Labor Relations. No labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company or any Subsidiary, which could reasonably be expected to result in a Material Adverse Effect. None of the Company’s or its Subsidiaries’ employees is a member of a union that relates to such employee’s relationship with the Company or such Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and its Subsidiaries believe that their relationships with their employees are good. To the knowledge of the Company, no executive officer of the Company or any Subsidiary, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of any third party, and the continued employment of each such executive officer does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all U.S. federal, state, local and foreign laws and regulations relating to employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to be in compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(x) Internal Accounting Controls. The Company and its Subsidiaries are in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof and as of the Closing Date. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company’s certifying officers have evaluated the effectiveness of the disclosure controls and procedures of the Company and the Subsidiaries as of the end of the period covered by the most recently filed periodic report under the 1934 Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the 1934 Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the internal control over financial reporting (as such term is defined in the 1934 Act) that have materially affected, or is reasonably likely to materially affect, the internal control over financial reporting of the Company and its Subsidiaries.
(y) Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
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(z) Solvency; Indebtedness. The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company’s financial statements for its most recent fiscal year end and interim financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Schedule 3(z) sets forth as of the date hereof all outstanding secured and unsecured Indebtedness of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments, and except as set forth in Schedule (z) none of the Company or its Subsidiaries are in default of any such Indebtedness. For the purposes of this Agreement, “Indebtedness” means (x) any liabilities for borrowed money or amounts owed in excess of $50,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $50,000 due under leases required to be capitalized in accordance with GAAP.
(aa) No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
(bb) No Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
(cc) No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
(dd) Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
(ee) Bank Holding Company Act. Neither the Company nor any of its Subsidiaries is subject to the Bank Holding Company Act of 1956, as amended (the “BHCA”) and to regulation by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). Neither the Company nor any of its Subsidiaries or affiliates owns or controls, directly or indirectly, five percent (5%) or more of the outstanding shares of any class of voting securities or twenty-five percent (25%) or more of the total equity of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve. Neither the Company nor any of its Subsidiaries or affiliates exercises a controlling influence over the management or policies of a bank or any entity that is subject to the BHCA and to regulation by the Federal Reserve.
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(ff) Illegal or Unauthorized Payments; Political Contributions. Neither the Company nor any of its Subsidiaries nor, to the Company’s knowledge, any of the officers, directors, employees, agents or other representatives of the Company or any of its Subsidiaries or any other business entity or enterprise with which the Company or any Subsidiary is or has been affiliated or associated, has, directly or indirectly, made or authorized any payment, contribution or gift of money, property, or services, whether or not in contravention of applicable law, (i) as a kickback or bribe to any person or (ii) to any political organization, or the holder of or any aspirant to any elective or appointive public office except for personal political contributions not involving the direct or indirect use of funds of the Company or any of its Subsidiaries.
(gg) Breach of Representations and Warranties by the Company. The Company agrees that if the Company breaches any of the representations or warranties set forth in this Section 3 and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 4.1(d) of the Note.
4. Additional Covenants, Agreements and Acknowledgments.
(a) Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities if required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.
(b) Use of Proceeds. The Company shall use the proceeds for business development and the repayment of existing indebtedness as agreed upon between the Company and the Buyer, and not for (i) the repayment of any indebtedness owed to officers, directors or employees of the Company or their affiliates, (ii) any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with the Company’s currently existing operations), (iii) any loan, credit, or advance to any officers, directors, employees, or affiliates of the Company, or (iv) in violation or contravention of any applicable law, rule or regulation.
(c) Intentionally Omitted.
(d) Most Favored Nations. Buyer, whether or not participating in a particular Subsequent Placement, shall have the right, exercisable at any time prior to the expiration of the Offer Period for such Subsequent Placement, to accept the securities and terms of such Subsequent Placement in lieu of the Securities and the terms of this Agreement (“MFN Right”). If the Company receives such notice from Buyer of the exercise of its MFN Right as of the expiration of the Offer Period for such Subsequent Placement, then: (i) effective upon the closing of such Subsequent Placement, the terms of the securities (and, if and to the extent relevant, the underlying securities) then held by Buyer and this Agreement (collectively, “Present Terms”) shall automatically be amended by (x) substituting the form, mix and terms of such securities (and, if and to the extent relevant, the underlying securities) with those of the securities from the Subsequent Placement and (y) incorporating by reference, mutatis mutandis, the terms of the Subsequent Placement in lieu of the Present Terms; and (ii) thereafter, upon the reasonable request of the Company or Buyer, the parties shall reasonably cooperate with each other in order to further or better evidence or effect such substitution(s) and amendment(s), and to otherwise carry out the intent and purposes of this Section, including the physical exchange of securities.
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(e) Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Buyer in order to enforce any right or remedy under this Agreement, the Note and any document, agreement or instrument contemplated thereby. Notwithstanding any provision to the contrary contained in this Agreement, the Note and any document, agreement or instrument contemplated thereby, it is expressly agreed and provided that the total liability of the Company under this Agreement, the Note or any document, agreement or instrument contemplated thereby for payments which under applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under applicable law in the nature of interest that the Company may be obligated to pay under this Agreement, the Note and any document, agreement or instrument contemplated thereby exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Buyer with respect to indebtedness evidenced by this Agreement, the Note and any document, agreement or instrument contemplated thereby, such excess shall be applied by the Buyer to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Buyer’s election.
(f) Restriction on Activities. Commencing as of the date first above written, and until the earlier of payment of the Note in full or full conversion of the Note, the Company shall not, directly or indirectly, without the Buyer’s prior written consent, which consent shall not be unreasonably withheld: (i) change the nature of its business; or (ii) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business.
(g) Listing. The Company will, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the Principal Market or any equivalent replacement exchange or electronic quotation system (including but not limited to the Pink Sheets electronic quotation system) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the Principal Market and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
(h) Corporate Existence. The Company will, so long as the Buyer beneficially owns any of the Securities, maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading or quotation on the Principal Market, any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT.
(i) No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
(j) Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 4, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 4.1(c) of the Note.
(k) Compliance with 1934 Act; Public Information Failures. For so long as the Buyer beneficially owns the Note, Warrant, Conversion Shares, or any Exercise Shares, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act. During the period that the Buyer beneficially owns the Note, if the Company shall (i) fail for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) or (ii) if the Company has ever been an issuer described in Rule 144(i)(1)(i) or becomes such an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (each, a “Public Information Failure”) then, as partial relief for the damages to the Buyer by reason of any such delay in or reduction of its ability to sell the Securities (which remedy shall not be exclusive of any other remedies available pursuant to this Agreement, the Note, or at law or in equity), the Company shall pay to the Buyer an amount in cash equal to three percent (3%) of the Purchase Price on each of the day of a Public Information Failure and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the date such Public Information Failure is cured. The payments to which a holder shall be entitled pursuant to this Section 4(k) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (x) the last day of the calendar month during which such Public Information Failure Payments are incurred and (y) the third Business Day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 5% per month (prorated for partial months) until paid in full.
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(l) Acknowledgement Regarding Buyer’s Trading Activity. Until the Note is fully repaid or fully converted, the Buyer shall not effect any “short sale” (as such term is defined in Rule 200 of Regulation SHO of the 1934 Act) of the Common Stock which establishes a net short position with respect to the Common Stock.
(m) Disclosure of Transactions and Other Material Information. By 9:00 a.m., New York time, following the date this Agreement has been fully executed, the Company shall file a Current Report on Form 8-K (if required) describing the terms of the transactions contemplated by this Agreement in the form required by the 1934 Act and attaching this Agreement, the form of Note (the “8-K Filing”). From and after the filing of the 8-K Filing with the SEC, the Buyer shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents that is not disclosed in the 8-K Filing. In addition, effective upon the filing of the 8-K Filing, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and the Buyer or any of its affiliates, on the other hand, shall terminate.
(n) Legal Counsel Opinions. Upon the request of the Buyer from to time to time, the Company shall be responsible (at its cost) for promptly supplying to the Company’s transfer agent and the Buyer a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Conversion Shares and/or Exercise Shares by the Buyer or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the holding period requirements of Rule 144 are satisfied and provided the Conversion Shares and/or Exercise Shares are not then registered under the 1933 Act for resale pursuant to an effective registration statement) or other applicable exemption (provided the requirements of such other applicable exemption are satisfied). In addition, the Buyer may (at the Company’s cost) at any time secure its own legal counsel to issue the Legal Counsel Opinion, and the Company will instruct its transfer agent to accept such opinion. The Company hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
(o) Piggyback Registration Rights. The Company hereby grants to the Buyer the piggy-back registration rights set forth on Exhibit C hereto and registration rights set forth in the registration rights agreement attached hereto as Exhibit D (the “RRA”).
(p) Intentionally Omitted.
(q) Subsequent Variable Rate Transactions. From the date hereof until such time as the Note is fully converted or fully repaid, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
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(r) Intentionally Omitted.
(s) Non-Public Information. The Company covenants and agrees that neither it, nor any other person acting on its behalf will provide the Buyer or its agents or counsel with any information that constitutes, or the Company reasonably believes constitutes, material non-public information, unless prior thereto the Buyer shall have consented to the receipt of such information and agreed with the Company to keep such information confidential. The Company understands and confirms that the Buyer shall be relying on the foregoing covenant in effecting transactions in securities of the Company. To the extent that the Company delivers any material, non-public information to the Buyer without such Buyer’s consent, the Company hereby covenants and agrees that such Buyer shall not have any duty of confidentiality to the Company, any of its Subsidiaries, or any of their respective officers, directors, agents, employees or affiliates, not to trade on the basis of, such material, non- public information, provided that the Buyer shall remain subject to applicable law. To the extent that any notice provided, information provided, or any other communications made by the Company, to the Buyer, constitutes or contains material non-public information regarding the Company or any Subsidiaries, the Company shall simultaneously file such notice or other material information with the SEC pursuant to a Current Report on Form 8-K. In addition to any other remedies provided by this Agreement or the related transaction documents, if the Company provides any material non-public information to the Buyer without their prior written consent, and it fails to immediately (no later than that Business Day) file a Form 8-K disclosing this material non-public information, it shall pay the Buyer as partial liquidated damages and not as a penalty a sum equal to $3,000 per day beginning with the day the information is disclosed to the Buyer and ending and including the day the Form 8-K disclosing this information is filed.
(t) Uplist Offering. The Company shall use its commercially reasonable efforts to effect an Uplist Offering (as defined in the Note) within a reasonable time after the Closing Date.
5. Transfer Agent Instructions. The Company shall issue irrevocable instructions to the Company’s transfer agent to issue certificates and/or issue shares electronically at the Buyer’s option, registered in the name of the Buyer or its nominee, upon conversion of the Note and/or exercise of the Warrant, the Conversion Shares and Exercise Shares, in such amounts as specified from time to time by the Buyer to the Company in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Company proposes to replace its transfer agent, the Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to the Company and the Company. Prior to registration of the Conversion Shares and/or Exercise Shares under the 1933 Act or the date on which the Conversion Shares and/or Exercise Shares may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates or book entry shares shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for Securities to be issued to the Buyer upon conversion of or otherwise pursuant to the Note and/or upon exercise of or otherwise pursuant to the Warrant as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Buyer upon conversion of or otherwise pursuant to the Note and/or upon exercise of or otherwise pursuant to the Warrant as and when required by the Note, Warrant, and/or this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within 6 hours of each conversion of the Note and/or exercise of the Warrant. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to 144, Rule 144A, Regulation S, or other applicable exemption, the Company shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
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6. Conditions to the Company’s Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
(a) The Buyer shall have executed this Agreement and delivered the same to the Company.
(b) The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
(c) The Buyer shall have delivered to the Company a copy of the letter agreement dated as of the date hereof by and among the Buyer, Arena Special Opportunities Partners I, LP, a Delaware limited partnership (“ASOP I”), Arena Special Opportunities Fund, LP, a Delaware limited partnership (“ASOF”, and together with ASOP I, collectively, the “Arena Purchasers”), Arena Investors, LP, a Delaware limited partnership (“Arena Investors”, and together with the Arena Purchasers, collectively, the “Arena Parties”), the Company and the Revenue Sweep Subsidiaries (as defined below), substantially in the form attached as Exhibit E hereto (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena-Walleye Intercreditor Agreement”), duly executed by the Buyer.
(d) The Buyer shall have delivered to the Company a copy of the Revenue Pledge and Security Agreement, duly executed by the Buyer.
(e) The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
(f) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
7. Conditions to The Buyer’s Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:
(a) The Company shall have executed this Agreement and delivered the same to the Buyer.
(b) The Company shall have delivered to the Buyer the duly executed Note in such denominations as the Buyer shall request and in accordance with Section 1(b) above.
(c) The Company shall have delivered to the Buyer the duly executed Warrant.
(d) The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
(e) The Company shall have delivered to the Buyer a duly executed RRA.
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(f) The Company shall have delivered to the Buyer a duly executed Amendment to Common Stock Warrant with respect to the warrant issued by the Company to the Buyer dated as of August 30, 2022, in form and substance satisfactory to the Buyer (the “Walleye Existing Warrant Amendment”).
(g) The Company shall have delivered to the Buyer that certain Revenue Pledge and Security Agreement, substantially in the form attached hereto as Exhibit F (the “Revenue Pledge and Security Agreement”), duly executed by the Company and each of Duramed, Inc., a Nevada limited liability company formerly known as DuramedNJ LLC and wholly-owned subsidiary of the Company (“Duramed”), Duramed, MI, LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company (“Duramed MI”), CO Botanicals LLC, a Nevada limited company and wholly-owned subsidiary of the Company (“CO Botanicals”), Botanical Biotech LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company (“Botanical Biotech”, and together with Duramed, Duramed MI, and CO Botanicals, the “Revenue Sweep Subsidiaries”).
(h) The Company shall have delivered to the Buyer (i) the Arena-Walleye Intercreditor Agreement, duly executed by the Arena Parties, the Company, and the Revenue Sweep Subsidiaries, (ii) a duly executed copy of that certain Assignment Agreement dated as of February 27, 2023 (the “Arena-Can B Assignment Agreement”) by and among the Company, Duramed, Duramed MI and the Arena Purchasers, and (iii) a duly executed copy of that certain Forbearance Agreement dated as of February 27, 2023 (the “Arena-Can B Forbearance Agreement”) by and among the Company, the Arena Purchasers, Arena Investors, LP, as agent for the Arena Purchasers (the “Arena Agent”), the Revenue Sweep Subsidiaries, TN Botanicals LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company (“TNB”), Imbibe Wellness Solutions, LLC, a Nevada limited liability company formerly known as Radical Tactical LLC and wholly-owned subsidiary of the Company (“Imbibe”), Imbibe Wellness Solutions II, LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company (“Imbibe II”), Pure Health Products LLC, a New York limited liability company and wholly-owned subsidiary of the Company (“PHP”), Green Grow Farms Inc., a New York corporation and wholly-owned subsidiary of the Company (“Green Grow”), PIVT LABS, LLC, a Nevada limited liability company formerly known as NY Hemp Depot LLC and wholly-owned subsidiary of the Company (“PIVT”).
(i) The Company shall have delivered to the Buyer duly executed amendment/modification agreements with respect to those certain outstanding promissory notes of the Company set forth on Schedule 7(i), each in form and substance satisfactory to the Buyer (the “Existing Debt Modification Agreements”).
(j) The Company shall have delivered a waiver of registration rights, in form and substance satisfactory to the Buyer, with respect to those registration rights agreements and securities purchase agreements granting registration rights listed on Schedule 7(j) (the “Waiver of Registration Rights”), duly executed by the Company, Mast Hill Fund, L.P., Fourth Man, LLC, Blue Lake Partners, LLC, the Arena Purchasers, and Alumni Capital LP.
(k) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
(l) No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
(m) No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
(n) Trading in the Common Stock on the Principal Market shall not have been suspended by the SEC, FINRA or the Principal Market.
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(o) The Company shall have delivered to the Buyer (i) a certificate of an officer of the Company evidencing the formation and good standing of the Company and each of the Revenue Sweep Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a recent date prior to the Closing Date and (ii) resolutions adopted by the Company’s Board of Directors and the applicable governing body of each of the Revenue Sweep Subsidiaries by written consent duly authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
(p) The Company shall have delivered to the Buyer a certificate of an officer of the Company, dated as of the Closing Date, certifying as to the fulfillment of the conditions set forth in subparagraphs (a) through (m) of this Section.
(q) From the date hereof to the Closing Date, trading in the Common Stock shall not have been suspended by the SEC or the Principal Market and, at any time prior to the Closing Date, trading in securities generally as reported by Bloomberg L.P. shall not have been suspended or limited, or minimum prices shall not have been established on securities whose trades are reported by such service, nor shall a banking moratorium have been declared either by the United States or New York State authorities nor shall there have occurred any material outbreak or escalation of hostilities or other national or international calamity of such magnitude in its effect on, or any material adverse change in, any financial market which, in each case, in the reasonable judgment of Buyer, makes it impracticable or inadvisable to purchase the Securities at the Closing.
8. Governing Law; Miscellaneous.
(a) Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
(b) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. A facsimile or .pdf signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile or .pdf signature. Delivery of a counterpart signature hereto by facsimile or email/.pdf transmission shall be deemed validly delivery thereof.
(c) Construction; Headings. This Agreement shall be deemed to be jointly drafted by the Company and the Buyer and shall not be construed against any person as the drafter hereof. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
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(d) Severability. In the event that any provision of the Transaction Documents is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby.
(e) Entire Agreement; Amendments. The Transaction Documents contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement or any agreement or instrument contemplated hereby may be waived or amended other than by an instrument in writing signed by the Buyer.
(f) Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than on a Business Day during normal business hours where such notice is to be received) or (b) on the second Business Day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
CAN B̅ CORP.
960 South Broadway, Suite 120
Hicksville, NY 11801
Attention: Marco Alfonsi
e-mail: info@canbiola.com
If to the Buyer:
As provided on the signature page hereto
(g) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Buyer. The Buyer may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
(h) Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
(i) Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
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(j) Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, Principal Market or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, Principal Market (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
(k) Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
(l) No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
(m) Indemnification. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement or the Note, the Company shall defend, protect, indemnify and hold harmless the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (i) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents, (ii) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or (iii) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (A) the execution, delivery, performance or enforcement of the Transaction Documents, (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (C) the status of the Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.
(n) Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement, the Note, the Warrant, or any other agreement, certificate, instrument or document contemplated hereby or thereby, and to enforce specifically the terms and provisions hereof and thereof, without the necessity of showing economic loss and without any bond or other security being required.
(o) Payment Set Aside. To the extent that the (i) Company makes a payment or payments to the Buyer hereunder, pursuant to the Note, pursuant to the Warrant, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, or (ii) the Buyer enforces or exercises its rights hereunder, pursuant to the Note, pursuant to the Warrant, or pursuant to any other agreement, certificate, instrument or document contemplated hereby or thereby, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof (including but not limited to the sale of the Securities) are for any reason (A) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (B) are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then (1) to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred and (2) the Company shall immediately pay to the Buyer a dollar amount equal to the amount that was for any reason (x) subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, or disgorged by the Buyer, or (y) required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action).
(p) Failure or Indulgence Not Waiver. No failure or delay on the part of the Buyer in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Buyer existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
[Signature Page Follows]
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
COMPANY: | ||
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | MARCO ALFONSI | |
Title: | CHIEF EXECUTIVE OFFICER |
BUYER: | ||
Walleye Opportunities Master Fund Ltd | ||
By: | /s/ William England | |
Name: | William England | |
Title: | Chief Executive Officer of the Manager |
Address for Notice: 2800 Niagara Lane North, Plymouth, MN 55447
E-mail for Notice: legal@walleyecapital.com
Number of Shares of Common Stock Initially Issuable under the Warrant: 1,307,190
SUBSCRIPTION AMOUNT:
Principal Amount of Note: $1,823,529
Actual Amount of Purchase Price of Note: $1,550,000
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Exhibit A
FORM OF NOTE
(see attached)
Exhibit B
FORM OF WARRANT
(see attached)
Exhibit C
PIGGY-BACK REGISTRATION RIGHTS
All of the Conversion Shares and the Exercise Shares shall be deemed “Registrable Securities” subject to the provisions of this Exhibit C. All capitalized terms used but not defined in this Exhibit C shall have the meanings ascribed to such terms in the Securities Purchase Agreement to which this Exhibit is attached.
1. | Piggy-Back Registration. |
1.1 Piggy-Back Rights. If, at any time on or after the date of the Closing, the Company proposes to file any Registration Statement under the 1933 Act (a “Registration Statement”) with respect to any offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan, (iii) in connection with a merger or acquisition, or (iv) for the Uplist Offering (as defined in the Note), then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities appearing on the books and records of the Company as such a holder as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of Registrable Securities as such holders may request in writing within three (3) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof (with the understanding that the Company shall file the initial prospectus covering the Buyer’s sale of the Registrable Securities at prevailing market prices on the same date that the Registration Statement is declared effective by the SEC).
1.2 Withdrawal. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 1.5 below.
1.3 The Company shall notify the holders of Registrable Securities at any time when a prospectus relating to such holder’s Registrable Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of such holder, the Company shall also prepare, file and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The holders of Registrable Securities shall not to offer or sell any Registrable Securities covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment.
1.4 The Company may request a holder of Registrable Securities to furnish the Company such information with respect to such holder and such holder’s proposed distribution of the Registrable Securities pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the SEC in connection therewith, and such holders shall furnish the Company with such information.
1.5 All fees and expenses incident to the performance of or compliance with this Exhibit C by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the SEC, (B) with respect to filings required to be made with any trading market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) with respect to any filing that may be required to be made by any broker through which a holder of Registrable Securities intends to make sales of Registrable Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) 1933 Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Exhibit C and (vii) reasonable fees and disbursements of a single special counsel for the holders of Registrable Securities (selected by holders of the majority of the Registrable Securities requesting such registration). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any holder of Registrable Securities.
1.6 The Company and its successors and assigns shall indemnify and hold harmless the Buyer, each holder of Registrable Securities, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each individual or entity who controls the Buyer or any such holder of Registrable Securities (within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Exhibit C, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding the Buyer or such holder of Registrable Securities furnished to the Company by such party for use therein. The Company shall notify the Buyer and each holder of Registrable Securities promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Exhibit C of which the Company is aware.
1.7 If the indemnification under Section 1.6 is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 1.6 was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 1.7 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 1.7, neither the Buyer nor any holder of Registrable Securities shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such party from the sale of all of their Registrable Securities pursuant to such Registration Statement or related prospectus exceeds the amount of any damages that such party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
[End of Exhibit C]
Exhibit D
REGISTRATION RIGHTS AGREEMENT
(see attached)
Exhibit E
ARENA-WALLEYE INTERCREDITOR AGREEMENT
(see attached)
Exhibit F
REVENUE PLEDGE AND SECURITY AGREEMENT
(see attached)
Schedule 3(c)
Capitalization
(i) | Outstanding Derivative Securities: |
1. | Warrants |
1. | Warrant held by Arena Special Opportunities Partners I, LP, issued as of 5-17-2021 for the purchase of 1,529,670 (pre-split) shares of Common Stock of Can B Corp. at $.51 per share | |
2. | Warrant held by Arena Special Opportunities Fund, LP, issued as of 5-17-2021 for the purchase of 393,417 (pre-split) shares of Common Stock of Can B Corp. at $.51 per share | |
3. | Warrant held by Arena Special Opportunities Partners I, LP, issued as of 12-10-2020 for the purchase of 3,426,280 (pre-split) shares of Common Stock of Can B Corp. at $.45 per share | |
4. | Warrant held by Arena Special Opportunities Fund, LP, issued as of 12-10-2020 for the purchase of 131,325 (pre-split) shares of Common Stock of Can B Corp. at $.45 per share | |
5. | Warrant held by Garden State Securities, issued as of 1-6-2023 for the purchase of 1,921 shares of Common Stock of Can B Corp. at $6.40 per share | |
6. | Warrant held by Blue Lake Partners, LLC, issued as of 3-22-2022 for the purchase of 39,062 shares of Common Stock of Can B Corp. at $6.40 per share | |
7. | Warrant held by Mast Hill Fund, L.P., issued as of 3-22-2022 for the purchase of 54,687 shares of Common Stock of Can B Corp. at $6.40 per share | |
8. | Warrant held by Fourth Man, LLC, issued as of 4-22-2022 for the purchase of 23,437 shares of Common Stock of Can B Corp. at $6.40 per share | |
9. | Warrant held by J H. Darbie, issued as of 4-26-2022 for the purchase of 1,688 shares of Common Stock of Can B Corp. at $6.40 per share | |
10. | Warrant held by Alumni Capital LP issued as of 6-6-2022 for the purchase of 9,766 shares of Common Stock of Can B Corp. at $6.40 per share | |
11. | Warrant held by Walleye Opportunities Master Fund Ltd, issued as of 8-30-2022 for the purchase of 171,296 shares of Common Stock of Can B Corp. at $6.40 per share, as amended by the Walleye Existing Warrant Amendment | |
12. | Warrant held by Blue Lake Partners, LLC, issued as of 2-5-2023 for the purchase of 19,531 shares of Common Stock of Can B Corp. at $6.40 per share | |
13. | Warrant held by Mast Hill Fund, L.P., issued as of 2-5-2023 for the purchase of 27,343 shares of Common Stock of Can B Corp. at $6.40 per share | |
14. | Warrant held by Fourth Man, LLC, issued as of 2-5-2023 for the purchase of 10,195 shares of Common Stock of Can B Corp. at $6.40 per share |
2. | Convertible Notes |
1. | Convertible Note held by Walleye Special Opportunities Fund Ltd issued as of August 30, 2022 in the original principal amount of $385,000 | |
2. | Convertible Note held by Blue Lake Partners, LLC issued as of March 22, 2022 in the original principal amount of $250,000 | |
3. | Convertible Note held by Mast Hill Fund, L.P. issued as of March 22, 2022 in the original principal amount of $350,000 |
4. | Convertible Note held by Fourth Man, LLC issued as of April 22, 2022 in the original principal amount of $150,000 | |
5. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP issued as of December 10, 2020 in the original principal amount of $102,538.10 | |
6. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of December 10, 2020 in the original principal amount of $2,675,239.10 | |
7. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP, issued as of May 17, 2021 in the original principal amount of $306,865.22 | |
8. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of May 17, 2021 in the original principal amount of $1,193,134.78 |
9. | ClearThink Convertible Promissory Notes – All of the following Convertible Promissory Notes originally issued to Tysadco Partners, LLC have been amended and consolidated pursuant to that certain Amendment Modification to Convertible Promissory Note(s) dated as of January 31, 2023 by and between the Company and Tysadco Partners, LLC and are currently held by ClearThink Capital Partners LLC: |
a. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Four Hundred Fifty Thousand and No/100 United States Dollars (US$450,000) dated February 25, 2022 and amended to Four Hundred Ninety-Five Thousand and No/100 United States Dollars (US$495,000) dated August 22, 2022 | |
b. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Seventy-Five Thousand and No/100 United States Dollars (US$75,000) dated June 7, 2022 and amended to Eighty-Two Thousand Five Hundred and No/100 United States Dollars (US$82,500) dated January 31, 2023 | |
c. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of One Hundred Ten Thousand and No/100 United States Dollars (US$110,000) dated August 12, 2022 | |
d. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Sixty-Five Thousand and No/100 United States Dollars (US$65,000) dated September 19, 2022 | |
e. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Fifty Thousand and No/100 United States Dollars (US$50,000) dated November 1, 2022 | |
f. | Convertible Promissory issued to Tysadco Partners, LLC in the original principal amount of Fifty Thousand and No/100 United States Dollars (US$50,000) dated January 12, 2023 |
10. | Promissory Note dated June 6, 2022 held by ClearThink Capital Partners LLC in the original principal amount of $62,500 (the “ClearThink Note”). The ClearThink Note was originally issued by the Company to Alumni Capital LP on June 6, 2022 and subsequently assigned by Alumni Capital LP to ClearThink Capital Partners LLC on February 23, 2023 pursuant to that certain Note Purchase Agreement dated February 23, 2023 by and between Alumni Capital LP and ClearThink Capital Partners LLC. |
(ii) | Registration Rights |
1. | Registration Rights Agreement dated as of August 30, 2022, by and between Can B Corp. and Walleye Opportunities Master Fund Ltd | |
2. | Registration Rights Agreement dated as of March 22, 2022, by and between Can B Corp. and Mast Hill, Fund, L.P. | |
3. | Securities Purchase Agreement dated as of March 22, 2022, by and between Can B Corp. and Mast Hill, Fund, L.P. | |
4. | Registration Rights Agreement dated as of April 22, 2022, by and between Can B Corp. and Fourth Man, LLC | |
5. | Securities Purchase Agreement dated as of April 22, 2022, by and between Can B Corp. and Fourth Man, LLC | |
6. | Registration Rights Agreement dated as of March 22, 2022, by and between Can B Corp. and Blue Lake Partners, LLC | |
7. | Securities Purchase Agreement dated as of March 22, 2022, by and between Can B Corp. and Blue Lake Partners, LLC | |
8. | Registration Rights Agreement dated as of December 10, 2020, by and between Can B Corp. and Arena Special Opportunities Fund, LP | |
9. | Registration Rights Agreement dated as of December 10, 2020, by and between Can B Corp. and Arena Special Opportunities Partners I, LP | |
10. | Registration Rights Agreement dated as of June 6, 2022, by and between Can B Corp. and Alumni Capital LP | |
11. | Securities Purchase Agreement dated as of April 22, 2022, by and between Can B Corp. and Alumni Capital LP | |
12. | Registration Rights Agreement dated as of May 17, 2021, by and between Can B Corp. and Arena Special Opportunities Fund, LP | |
13. | Registration
Rights Agreement dated as of May 17, 2021, by and between Can B Corp. and Arena Special Opportunities
Partners I, LP |
(iii) | Derivative Securities Containing Anti-Dilution Rights |
1. | Warrants Containing Anti-Dilution Rights |
1. | Warrant held by Arena Special Opportunities Partners I, LP, issued as of 5-17-2021 for the purchase of 1,529,670 (pre-split) shares of Common Stock of Can B Corp. at $.51 per share | |
2. | Warrant held by Arena Special Opportunities Fund, LP, issued as of 5-17-2021 for the purchase of 393,417 (pre-split) shares of Common Stock of Can B Corp. at $.51 per share | |
3. | Warrant held by Arena Special Opportunities Partners I, LP, issued as of 12-10-2020 for the purchase of 3,426,280 (pre-split) shares of Common Stock of Can B Corp. at $.45 per share | |
4. | Warrant held by Arena Special Opportunities Fund, LP, issued as of 12-10-2020 for the purchase of 131,325 (pre-split) shares of Common Stock of Can B Corp. at $.45 per share | |
5. | Warrant held by Garden State Securities, issued as of 1-6-2023 for the purchase of 1,921 shares of Common Stock of Can B Corp. at $6.40 per share | |
6. | Warrant held by Blue Lake Partners, LLC, issued as of 3-22-2022 for the purchase of 39,062 shares of Common Stock of Can B Corp. at $6.40 per share | |
7. | Warrant held by Mast Hill Fund, L.P., issued as of 3-22-2022 for the purchase of 54,687 shares of Common Stock of Can B Corp. at $6.40 per share | |
8. | Warrant held by Fourth Man, LLC, issued as of 4-22-2022 for the purchase of 23,437 shares of Common Stock of Can B Corp. at $6.40 per share | |
9. | Warrant held by J H. Darbie, issued as of 4-26-2022 for the purchase of 1,688 shares of Common Stock of Can B Corp. at $6.40 per share | |
10. | Warrant held by Alumni Capital LP issued as of 6-6-2022 for the purchase of 9,766 shares of Common Stock of Can B Corp. at $6.40 per share | |
11. | Warrant held by Walleye Opportunities Master Fund Ltd, issued as of 8-30-2022 for the purchase of 171,296 shares of Common Stock of Can B Corp. at $6.40 per share, as amended by the Walleye Existing Warrant Amendment | |
12. | Warrant held by Blue Lake Partners, LLC, issued as of 2-5-2023 for the purchase of 19,531 shares of Common Stock of Can B Corp. at $6.40 per share | |
13. | Warrant held by Mast Hill Fund, L.P., issued as of 2-5-2023 for the purchase of 27,343 shares of Common Stock of Can B Corp. at $6.40 per share | |
14. | Warrant held by Fourth Man, LLC, issued as of 2-5-2023 for the purchase of 10,195 shares of Common Stock of Can B Corp. at $6.40 per share |
2. | Convertible Notes Containing Anti-Dilution Rights |
1. | Convertible Note held by Walleye Special Opportunities Fund Ltd issued as of August 30, 2022 in the original principal amount of $385,000 | |
2. | Convertible Note held by Blue Lake Partners, LLC issued as of March 22, 2022 in the original principal amount of $250,000 | |
3. | Convertible Note held by Mast Hill Fund, L.P. issued as of March 22, 2022 in the original principal amount of $350,000 | |
4. | Convertible Note held by Fourth Man, LLC issued as of April 22, 2022 in the original principal amount of $150,000 | |
5. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP issued as of December 10, 2020 in the original principal amount of $102,538.10 | |
6. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of December 10, 2020 in the original principal amount of $2,675,239.10 | |
7. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP, issued as of May 17, 2021 in the original principal amount of $306,865.22 | |
8. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of May 17, 2021 in the original principal amount of $1,193,134.78 | |
9. | Promissory Note dated June 6, 2022 held by ClearThink Capital Partners LLC in the original principal amount of $62,500 (the “ClearThink Note”). The ClearThink Note was originally issued by the Company to Alumni Capital LP on June 6, 2022 and subsequently assigned by Alumni Capital LP to ClearThink Capital Partners LLC on February 23, 2023 pursuant to that certain Note Purchase Agreement dated February 23, 2023 by and between Alumni Capital LP and ClearThink Capital Partners LLC. |
[End of Schedule 3(c)]
Schedule 3(r)
Broker Fees
Cash fee to Spartan Capital: $93,000 (6% of Purchase Price)
Schedule 3(u)
Title to Property; Liens
The Company leases various properties and office locations, but no landlord has the right of possession or any lien on any of the building contents.
The following Original Issue Discount Senior Secured Convertible Promissory Notes issued by the Company and held by the parties indicated below are secured by all assets of the Company and each of its Subsidiaries, subject to the Arena-Walleye Intercreditor Agreement:
1. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP issued as of December 10, 2020 in the original principal amount of $102,538.10 | |
2. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of December 10, 2020 in the original principal amount of $2,675,239.10 | |
3. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP, issued as of May 17, 2021 in the original principal amount of $306,865.22 | |
4. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of May 17, 2021 in the original principal amount of $1,193,134.78 |
Schedule 3(z)
Indebtedness Schedule
1. | Convertible Note held by Walleye Special Opportunities Fund Ltd issued as of August 30, 2022 in the original principal amount of $385,000 | |
2. | Convertible Note held by Blue Lake Partners, LLC issued as of March 22, 2022 in the original principal amount of $250,000 | |
3. | Convertible Note held by Mast Hill Fund, L.P. issued as of March 22, 2022 in the original principal amount of $350,000 | |
4. | Convertible Note held by Fourth Man, LLC issued as of April 22, 2022 in the original principal amount of $150,000 | |
5. | Arena Original Issue Discount Senior Secured Convertible Promissory Notes – All of the following Original Issue Discount Senior Secured Convertible Promissory Notes held by ASOF or ASOP I, as applicable, are currently in default, subject to the Arena Can-B Forbearance Agreement and Arena Can-B Assignment Agreement: |
a. | Arena Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP issued as of December 10, 2020 in the original principal amount of $102,538.10 | |
b. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of December 10, 2020 in the original principal amount of $2,675,239.10 | |
c. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP, issued as of May 17, 2021 in the original principal amount of $306,865.22 | |
d. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of May 17, 2021 in the original principal amount of $1,193,134.78 |
6. | Additional indebtedness of the Company and/or its Subsidiaries pursuant to the Arena Can-B Assignment Agreement and Arena Can-B Forbearance Agreement, as applicable. | |
7. | ClearThink Convertible Promissory Notes – All of the following Convertible Promissory Notes originally issued to Tysadco Partners, LLC have been amended and consolidated pursuant to that certain Amendment Modification to Convertible Promissory Note(s) dated as of January 31, 2023 by and between the Company and Tysadco Partners, LLC and are currently held by ClearThink Capital Partners LLC: |
a. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Four Hundred Fifty Thousand and No/100 United States Dollars (US$450,000) dated February 25, 2022 and amended to Four Hundred Ninety-Five Thousand and No/100 United States Dollars (US$495,000) dated August 22, 2022 | |
b. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Seventy-Five Thousand and No/100 United States Dollars (US$75,000) dated June 7, 2022 and amended to Eighty-Two Thousand Five Hundred and No/100 United States Dollars (US$82,500) dated January 31, 2023 | |
c. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of One Hundred Ten Thousand and No/100 United States Dollars (US$110,000) dated August 12, 2022 | |
d. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Sixty-Five Thousand and No/100 United States Dollars (US$65,000) dated September 19, 2022 | |
e. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Fifty Thousand and No/100 United States Dollars (US$50,000) dated November 1, 2022 | |
f. | Convertible Promissory issued to Tysadco Partners, LLC in the original principal amount of Fifty Thousand and No/100 United States Dollars (US$50,000) dated January 12, 2023 |
8. | $150,000 Unsecured Promissory Note held by Karl Zarse, issued as of February 11, 2022 in the original principal amount of $150,000 | |
9. | Unsecured Promissory Note held by Fred Finocchiaro dated as of November 18, 2021 in the original principal amount of $100,000 | |
10. | Unsecured Promissory Note I held by Fred Finocchiaro dated as of January 12, 2023 in the original principal amount of $50,000 | |
11. | Promissory Note held by TWS Pharma, LLC dated August 12, 2021 in the original principal amount of $1,250,000 |
12. | Indebtedness owing to White Hair Solutions, LLC in the amount of $221,065 relating to the purchase of inventory in connection with that certain Asset Purchase Agreement dated as of August 13, 2021 by and between Can B Corp. as buyer and Music City Botanicals, LLC as seller, as evidenced by that certain Amendment to Asset Purchase Agreement dated as of March 23, 2022 by and between Music City Botanicals, LLC, White Hair Solutions, LLC and Can B. Corp. | |
13. | $250,000 in indebtedness owing to Emergent Health | |
14. | Promissory Note dated June 6, 2022 held by ClearThink Capital Partners LLC in the original principal amount of $62,500 (the “ClearThink Note”). The ClearThink Note was originally issued by the Company to Alumni Capital LP on June 6, 2022 and subsequently assigned by Alumni Capital LP to ClearThink Capital Partners LLC on February 23, 2023 pursuant to that certain Note Purchase Agreement dated February 23, 2023 by and between Alumni Capital LP and ClearThink Capital Partners LLC. | |
15. | Promissory Note dated February 22, 2023, in the original principal amount of $225,000.049 by and between the Company and Todd Hackett (the “New Hackett Note”). Pursuant to the New Hackett Note, upon receipt by Todd Hackett of a payment in the amount of $107,500 by no later than February 28, 2023, all rights and obligations of the Company and Todd Hackett under (i) that certain Promissory Note dated October 14, 2022 by and between the Company and Todd Hackett and (ii) that certain Securities Purchase Agreement dated October 14, 2022 by and between the Company and Todd Hackett shall be terminated effective as of February 22, 2023. | |
16. | Promissory Note dated February 22, 2023, in the original principal amount of 132,500 by and between the Company and Ray Vollintine (the “New Vollintine Note”). Pursuant to the New Vollintine Note, upon receipt by Ray Vollintine of a payment in the amount of $75,000 by no later than February 28, 2023, all rights and obligations of the Company and Ray Vollintine under (i) that certain Promissory Note dated November 17, 2022 by and between the Company and Ray Vollintine and (ii) that certain Securities Purchase Agreement dated November 17, 2022 by and between the Company and Ray Vollintine shall be terminated effective as of February 22, 2023. | |
17. | Promissory Note dated February 22, 2023 in the original principal amount of $104,675 by and between the Company and Bruce Evans (the “New Evans Note”). Pursuant to the New Evans Note, upon receipt by Bruce Evans of a payment in the amount of $50,000 by no later than February 28, 2023, all rights and obligations of the Company and Bruce Evans under (i) that certain Promissory Note dated October 14, 2022 by and between the Company and Bruce Evans and (ii) that certain Securities Purchase Agreement dated October 14, 2022 by and between the Company and Bruce Evans shall be terminated effective as of February 22, 2023. |
[End of Schedule 3(z)]
Schedule 7(i)
Existing indebtedness subject to amendments and waivers
1. | Convertible Note held by Blue Lake Partners, LLC issued as of March 22, 2022 in the original principal amount of $250,000 | |
2. | Convertible Note held by Mast Hill Fund, L.P. issued as of March 22, 2022 in the original principal amount of $350,000 | |
3. | Convertible Note held by Fourth Man, LLC issued as of April 22, 2022 in the original principal amount of $150,000 | |
4. | Arena Original Issue Discount Senior Secured Convertible Promissory Notes – All of the following Original Issue Discount Senior Secured Convertible Promissory Notes held by ASOF or ASOP I, as applicable, are currently in default, subject to the Arena Can-B Forbearance Agreement and Arena Can-B Assignment Agreement: |
a. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP issued as of December 10, 2020 in the original principal amount of $102,538.10 | |
b. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of December 10, 2020 in the original principal amount of $2,675,239.10 | |
c. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Fund, LP, issued as of May 17, 2021 in the original principal amount of $306,865.22 | |
d. | Original Issue Discount Senior Secured Convertible Promissory Note held by Arena Special Opportunities Partners I, LP, issued as of May 17, 2021 in the original principal amount of $1,193,134.78 |
5. | ClearThink Convertible Promissory Notes – All of the following Convertible Promissory Notes originally issued to Tysadco Partners, LLC have been amended and consolidated pursuant to that certain Amendment Modification to Convertible Promissory Note(s) dated as of January 31, 2023 by and between the Company and Tysadco Partners, LLC and are currently held by ClearThink Capital Partners LLC: |
a. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Four Hundred Fifty Thousand and No/100 United States Dollars (US$450,000) dated February 25, 2022 and amended to Four Hundred Ninety-Five Thousand and No/100 United States Dollars (US$495,000) dated August 22, 2022 | |
b. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Seventy-Five Thousand and No/100 United States Dollars (US$75,000) dated June 7, 2022 and amended to Eighty-Two Thousand Five Hundred and No/100 United States Dollars (US$82,500) dated January 31, 2023 | |
c. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of One Hundred Ten Thousand and No/100 United States Dollars (US$110,000) dated August 12, 2022 | |
d. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Sixty-Five Thousand and No/100 United States Dollars (US$65,000) dated September 19, 2022 |
e. | Convertible Promissory Note issued to Tysadco Partners, LLC in the original principal amount of Fifty Thousand and No/100 United States Dollars (US$50,000) dated November 1, 2022 |
f. | Convertible Promissory issued to Tysadco Partners, LLC in the original principal amount of Fifty Thousand and No/100 United States Dollars (US$50,000) dated January 12, 2023 |
6. | $150,000 Unsecured Promissory Note held by Karl Zarse, issued as of February 11, 2022 in the original principal amount of $150,000 | |
7. | Unsecured Promissory Note held by Fred Finocchiaro dated as of November 18, 2021 in the original principal amount of $100,000 | |
8. | Unsecured Promissory Note I held by Fred Finocchiaro dated as of January 12, 2023 in the original principal amount of $50,000 | |
9. | Promissory Note held by TWS Pharma, LLC dated August 12, 2021 in the original principal amount of $1,250,000 | |
10. | Indebtedness owing to White Hair Solutions, LLC in the amount of $221,065 relating to the purchase of inventory in connection with that certain Asset Purchase Agreement dated as of August 13, 2021 by and between Can B Corp. as buyer and Music City Botanicals, LLC as seller, as evidenced by that certain Amendment to Asset Purchase Agreement dated as of March 23, 2022 by and between Music City Botanicals, LLC, White Hair Solutions, LLC and Can B. Corp. | |
11. | Promissory Note dated June 6, 2022 held by ClearThink Capital Partners LLC in the original principal amount of $62,500 (the “ClearThink Note”). The ClearThink Note was originally issued by the Company to Alumni Capital LP on June 6, 2022 and subsequently assigned by Alumni Capital LP to ClearThink Capital Partners LLC on February 23, 2023 pursuant to that certain Note Purchase Agreement dated February 23, 2023 by and between Alumni Capital LP and ClearThink Capital Partners LLC. |
[End of Schedule 7(i)]
Schedule 7(j)
Registration Rights Agreements and Securities Purchase Agreements granting Registration Rights
Subject to Waiver
1. | Registration Rights Agreement dated as of March 22, 2022, by and between Can B Corp. and Mast Hill, Fund, L.P. |
2. | Securities Purchase Agreement dated as of March 22, 2022, by and between Can B Corp. and Mast Hill, Fund, L.P. |
3. | Registration Rights Agreement dated as of April 22, 2022, by and between Can B Corp. and Fourth Man, LLC |
4. | Securities Purchase Agreement dated as of April 22, 2022, by and between Can B Corp. and Fourth Man, LLC |
5. | Registration Rights Agreement dated as of March 22, 2022, by and between Can B Corp. and Blue Lake Partners, LLC |
6. | Securities Purchase Agreement dated as of March 22, 2022, by and between Can B Corp. and Blue Lake Partners, LLC |
7. | Registration Rights Agreement dated as of December 10, 2020, by and between Can B Corp. and Arena Special Opportunities Fund, LP |
8. | Registration Rights Agreement dated as of December 10, 2020, by and between Can B Corp. and Arena Special Opportunities Partners I, LP |
9. | Registration Rights Agreement dated as of June 6, 2022, by and between Can B Corp. and Alumni Capital LP |
10. | Securities Purchase Agreement dated as of April 22, 2022, by and between Can B Corp. and Alumni Capital LP |
11. | Registration Rights Agreement dated as of May 17, 2021, by and between Can B Corp. and Arena Special Opportunities Fund, LP |
12. | Registration Rights Agreement dated as of May 17, 2021, by and between Can B Corp. and Arena Special Opportunities Partners I, LP |
Exhibit 10.51
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE SPA)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount: $1,823,529 | Issue Date: February 27, 2023 |
Actual Amount of Purchase Price: $1,550,000 |
PROMISSORY NOTE (this “Note”)
FOR VALUE RECEIVED, CAN B̅ CORP., a Florida corporation (hereinafter called the “Borrower”) (Trading Symbol: CANB), hereby promises to pay to the order of Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability, or its registered assigns (the “Holder”), in the form of lawful money of the United States of America, the principal sum of $1,823,529.00 (the “Principal Amount”), of which $1,550,000.00 is the actual amount of the purchase price (the “Consideration”) hereof plus an original issue discount in the amount of $273,529.00 (the “OID”) (subject to adjustment herein) on the date the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise, as further provided herein. The entire Principal Amount, together with any accrued and unpaid Default Interest and any other unpaid fees or other amounts outstanding under this Note shall be due and payable on November 27, 2023 (the “Maturity Date”), or on such earlier date as all or any portion of the Principal Amount, any such accrued and unpaid Default Interest and/or any such other unpaid fees and/or other amounts outstanding under this Note may be due and payable in accordance with the terms of this Note, whether upon acceleration or otherwise in accordance with the terms of this Note.
This Note may not be prepaid or repaid in whole or in part except as otherwise explicitly set forth herein.
All payments due hereunder (to the extent not converted into shares of common stock, nil par value per share, of the Borrower (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. As used herein, “$” or “Dollars” means United States Dollars. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Business day, the same shall instead be due on the next succeeding day which is a Business day.
Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated as of the date hereof, by and between the Borrower and the Holder, and pursuant to which this Note is being issued (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “SPA”). As used in this Note, the term “Issue Date” means February 27, 2023 (i.e. the date first written above). As used in this Note, the term “Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed; provided, for the avoidance of doubt, that no such commercial banks shall be considered to be authorized or required by law or executive order to remain closed as a result of “stay at home”, “shelter-in-place”, “non-essential employee” or other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of such commercial banks are generally open for sue by customers on such day. As used herein, the term “Trading Day” means any day that shares of Common Stock are listed for trading or quotation on the Principal Market, provided, however, that if the Common Stock is not then listed or quoted on any Principal Market, then any calendar day. “Principal Market” shall mean the principal securities exchange or trading market where the Common Stock is listed or traded, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following terms shall also apply to this Note:
ARTICLE I. INSTALLMENT PAYMENTS
1.1 Periodic Installment Payments. During the period commencing on an including the date that is sixty (60) days after the Issue Date (such date, the “First Installment Payment Date”) through and including the date that the earlier to occur of (x) the date that is two-hundred and seventy (270) days after the Issue Date (the “Installment Payment Period”) and (y) that date that all obligations of the Borrower under this Note have been paid in full (such period, the “Installment Payment Period”), the Borrower shall pay to the Holder monthly principal amortization payments (each such payment, an “Installment Payment”), which Installment Payments shall each (i) be payable on the first calendar day of each month during the Installment Payment Period (each such date, an “Installment Payment Date”) (except for the first Installment Payment, which shall be due on the First Installment Payment Date), and (ii) be in an amount equal to Two Hundred and Twenty Five Thousand Dollars ($232,500.00) (each such amount consisting of the sum of (A) a portion of the Principal Amount equal to $227,941 (the “Principal Reduction Amount”, collectively, “Principal Reduction Amounts”) plus (B) a redemption fee in the amount of $4,559 (the “Redemption Fee”, collectively, “Redemption Fees”); provided, notwithstanding anything to the contrary set forth in the foregoing that that any Installment Payment that becomes due on a day that is not a Business Day shall be payable on the next succeeding Business Day. The Principal Reduction Amount with respect to each Installment Payment shall be applied to reduce the outstanding Principal Amount of this Note. The Borrower, at its option, may voluntarily accelerate the payment of any of the Installment Payments at its discretion without a prepayment penalty; provided, notwithstanding anything to the contrary set forth in this Note, with respect to any regularly scheduled Installment Payment (or any portion thereof), (i) the Borrower shall only be permitted to voluntarily accelerate the payment of such Installment Payment (or such portion thereof, as applicable) by paying the requisite amount of such Installment Payment (or portion thereof, as applicable) in cash to the Holder, and (ii) and the Borrower shall not be permitted voluntarily satisfy such Installment Payment (or such portion thereof, as applicable) on an accelerated basis by electing to have such payment satisfied by an Installment Payment Conversion (as defined below).
1.2 Payment of Installment Payments. Subject to Sections 1.1 and 2.2, the Borrower may, at its option, elect to satisfy any Installment Payment (a) by paying the requisite amount of such Installment Payment in cash to the Holder, (b) by one or more Installment Payment Conversions (as defined below) of the requisite amount of such Installment effected by the Holder in accordance with the terms of Sections 2.2 and 2.5, or (c) pursuant to a combination of the methods of payment described in the foregoing clauses (a) and (b) whereby the Borrower shall pay a portion such Installment Payment in cash and the remainder of such Installment Payment shall be converted pursuant to an Installment Payment Conversion (as defined below) effected by the Holder in accordance with the terms of Sections 2.2 and 2.5. As used herein, the term “Installment Payment Conversion” shall mean any conversion of any Installment Payment (or any portion thereof) into shares of Common Stock delivered to the Holder which conversion is effected by the Holder following the Borrower’s deemed election (including for the avoidance of doubt, any Borrower Deemed Conversion Election (as defined in Section 2.2)) to satisfy such Installment Payment via a conversion of such Installment Payment (or such portion thereof, as applicable) into shares of Common Stock issued to the Holder.
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ARTICLE II. CONVERSION RIGHTS
2.1 Conversions other than Installment Payment Conversions. At any time after the Issue Date until this Note is no longer outstanding, this Note (including the outstanding Principal Amount of this Note, any accrued and unpaid Default Interest and any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock) shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in this Article II). The Holder shall effect such conversions (“Conversions”) by delivering to the Borrower or the Borrower’s transfer agent a notice of conversion, (i) in the case of any Conversion effected prior to the occurrence of any Event of Default, the form of which is attached hereto as Annex A-1, specifying therein the principal amount of this Note to be converted and the date on which such Conversion shall be effected (such date, the “Conversion Date”), or in the case of any Conversion effected upon or after the occurrence of any Event of Default, the form of which is attached hereto as Annex A-2, specifying therein the principal amount of this Note to be converted (including any principal amount of this Note included in any Default Amount of this Note to be so converted), any accrued and unpaid Default Interest and any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock to be converted, and the Conversion Date on which such Conversion shall be effected (each such notice of conversion described under either of the foregoing clauses (i) or (ii) of this sentence, a “Notice of Conversion”), and which Notice of Conversion shall be delivered to the Borrower or the Borrower’s transfer agent in the manner set forth in Section 2.5(a)(i); provided, notwithstanding anything to the contrary set forth herein, the Conversion Date with respect to any Conversion effected pursuant to delivery of any Notice of Conversion (including any Notice of Conversion specifying a particular Conversion Date and any Notice of Conversion that does not specify a Conversion Date) shall be determined in accordance with Section 2.5(a)(i). No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. Conversions hereunder, (i) in the case of any Conversion effected prior to the occurrence of any Event of Default, shall have the effect of lowering the amount of outstanding principal amount of this Note in an amount equal to the applicable principal amount so converted, or (ii) in the case of any Conversion effected upon or after the occurrence of any Event of Default, shall have the effect of lowering the amount of outstanding obligation(s) of the Borrower payable under Section 4.2(a) by an amount equal to the applicable amount of any outstanding obligation(s) of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock.
Conversions of this Note pursuant to this Section 2.1 and/or Section 4.2(a) shall be effected at a conversion price equal to the Conversion Price. As used in this Note, the term “Conversion Price” means a price per share of the Borrower’s Common Stock equal to $4.00; provided; notwithstanding anything to the contrary set forth in this Section 2.1, the Conversion Price shall be subject to adjustment in accordance with the terms and conditions of this Note, including without limitation upon the occurrence of an Event of Default as set forth in Section 4.2(a). Subject to Section 2.5(g), the number of shares of Common Stock issuable to the Holder upon any Conversion pursuant to this Section 2.1 and/or Section 4.2(a) as applicable, shall be equal to the ratio calculated by dividing (A) the amount in Dollars of the outstanding obligations of the Borrower under this Note elected by the Holder to be converted (which for the avoidance of doubt, shall (i) in the case of any Conversion effected prior to the occurrence of any Event of Default, be limited to the outstanding Principal Amount under this Note at the time of such Conversion, and (ii) in the case of any Conversion effected upon or after the occurrence of any Event of Default, may include any obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock, including without limitation the Default Amount) by (B) the Conversion Price.
2.2 Installment Payment Conversions. If on or prior to the regularly scheduled due date of any Installment Payment, the Borrower has not satisfied its obligation to pay such Installment Payment by paying the requisite amount of such Installment Payment then due, it shall be deemed an election by the Borrower pursuant to Section 1.2 with respect to such Installment Payment (or any portion thereof, as applicable) not so paid in cash by the Borrower (any such election, a “Borrower Deemed Conversion Election”) that such Installment Payment (or such portion thereof, as applicable) shall be satisfied by one or more Installment Payment Conversions, effected by Holder in accordance with the terms of this Section 2.2 and Section 2.5; provided, that any Borrower Deemed Conversion Election shall have been deemed to have been elected by the Borrower on the regularly scheduled due date of the applicable Installment Payment (or portion thereof, as applicable) which, having not been satisfied on or prior to such date by the Borrower in cash, resulted in such Borrower Deemed Conversion Election (any such date with respect to a Borrower Deemed Conversion Election, a “Borrower Deemed Conversion Election Date”); provided further, for the avoidance of doubt and notwithstanding anything to the contrary set forth herein, that no Event of Default shall be deemed to have occurred solely as a result of the occurrence of any Borrower Deemed Conversion Election.
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Upon the occurrence of any Borrower Deemed Conversion Election with respect to all or any portion of any Installment Payment, the Holder shall be permitted, exercisable at the sole option of the Holder at any time and from time to time (subject to the conversion limitations set forth in this Article II) after the Borrower Deemed Election Conversion Date with respect to such Borrower Deemed Conversion Election until this Note is no longer outstanding, to convert all or any portion of such Installment Payment (or portion thereof) which, having not been satisfied by the Borrower in cash on or prior to such Borrower Deemed Conversion Election Date, resulted in such Borrower Deemed Conversion Election, into shares of Common Stock pursuant to an Installment Payment Conversion. The Holder shall effect such Installment Payment Conversions by delivering to the Borrower or the Borrower’s transfer agent an Installment Payment Notice of Conversion, the form of which is attached hereto as Annex B (each, an “Installment Payment Notice of Conversion”), specifying therein the principal amount of this Note to be converted (i.e. the Principal Reduction Amount with respect to any Installment Payment(s) or and portion(s) thereof to be converted), the amount of any Redemption Fees to be converted and the date on which such Installment Payment Conversion shall be effected (such date, the “Installment Payment Conversion Date”), and which Notice of Conversion shall be delivered to the Borrower or the Borrower’s transfer agent in the manner set forth in Section 2.5(a)(ii); provided, notwithstanding anything to the contrary set forth herein, the Installment Payment Conversion Date with respect to any Installment Payment Conversion effected pursuant to delivery of any Installment Payment Notice of Conversion (including any Installment Payment Notice of Conversion specifying a particular Installment Payment Conversion Date and any Installment Payment Notice of Conversion that does not specify an Installment Payment Conversion Date) shall be determined in accordance with Section 2.5(a)(ii). No ink-original Installment Payment Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Installment Payment Notice of Conversion form be required. Installment Payment Conversions hereunder shall have the effect of lowering (i) the outstanding principal amount of this Note by the amount of any Principal Reduction Amount(s) (or portion(s) thereof) with respect to any Installment Payment(s) or portion(s) thereof, as applicable, so converted and (ii) the amount of any outstanding Redemption Fee(s) (or portion(s) thereof) by the amount of any Redemption Fee(s) (or portion(s) thereof, as applicable) with respect to any Installment Payment(s) or portion(s) thereof, as applicable, so converted. For the avoidance of doubt, subject to the limitations on conversion set forth in this Article II, in the event of multiple Borrower Deemed Conversion Elections, the Holder shall be permitted to convert all or any portion of any and all Installment Payments (or portions thereof), which, having not been satisfied in cash by the Borrower on or prior to the regularly scheduled due date for such Installment Payments (or portions thereof, as applicable), resulted in the occurrence of such multiple Borrower Deemed Conversion Elections, in one or more Installment Payment Conversions, including by converting such multiple Installment Payments (or portions thereof, as applicable) pursuant to a single Installment Payment Notice of Conversion delivered by the Holder in accordance with Section 2.5(a)(ii); provided, for the avoidance of doubt, the Holder shall not be permitted to effect any Installment Payment Conversion with respect to any particular Installment Payment (or any portion thereof) prior to the occurrence of a Borrower Deemed Conversion Election with respect to such particular Installment Payment (or portion thereof); provided further; notwithstanding anything to the contrary set forth herein, nothing in this Section 2.2 shall be deemed to restrict any right or remedy of the Holder available upon the occurrence of an Event of Default, including without limitation, the right of the Holder to accelerate the payment the entire Principal Amount owing hereunder as set forth in Section 4.2(a). Notwithstanding anything to the contrary set forth herein and for the avoidance of doubt, upon the occurrence of any Borrower Deemed Conversion Election with respect to any Installment Payment (or any portion thereof), (i) any election to exercise any Installment Payment Conversion with respect to such Installment Payment (or such portion thereof, as applicable) shall be at the sole discretion of the Holder, (ii) the Holder shall be permitted to exercise any such Installment Payment Conversion at any time following the occurrence of the applicable Borrower Deemed Conversion Election, and from time to time, until , and from time , until this note is no longer outstanding and (iii) the Borrower shall not have any right to determine the timing of any such election by the Holder.
Installment Payment Conversions of this Note pursuant to this Section 2.2 shall be effected at a conversion price equal to the Installment Payment Conversion Price. As used in this Note, the term “Installment Payment Conversion Price” shall mean, with respect to any Installment Payment Conversion, a price equal to the lower of (x) the Conversion Price as of the Installment Payment Conversion Date with respect to such Installment Payment Conversion, and (y) 90% of the lowest daily VWAP of the Common Stock during the five Trading Day period prior to the Installment Payment Conversion Date with respect to such Installment Payment Conversion. “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (i) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (ii) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX or any other Trading Market, and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (iii) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Borrower, the fees and expenses of which shall be paid by the Borrower. “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing. Subject to Section 2.5(g), the number of shares of Common Stock issuable to the Holder upon any Installment Payment Conversion shall be equal to the ratio calculated by dividing (A) the amount in Dollars of the Installment Payment(s) (or portion(s) thereof), as applicable, to be converted by (B) the Installment Payment Conversion Price.
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2.3 Conversion Schedule; Records. The Holder and the Borrower shall maintain a Conversion Schedule showing the principal amount(s) converted (and as applicable, any other obligations of the Borrower under this Note converted, including without limitation, the amount of any accrued and unpaid Default Interest and any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock, and any amount of any Redemption Fee(s) with respect to an Installment Payment converted) and the date of any and all Conversion(s) and Installment Payment Conversion(s) effected. The Borrower may deliver an objection to any Notice of Conversion or any Installment Payment Notice of Conversion within one (1) Business Day of delivery by the Holder of such Notice of Conversion or Installment Payment Notice of Conversion, as applicable. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error.
2.4 Authorized and Reserved Shares. The Borrower covenants that at all times until the Note is satisfied in full, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of a number of Conversion Shares equal to the product calculated by multiplying (A) the sum of the number of Conversion Shares issuable upon the full conversion of this Note (assuming no payment of Principal Amount or interest) at the time of such calculation (taking into consideration any adjustments to the Conversion Price as provided in this Note) by (B) three (3) (the “Reserved Amount”). The Borrower represents that upon issuance, the Conversion Shares will be duly and validly issued, fully paid and non-assessable. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Conversion Shares or instructions to have the Conversion Shares issued as contemplated by Section 2.5(f) hereof, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates or cause the Borrower to electronically issue shares of Common Stock to execute and issue the necessary certificates for the Conversion Shares or cause the Conversion Shares to be issued as contemplated by Section 2.5(f) hereof in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default (as defined in this Note) under Section 4.1(c) of this Note. If, on any date, the number of authorized but unissued (and otherwise unreserved) shares of Common Stock is less than the Reserved Amount on such date, then the board of directors of the Borrower shall use commercially reasonable efforts to amend the Borrower’s certificate or articles of incorporation to increase the number of authorized but unissued shares of Common Stock to at least the Reserved Amount at such time, as soon as possible and in any event not later than the 90th day after such date. The Borrower shall, if applicable: (A) in the time and manner required by the Principal Market, prepare and file with such Principal Market an additional shares listing application covering a number of shares of Common Stock, equal to or greater than the Reserved Amount if such application is made within 45 days of the Issue Date, (B) take all steps necessary to cause such shares of Common Stock to be approved for listing or quotation on such Principal Market as soon as possible thereafter, (C) provide to the Holder evidence of such listing or quotation and (D) maintain the listing or quotation of a number of shares of such Common Stock on such Principal Market or another Principal Market on any date equal to or greater than the Reserved Amount if such date is within 45 days of the Issue Date. The Borrower agrees to maintain the eligibility of the Common Stock for electronic transfer through the DTC or another established clearing corporation, including, without limitation, by timely payment of fees to the DTC or such other established clearing corporation in connection with such electronic transfer.
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2.5 Method of Conversion.
(a) Mechanics of Conversion.
(i) Conversions other than Installment Payment Conversions. Conversions of this Note may be effected by the Holder pursuant to Section 2.1 and/or Section 4.2(a) by Holder’s submission to the Borrower or the Borrower’s transfer agent of a Notice of Conversion sent via by facsimile, e-mail or other reasonable means of communication. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date with respect to the applicable Conversion so long as the Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication before 5:30 p.m. (New York City time), on such date specified in the Notice of Conversion. Any Notice of Conversion submitted after 5:30 p.m. (New York City time) on any given date shall be deemed to have been delivered and received on the next Trading Day, which date shall be deemed to be the Conversion Date with respect to the applicable Conversion effected pursuant to such Notice of Conversion regardless of the Conversion Date specified in the Notice of Conversion. If no Conversion Date is specified in a Notice of Conversion, the Conversion Date with respect to the applicable Conversion shall be deemed to be (i) the date that such Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication, if such Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication before 5:30 p.m. (New York City time) on such date or (ii) the next Trading Day immediately following the date that such Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication, if such Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication after 5:30 p.m. (New York City time) on such date.
(ii) Installment Payment Conversions. Installment Payment Conversions of this Note may be effected by the Holder pursuant to Section 2.2 by Holder’s submission to the Borrower or the Borrower’s transfer agent of an Installment Payment Notice of Conversion sent via by facsimile, e-mail or other reasonable means of communication. The Installment Payment Conversion Date specified in the Installment Payment Notice of Conversion shall be the Installment Payment Conversion Date with respect to the applicable Installment Payment Conversion so long as the Installment Payment Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication before 5:30 p.m. (New York City time), on such date specified in the Installment Payment Notice of Conversion. Any Installment Payment Notice of Conversion submitted after 5:30 p.m. (New York City time) on any given date shall be deemed to have been delivered and received on the next Trading Day, which date shall be deemed to be the Installment Payment Conversion Date with respect to the applicable Installment Payment Conversion effected pursuant to such Installment Payment Notice of Conversion regardless of the Installment Payment Conversion Date specified in the Installment Payment Notice of Conversion. If no Installment Payment Conversion Date is specified in an Installment Payment Notice of Conversion, the Installment Payment Conversion Date with respect to the applicable Installment Payment Conversion shall be deemed to be (i) the date that such Installment Payment Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication, if such Installment Payment Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication before 5:30 p.m. (New York City time) on such date or (ii) the Trading Day immediately following the date that such Installment Payment Notice of Conversion is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication, if such Installment Payment Notice of Conversion is sent is sent to the Borrower or the Borrower’s transfer via by facsimile, e-mail or other reasonable means of communication after 5:30 p.m. (New York City time) on such date.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid Principal Amount of this Note (together with any accrued and unpaid Default Interest, and any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock, and any other fee or other amount permitted to be converted pursuant to this Note) has been so converted and all obligations of the Borrower owing under this Note have been paid in full, including without limitation any accrued and unpaid Default Interest and any other fees and/or other amounts owing by the Borrower under this Note. The Holder and the Borrower shall maintain records showing the Principal Amount (and, as applicable, the amount of any accrued and unpaid Default Interest, any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock, and any other fee or other amount permitted to be converted pursuant to this Note) so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Holder shall be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid Principal Amount of this Note (together with any accrued and unpaid Default Interest and any other obligations of the Borrower then owing under this Note, including without limitation any fees and/or other amounts then owing by the Borrower under this Note). The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted Principal Amount of this Note represented by this Note may be less than the amount stated on the face hereof.
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(c) Payment of Taxes and Expenses. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid. Notwithstanding the foregoing, the issuance of Conversion Shares on conversion of this Note shall be made without charge to the Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such Conversion Shares. The Borrower shall pay all transfer agent fees required for same-day processing of any Notice of Conversion or any Installment Payment Notice of Conversion and all fees to the DTC (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Conversion Shares. The Borrower shall pay all attorney fees required for the issuance of attorney legal opinions for removal of restrictive legends on Conversion Shares.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower or the Borrower’s transfer agent from the Holder of (i) any Notice of Conversion submitted in accordance with Section 2.5(a)(i) and otherwise meeting the requirements for conversion as provided in this Section 2.5 or (ii) any Installment Payment Notice of Conversion submitted in accordance with Section 2.5(a)(ii) and otherwise meeting the requirements for conversion as provided in this Section 2.5, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the applicable Conversion Shares (or cause the electronic delivery of such Conversion Shares as contemplated by Section 2.5(f) hereof) within one (1) Trading Day after such receipt (any such date, a “Deadline”). If the Borrower shall fail for any reason or for no reason to issue to the Holder on or prior to the applicable Deadline a certificate for the number of Conversion Shares or to which the Holder is entitled hereunder and register such Conversion Shares on the Borrower’s share register or to credit the Holder’s balance account with DTC (as defined below) for such number of Conversion Shares to which the Holder is entitled upon any Conversion or any Installment Payment Conversion of this Note (a “Conversion Failure”), then, in addition to all other remedies available to the Holder, (i) the Borrower shall pay in cash to the Holder on each day after such Deadline and during such Conversion Failure an amount equal to 2.0% of the product of (A) the sum of the number of Conversion Shares not issued to the Holder on or prior to the applicable Deadline and to which the Holder is entitled and (B) the VWAP of the Common Stock on the Trading Day immediately preceding the last possible date which the Borrower could have issued such Conversion Shares to the Holder without violating this Section 2.5(d); and (ii) upon written notice to the Borrower, the Holder may void all or any portion of the Notice of Conversion or Installment Payment Notice of Conversion, as applicable, submitted by the Holder to effect such Conversion or Installment Payment Conversion, as applicable; provided that the voiding of all or any portion of any Notice of Conversion or any Installment Payment Notice of Conversion shall not affect the Borrower’s obligations to make any payments which have accrued prior to the date of such notice. In addition to the foregoing, if on or prior to the applicable Deadline, the Borrower shall fail to issue and deliver a certificate to the Holder and register such Conversion Shares on the Borrower’s share register or credit the Holder’s balance account with DTC for the number of Conversion Shares to which the Holder is entitled upon any Conversion or any Installment Payment Conversion of this Note or pursuant to the Borrower’s obligation pursuant to clause (ii) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such Conversion or Installment Payment Conversion of this Note, as applicable, that the Holder anticipated receiving from the Borrower, then the Borrower shall, within two (2) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other reasonable and customary out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Borrower’s obligation to deliver such certificate (and to issue such Conversion Shares) or credit such Holder’s balance account with DTC for such Conversion Shares shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Conversion Shares or credit such Holder’s balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock multiplied by (B) the closing sales price of the Common Stock on the date of applicable Deadline. Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Borrower’s failure to timely deliver certificates representing the Conversion Shares (or to electronically deliver such Conversion Shares) upon the conversion of this Note as required pursuant to the terms hereof.
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(e) Obligation to Deliver Common Stock.
(i) Conversions other than Installment Payment Conversions. Upon receipt by the Borrower or the Borrower’s transfer agent from the Holder of any Notice of Conversion submitted in accordance with Section 2.5(a)(i) and otherwise meeting the requirements for conversion as provided in this Section 2.5, the Holder shall be deemed to be the holder of record of the Conversion Shares issuable upon the Conversion of the Principal Amount (and, as applicable any accrued and unpaid Default Interest and any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock pursuant to such Conversion) effected pursuant to the submission of such Notice of Conversion, the outstanding Principal Amount under this Note (and, as applicable, any accrued and unpaid Default Interest and any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock pursuant to such Conversion) shall be reduced to reflect such Conversion in accordance with Section 2.1, and, unless the Borrower defaults on any of its obligations under this Article II (including without limitation, delivery of the Conversion Shares with respect to such Conversion by the applicable Deadline with respect to such Conversion), all rights with respect to the portion of the Principal Amount of this Note (and, as applicable, any accrued and unpaid Default Interest and any other obligation of the Borrower payable under Section 4.2(a) the payment of which the Holder elects to accept in Common Stock pursuant to such Conversion) being so converted shall forthwith terminate except the right of the Holder to receive the Common Stock or other securities, cash or other assets, as herein provided, on such Conversion. If the Holder shall have submitted a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 2.5(f) hereof) shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date with respect to any Conversion shall be determined in accordance with Section 2.5(a)(i) hereof.
(ii) Installment Payment Conversions. Upon receipt by the Borrower or the Borrower’s transfer agent from the Holder of any Installment Payment Notice of Conversion submitted in accordance with Section 2.5(a)(ii) and otherwise meeting the requirements for conversion as provided in this Section 2.5, the Holder shall be deemed to be the holder of record of the Conversion Shares issuable upon the Installment Payment Conversion of the Installment Payment(s) (or any portion(s) thereof), effected pursuant to the submission of such Installment Payment Notice of Conversion, the outstanding Principal Amount under this Note (and, as applicable, the amount of any outstanding Redemption Fee(s) (or portion(s) thereof) that the Holder elects to convert pursuant to such Installment Payment Conversion) shall be reduced to reflect such Installment Payment Conversion in accordance with Section 2.2, and, unless the Borrower defaults on any of its obligations under this Article II (including without limitation, delivery of the Conversion Shares with respect to such Installment Payment Conversion by the applicable Deadline with respect to such Installment Payment Conversion), all rights with respect to the portion of the principal amount of this Note (and any outstanding Redemption Fee(s) or portion(s) thereof) being so converted shall forthwith terminate except the right of the Holder to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have submitted an Installment Payment Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 2.5(f) hereof) shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Installment Payment Conversion Date with respect to any Installment Payment Conversion shall be determined in accordance with Section 2.5(a)(ii) hereof.
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(f) Delivery of Conversion Shares by Electronic Transfer. Not later than the applicable Deadline with respect to any Conversion Shares issuable upon any Conversion or Installment Payment Conversion of this Note, upon request of the Holder and its compliance with the provisions contained in (i) this Section 2.5 and (ii) either Section 2.1 (with respect to any Conversion effected pursuant to Section 2.1 and/or Section 4.2(a)) or Section 2.2 (with respect to any Installment Payment Conversion effected pursuant to Section 2.2), as applicable, the Borrower shall cause the Conversion Shares required to be issued hereunder pursuant to such Conversion or Installment Payment Conversion, as applicable, to be electronically transmitted by the Borrower’s transfer agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with the Depository Trust Company (“DTC”) through its Deposit Withdrawal Agent Commission, provided the Borrower is participating in the DTC’s Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs and either (A) there is an effective registration statement permitting the issuance of the Conversion Shares to or resale of the Conversion Shares by the Holder or (B) the requisite holding period provided by Rule 144 for the resale of the Conversion Shares by the Holder has been satisfied, and otherwise by delivery of a certificate, registered in the Borrower’s share register in the name of the Holder or its designee.
(g) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Borrower shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
2.6 Concerning the Shares. The Conversion Shares issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the 1933 Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be the Legal Counsel Opinion (as defined in the SPA)) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption, or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 2.6 and who is an Accredited Investor (as defined in the SPA). Except as otherwise provided in the SPA (and subject to the removal provisions set forth below), until such time as the Conversion Shares have been registered under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for the Conversion Shares that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE SPA)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A, REGULATION S UNDER SAID ACT, OR OTHER APPLICABLE EXEMPTION. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
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The legend set forth above shall be removed and the Borrower shall issue to the Holder a certificate for the applicable Conversion Shares without such legend upon which it is stamped or (as requested by the Holder) issue the applicable Conversion Shares by electronic delivery by crediting the account of such holder’s broker with DTC, if, unless otherwise required by applicable state securities laws: (a) such Conversion Shares are registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A, Regulation S, or other applicable exemption without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Borrower or the Holder provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(l) of the SPA) to the effect that a public sale or transfer of such Conversion Shares may be made without registration under the 1933 Act, which opinion shall be accepted by the Borrower so that the sale or transfer is effected. The Borrower shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Holder agrees to sell all Conversion Shares, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Borrower does not accept the opinion of counsel provided by the Holder with respect to the transfer of Conversion Shares pursuant to an exemption from registration, such as Rule 144, Rule 144A, Regulation S, or other applicable exemption, at any Deadline, notwithstanding that the conditions of Rule 144, Rule 144A, Regulation S, or other applicable exemption, as applicable, have been met, it will be considered an Event of Default under Section 4.1(c) of this Note.
2.7 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons whereby the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in this Note) or (ii) be treated pursuant to Section 2.7(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effectuate any transaction described in this Section 2.7(b) unless (a) it first gives, to the extent practicable, at least thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 2.7(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a Subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
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(d) Purchase Rights. If, at any time when all or any portion of this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(e) Dilutive Issuance. If the Borrower, at any time while this Note or any amounts due hereunder are outstanding, issues, sells or grants (or has issued, sold or granted as of the Issue Date, as the case may be) any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues (or has sold or issued, as the case may be, or announces any sale, grant or any option to purchase or other disposition), any Common Stock or other securities convertible into, exercisable for, or otherwise entitle any person or entity the right to acquire, shares of Common Stock (including, without limitation, upon conversion of this Note, and any convertible notes or warrants outstanding as of or following the Issue Date), in each or any case at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Stock or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced, at the option of the Holder, to a price equal to the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or other securities are issued. By way of example, and for the avoidance of doubt, if the Borrower issues a convertible promissory note (including but not limited to a Variable Rate Transaction), and the holder of such convertible promissory note has the right to convert it into Common Stock at an effective price per share that is lower than the then Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock), then the Holder has the right to reduce the Conversion Price to such Base Conversion Price (including but not limited to a conversion price with a discount that varies with the trading prices of or quotations for the Common Stock) in perpetuity regardless of whether the holder of such convertible promissory note ever effectuated a conversion at the Base Conversion Price. In the event of an issuance of securities involving multiple tranches or closings, any adjustment pursuant to this Section 2.7(e) shall be calculated as if all such securities were issued at the initial closing. Notwithstanding the foregoing, the Holder may only enforce its rights under this Section 2.7(e) after the date that is one hundred eighty (180) calendar days after the Issue Date, provided, however, that at such time the Holder may enforce its rights to all adjustments hereunder that apply even if the Dilutive Issuance occurred prior to the date that is one hundred eighty (180) calendar days after the Issue Date.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 2.7, the Borrower shall, at its expense and within one (1) calendar day after the occurrence of each respective adjustment or readjustment of the Conversion Price, compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. In addition, the Borrower shall, within one (1) calendar day after each written request from the Holder, furnish to such Holder a like certificate setting forth (i) the Conversion Price in effect at such time based upon the Dilutive Issuance, (ii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note, (iii) the detailed facts upon which such adjustment or readjustment is based, and (iv) copies of the documentation (including but not limited to relevant transaction documents) that evidences the adjustment or readjustment. For the avoidance of doubt, each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 2.7 shall occur without any action by the Holder and regardless of whether the Borrower complied with the notification provisions in this Section 2.7. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Borrower or any of the Subsidiaries, the Borrower shall simultaneously file such notice with the SEC pursuant to a Current Report on Form 8-K.
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2.8 Holder’s Conversion Limitations. The Borrower shall not effect any conversion of this Note, and the Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion or Installment Payment Notice of Conversion, as applicable, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates and Attribution Parties shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Borrower subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other convertible notes or any Warrant) beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 2.8, beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 2.8 applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates and Attribution Parties) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion or Installment Payment Notice of Conversion, as applicable, shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates or Attribution Parties) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Borrower each time it delivers a Notice of Conversion or Installment Payment Conversion that such Notice of Conversion or Installment Payment Notice of Conversion, as applicable, has not violated the restrictions set forth in this paragraph and the Borrower shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2.8, in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Borrower’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Borrower, or (iii) a more recent written notice by the Borrower or the Borrower’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Borrower shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Borrower, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2.8 to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
2.9 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the Conversion Shares covered thereby (other than the Conversion Shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) Business Day after the expiration of the applicable Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies for the Borrower’s failure to convert this Note.
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2.10 Repayment from Proceeds. If, at any time prior to the full repayment or full conversion of all amounts owed under this Note, the Borrower receives cash proceeds from any source or series of related or unrelated sources, including but not limited to, from payments from customers, the issuance of equity or debt, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant to an equity line of credit of the Borrower or the sale of assets, the Borrower shall, within one (1) Business Day of Borrower’s receipt of such proceeds, inform the Holder of or publicly disclose such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply up to 100% (including with respect to the proceeds received by the Borrower pursuant to the Uplist Offering) of such proceeds to repay all or any portion of the outstanding Principal Amount (and any accrued and unpaid Default Interest thereon), together with any unpaid fees and/or other amounts then owing by the Borrower under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default under Section 4.1(a) of this Note. “Uplist Offering” shall mean an offering of Common Stock (or units consisting of Common Stock and warrants to purchase Common Stock) that will result in the immediate listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or any other national securities exchange (or any successors to any of the foregoing).
ARTICLE III. NEGATIVE COVENANTS
3.1 Other Indebtedness. So long as the Borrower shall have any obligation under this Note, the Borrower shall not (and shall not permit any direct or indirect Subsidiary of the Borrower to) incur or suffer to exist or guarantee any indebtedness that is senior to or pari passu in right or priority of payment to the obligations of the Borrower under this Note (and with respect to any Subsidiary, to such Subsidiary’s obligations under any Transaction Document, including without limitation, the Revenue Pledge and Security Agreement), or otherwise secured by any assets of the Borrower or any of its Subsidiaries, other than Permitted Indebtedness. As used herein, the term “Permitted Indebtedness” means any indebtedness incurred under or contemplated by the Arena Notes (used herein as defined in the Arena-Walleye Intercreditor Agreement) or any other Arena Transaction Document (used herein as defined in the Arena-Walleye Intercreditor Agreement), which Permitted Indebtedness is subject to terms and provisions of that certain letter agreement, dated as of February 27, 2023, by and among the Borrower, the Revenue Sweep Subsidiaries (as defined in Section 4.2(b)), the Holder, Arena Special Opportunities Partners I, LP, a Delaware limited partnership (“ASOP I”), Arena Special Opportunities Fund, LP, a Delaware limited partnership (“ASOF”, and together with ASOP I, collectively, the “Arena Purchasers”), and Arena Investors, LP, a Delaware limited partnership (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena-Walleye Intercreditor Agreement”).
3.2 Other Liens. So long as the Borrower shall have any obligation under this Note, the Borrower shall not (and shall not permit any direct or indirect Subsidiary of the Borrower to) create, incur, assume or suffer to exist any lien or other encumbrance of any nature whatsoever, on any of the Collateral (as defined in the Security Agreement) whether now or hereafter owned, other than (i) liens in favor of the Secured Party (as defined in the Revenue Pledge and Security Agreement) granted pursuant to the Revenue Pledge and Security Agreement or (ii) Permitted Liens. As used herein, the term “Permitted Liens” means the those liens on the assets of the Borrower and the Subsidiaries of the Borrower granted to the holders of the Permitted Indebtedness subject to terms and provisions of the Arena-Walleye Intercreditor Agreement.
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3.3 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any Subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
3.4 Restriction on Stock Repurchases and Debt Repayments. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares, or repay any indebtedness of Borrower (other than the indebtedness of the Borrower owing under this Note and the other Transaction Documents) except for (i) regularly scheduled payments of interest and principal of such other indebtedness pursuant to the terms of such indebtedness as in effect on the date hereof, (ii) pursuant to the terms of the Arena Notes or any other Arena Transaction Document, (iii) pursuant to the terms of that certain Promissory Note held by Blue Lake dated as of March 22, 2022 (as amended by that certain Amendment #2 to Promissory Note, Amendment to Securities Purchase Agreement, Consent and Waiver Agreement dated as of February 23, 2023 by and between Blue Lake and the Borrower) as in effect on the Issue Date, (iv) pursuant to the terms of that certain Promissory Note held by Mast Hill dated as of March 22, 2022 (as amended by that certain Amendment #2 to Promissory Note, Amendment to Securities Purchase Agreement, Consent and Waiver Agreement dated as of February 23, 2023 by and between Mast Hill and the Borrower) as in effect on the Issue Date, (v) pursuant to the terms of that certain Promissory Note held by Fourth Man dated as of April 22, 2022 (as amended by that certain Amendment #2 to Promissory Note, Amendment to Securities Purchase Agreement, Consent and Waiver Agreement dated as of February 23, 2023 by and between Fourth Man and the Borrower) as in effect on the Issue Date, or (vi) pursuant to any provision of such other indebtedness outstanding as of the date hereof providing for the conversion of such indebtedness into shares of the Borrower’s Common Stock.
3.5 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent by the Holder to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
3.6 Advances and Loans; Affiliate Transactions. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit, make advances to or enter into any transaction with any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, Subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the Issue Date and of which the Borrower has informed Holder in writing prior to the Issue Date, (b) in regard to transactions with unaffiliated third parties, made in the ordinary course of business or (c) in regard to transactions with unaffiliated third parties, not in excess of $100,000 in the aggregate of all such transactions. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, repay any affiliate (as defined in Rule 144) of the Borrower in connection with any indebtedness or accrued amounts owed to any such party.
3.7 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, Section 3(a)(10) of the Securities Act (a “3(a)(10) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(10) Transaction while this Note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than $25,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of a cash payment or added to the balance of this Note (under Holder’s and Borrower’s expectation that this amount will tack back to the Issue Date).
3.8 Preservation of Business and Existence, etc. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, (a) change the nature of its business; (b) sell, divest, change the structure of any material assets other than in the ordinary course of business; (c) enter into a Variable Rate Transaction; or (d) enter into any merchant cash advance transactions. In addition, so long as the Borrower shall have any obligation under this Note, the Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
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3.9 Noncircumvention. The Borrower hereby covenants and agrees that the Borrower will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.
3.10 Lost, Stolen or Mutilated Note. Upon receipt by the Borrower of evidence reasonably satisfactory to the Borrower of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Borrower in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Borrower shall execute and deliver to the Holder a new Note.
ARTICLE IV. EVENTS OF DEFAULT
4.1 Events of Default. It shall be considered an event of default if any of the following events listed in this Article IV (each, an “Event of Default”) shall occur (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
(a) Failure to Pay Principal or Interest. The Borrower fails to pay any Principal Amount hereof and/or interest thereon, in each case when such payment becomes due under this Note, whether at the Maturity Date, upon acceleration or otherwise in accordance with the terms of this Note; provided, for the avoidance of doubt and notwithstanding anything to the contrary set forth herein, that no Event of Default shall be deemed to have occurred solely as a result of the occurrence of any Borrower Deemed Conversion Election with respect to any Installment Payment that becomes due and payable under this Note.
(b) Conversion and the Shares. The Borrower (i) fails to issue Conversion Shares to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, (ii) fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iii) fails to reserve the Reserved Amount at all times, (iv) the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for two (2) Trading Days after the Holder shall have delivered a Notice of Conversion, and/or (v) fails to remain current in its obligations to its transfer agent (including but not limited to payment obligations to its transfer agent). It shall be an Event of Default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be added to the principal balance of the Note.
(c) Breach of Agreements and Covenants. The Borrower or any of its Subsidiaries breaches any covenant, agreement, or other term or condition contained in the SPA, this Note, the Revenue Pledge and Security Agreement, in any other Transaction Document or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith.
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(d) Breach of Representations and Warranties. Any representation or warranty of the Borrower or any of its Subsidiaries made in the SPA, this Note, the Revenue Pledge and Security Agreement, in any other Transaction Document, or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the SPA.
(e) Receiver or Trustee. The Borrower or any Subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
(f) Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
(g) Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
(h) Failure to Comply with the 1934 Act. At any time after the Issue Date, the Borrower shall fail to comply with the reporting requirements of the 1934 Act and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act.
(i) Liquidation. Any dissolution, liquidation, or winding up of Borrower or any of its subsidiaries or any substantial portion of its business.
(j) Cessation of Operations. Any cessation of operations by Borrower or any of its Subsidiaries or any admission by the Borrower or any of its subsidiaries that it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s or any its Subsidiaries’ ability to continue as a “going concern” shall not be an admission that the Borrower (or any such subsidiary of the Borrower) cannot pay its debts as they become due.
(k) Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
(l) Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding.
(m) Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the SPA, signed by the successor transfer agent to Borrower and the Borrower.
(n) Cross-Default. The declaration of an event of default by any lender or other extender of credit to the Borrower under any notes, loans, agreements or other instruments of the Borrower evidencing any indebtedness of the Borrower (including those filed as exhibits to or described in the Borrower’s filings with the SEC), after the passage of all applicable notice and cure or grace periods.
(o) Variable Rate Transactions. The Borrower consummates a Variable Rate Transaction at any time on or after the Issue Date.
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(p) Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.
(q) Unavailability of Rule 144. If, at any time on or after the date that is six (6) calendar months after the Issue Date, the Holder is unable to (i) obtain a standard “144 legal opinion letter” from an attorney reasonably acceptable to the Holder, the Holder’s brokerage firm (and respective clearing firm), and the Borrower’s transfer agent in order to facilitate the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant to Rule 144, and/or (ii) thereupon deposit such shares into the Holder’s brokerage account.
(r) Delisting, Suspension, or Quotation of Trading of Common Stock. If, at any time on or after the Issue Date, the Borrower’s Common Stock (i) is suspended from trading, (ii) halted from trading, and/or (iii) fails to be quoted or listed (as applicable) on a Principal Market.
(s) Registration Statement Failures. The Borrower fails to (i) file a registration statement covering the Holder’s resale at prevailing market prices (and not fixed prices) of all of the Common Stock (the “Registration Statement”) underlying the Registrable Securities (as defined in the RRA) within ninety (90) calendar days following the Issue Date, (ii) cause the Registration Statement to become effective within one hundred twenty (120) calendar days following the Issue Date, (iii) comply with all of the provisions of the Registration Rights Agreement, or (iv) immediately amend the Registration Statement or file a new Registration Statement (and cause such Registration Statement to become effective as provided in the Registration Rights Agreement) if there are no longer sufficient shares registered under the initial Registration Statement for the Holder’s resale at prevailing market prices (and not fixed prices) of all of the Common Stock underlying the Registrable Securities.
(t) Asset Sales; Fundamental Transactions. Any (i) sale, conveyance or disposition of all or substantially all of the assets of the Borrower, or (ii) consolidation, merger or other business combination of the Borrower with or into any other Person or Persons whereby the Borrower is not the survivor (any such transaction a “Section 2.7 Transaction”), which Section 2.7 Transaction is deemed by the Holder at its option to be an Event of Default pursuant to Section 2.7 of this Note.
4.2 Rights and Remedies Upon an Event of Default.
(a) Upon the occurrence of any Event of Default specified in this Article IV, this Note shall become immediately due and payable, and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the product calculated by multiplying (a) the sum of the Principal Amount then outstanding plus accrued Default Interest through the date of full repayment by (b) 135% (collectively the “Default Amount”), as well as all costs, including, without limitation, legal fees and expenses, of collection, all without demand, presentment or notice, all of which hereby are expressly waived by the Borrower in cash; provided, notwithstanding anything to the contrary set forth herein, that the Holder may, in its sole discretion, determine to accept payment of any obligation of the Borrower payable under this Section 4.2(a) in Common Stock (using the Conversion Price as adjusted pursuant the last sentence of this Section 4.2(a)) or in cash, or in a combination of both Common Stock and cash. The Holder shall be entitled to exercise all other rights and remedies available at law or in equity. Commencing upon the occurrence of any Event of Default, the Principal Amount then outstanding shall bear interest at the rate of the lesser of (i) eighteen percent (18%) per annum and (ii) the maximum amount permitted by law from the due date thereof until the same is paid (“Default Interest”). Default Interest accrued hereunder shall be paid either in cash or in Common Stock, as determined by the Holder in its sole discretion, and shall be computed on the basis of a 365-day year for the actual number of days elapsed. Upon the payment in full of the Default Amount, as well as all costs, including, without limitation, legal fees and expenses, of collection, the Holder shall promptly surrender this Note to or as directed by the Borrower. In connection with such acceleration described herein, the Holder need not provide, and the Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 4.2. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. For the avoidance of doubt, subject to Section 2.5(g), the number of shares of Common Stock issuable to the Holder upon any election of the Holder to accept payment of any obligation of the Borrower payable under this Section 4.2(a) in Common Stock shall be equal to the ratio calculated by dividing (A) the amount in Dollars of such obligation of the Borrower payable under this Section 4.2(a) the payment of which the Holder has elected to accept in Common Stock by (B) the Conversion Price. Additionally, upon the occurrence and continuance of an Event of Default, the Conversion Price shall be adjusted to the lower of (i) the Conversion Price on the date of the Event of Default or (ii) 60% discount to the lowest VWAP of the Borrower’s Common Stock during the five (5) Trading Day period immediately prior to the Conversion Date.
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(b) Subsidiary Revenue Pledge. Additionally, notwithstanding any rescission and/or annulment of any acceleration of this Note with respect to any Event of Default effected by the Holder pursuant to the foregoing Section 4.2(a), in the event that any Event of Default has occurred and is continuing without cure, during the period commencing on and including the first Business Day of the calendar month immediately following the calendar month during which such Event of Default occurred until the earlier to occur of (x) the curing of such Event of Default and (y) the satisfaction in full of all of the Borrower’s obligations under this Note (any such period, a “Revenue Sweep Period”), each Revenue Sweep Subsidiary (as defined below) shall make monthly payments to the Holder, in satisfaction of any then outstanding obligations of the Borrower under this Note (each such monthly payment, a “Monthly Revenue Sweep Payment”), which Monthly Revenue Sweep Payments shall each (i) be due and payable in cash on the first Business Day of each calendar month during the applicable Revenue Sweep Period (any such due date with respect to a Monthly Revenue Sweep Payment, a “Month Revenue Sweep Payment Date”) and (ii) be in an amount equal to ten percent (10%) of the Eligible Revenues (as defined below) of such Revenue Sweep Subsidiary for the calendar month immediately preceding the Monthly Revenue Sweep Payment Date with respect to such Monthly Revenue Sweep Payment. As used herein, the term “Eligible Revenues” shall mean, with respect to any Revenue Sweep Subsidiary, with respect to any period as of any date of determination, the revenue of such Revenue Sweep Subsidiary for such period (x) generated from sales of goods and/or the provision of services by any such Revenue Sweep Subsidiary occurring after the execution of this Note and/or (y) arising from accounts receivable of such Revenue Sweep Subsidiary generated from sales of goods and/or the provision of services by any such Revenue Sweep Subsidiary occurring after the execution of this Note (as determined in accordance with GAAP). As used herein, the term “GAAP” shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) and the SEC, which are applicable to the circumstances as of the date of determination. The obligations of the Revenue Sweep Subsidiaries to make each Monthly Revenue Sweep Payment and certain other related obligations of the Revenue Sweep Subsidiaries and the Borrower are set forth in further detail and secured pursuant to that certain Revenue Pledge and Security Agreement dated as of February 27, 2023 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Revenue Pledge and Security Agreement”) by and among Duramed, Inc., a Nevada corporation and wholly-owned subsidiary of the Borrower (together with its successors and assigns, “Duramed”), Duramed MI, LLC, a Nevada limited liability company formerly known as DuramedNJ LLC and wholly-owned subsidiary of the Borrower (together with its successors and assigns, “Duramed MI”), CO Botanicals LLC, a Nevada limited liability company and wholly-owned Subsidiary of the Borrower (together with its successors and assigns, “CO Botanicals”), Botanical Biotech LLC, a Nevada limited liability company and wholly-owned Subsidiary of the Borrower (together with its successors and assigns, “Botanical Biotech”; Duramed, Duramed MI, CO Botanicals and Botanical Biotech are referred to herein collectively as the “Revenue Sweep Subsidiaries”, and each individually, as a “Revenue Sweep Subsidiary”) with each of the Revenue Sweep Subsidiaries in its capacity as a debtor thereunder, the Borrower, and the Holder as the secured party. The Borrower shall cause each Revenue Sweep Subsidiary to comply with such Revenue Sweep Subsidiary’s respective obligation to make each Monthly Revenue Sweep Payment that becomes due and payable and any other obligations of such Revenue Sweep Subsidiary set forth in the Revenue Pledge and Security Agreement, and the Borrower agrees to execute and deliver such additional documents and will provide such additional information as may reasonably be required to carry out the purposes of this Section.
(c) In case any one or more Events of Default shall occur and be continuing, Holder may proceed to protect and enforce its rights by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or for an injunction against a violation of any of the terms hereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. In case of a default in the payment of any Installment Payment, any portion of the Principal Amount, or any interest or other fees due and payable on this Note, Borrower will pay to Holder such further amount as shall be sufficient to cover the reasonable cost and expenses of collection, including, without limitation, reasonable attorneys’ fees, expenses and disbursements. No course of dealing and no delay on the part of Holder in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice Holder’s rights, powers or remedies. No right, power or remedy conferred by this Note upon Holder shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise.
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ARTICLE V. MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Holder existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
5.2 Notices. All notices, requests, demands, and other communications provided for hereunder must be in writing and will be deemed to have been duly given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via e-mail prior to 5:30 p.m. (New York City time) on any Business Day; (b) the next Business Day after the date of transmission, if such notice or communication is delivered via e-mail on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day; (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given, addressed as follows:
If to the Borrower:
CAN
B̅ CORP.
960 South Broadway, Suite 120
Hicksville, NY 11801
Attention: Marco Alfonsi
e-mail: info@canbiola.com
If to the Holder:
Walleye Opportunities Master Fund Ltd
2800 Niagara Lane N.
Plymouth, MN 55447
Attention: William England
e-mail: wengland@walleyecapital.com
or as to the Borrower or the Holder, at such other address as shall be designated by such party in a written notice to the other party delivered in accordance with this Section 5.2.
5.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. The Borrower shall not assign this Note or any rights or obligations hereunder without the prior written consent of the Holder. The Holder may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Holder or to any of its “affiliates”, as that term is defined under the 1934 Act, without the consent of the Borrower. Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
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5.5 Holder Fees and Expenses. Borrower agrees to pay to Holder, immediately upon written notice from Holder, all actual costs, expenses, disbursements, and legal fees and expenses incurred by Holder in connection with: (a) the collection, attempted collection, or negotiation and documentation of any settlement or workout of any payment due hereunder, and (b) any suit or proceeding whatsoever in regard to this Note or the protection or enforcement of the lien of any instrument securing this Note, including, without limitation, in connection with any litigation, mediation, bankruptcy or administrative proceeding, and including any appellate proceeding or judicial or non-judicial foreclosure proceeding in connection therewith.
5.6 Governing Law; Venue; Waiver of Jury Trial; Attorneys’ Fees. This Note shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware. The Borrower hereby irrevocably waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED HEREBY. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The prevailing party in any action or dispute brought in connection with this the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby shall be entitled to recover from the other party its reasonable attorneys’ fees and costs.
5.7 Certain Amounts. At any time pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding Principal Amount (or the remaining portion thereof required to be paid at such time pursuant to this Note) plus Default Interest thereon, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
5.8 Purchase Agreement. The Borrower and the Holder shall be bound by the applicable terms of the SPA and the documents entered into in connection herewith and therewith.
5.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any change in control or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 5.9.
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5.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
5.11 Construction; Headings. This Note shall be deemed to be jointly drafted by the Borrower and all the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.
5.12 Usury. To the extent it may lawfully do so, the Borrower hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Borrower under this Note for payments which under the applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under the applicable law in the nature of interest that the Borrower may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by applicable law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the Issue Date, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Borrower to the Holder with respect to indebtedness evidenced by this the Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Borrower, the manner of handling such excess to be at the Holder’s election.
5.13 Severability. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law (including any judicial ruling), then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.
5.14 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security, or amendment to a security that was originally issued before the Issue Date, with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Holder reasonably believes was not similarly provided to the Holder in this Note, then (i) the Borrower shall notify the Holder of such additional or more favorable term within one (1) Business Day of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Holder’s option, shall become a part of the transaction documents with the Holder (regardless of whether the Borrower complied with the notification provision of this Section 5.14). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing prepayment rate, interest rates, and original issue discounts. Notwithstanding the foregoing, the Holder may only enforce its rights under this Section 5.14 after the date that is one hundred eighty (180) calendar days after the Issue Date, provided, however, that at such time the Holder may enforce its rights to all adjustments hereunder that apply even if such adjustment was triggered or such issuance occurred prior to the date that is one hundred eighty (180) calendar days after the Issue Date.
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5.15 Right of First Refusal. If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any third party that the Borrower intends to act upon, then the Borrower must offer such opportunity on the same terms as such third party’s terms by providing written notice of the offer (an “Offer Notice”) concurrently to the Holder, the Arena Purchasers, Mast Hill Fund, L.P., a Delaware limited partnership (“Mast Hill”), Blue Lake Partners, LLC, a Delaware limited liability company (“Blue Lake”), and Fourth Man, LLC, a Nevada limited liability company (“Fourth Man”), subject to the terms of this Section 5.15. As used in this Section 5.15, the term “Offerees” shall mean, collectively, (i) the Holder, (ii) the Arena Purchasers (jointly), (iii) Mast Hill, (iv) Blue Lake and (v) Fourth Man, and, each individually an “Offeree”; provided for the avoidance of doubt that for purposes of this Section 5.15, the Arena Purchasers shall be considered to be a single Offeree. Within five (5) Business Days after receipt of an Offer Notice by any Offeree (the “Offer Response Period”), such Offeree shall notify the Borrower in writing (an “Offer Response Notice”) of such Offeree’s election to either (A) provide such capital or financing to the Borrower on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Borrower by such third party) or (B) waive such Offeree’s right to provide such capital or financing to the Borrower on the same terms as such third party’s terms. If any Offeree fails to deliver an Offer Response Notice to the Borrower prior to the end of the Offer Response Period, time being of the essence, then such Offeree shall be deemed to have elected option (B) above. In the event (x) more than one Offeree elects to provide such capital or financing to the Borrower on the same terms as such third party’s terms pursuant to Offer Response Notices sent by each such Offeree to the Borrower within the Offer Response Period, then each such Offeree shall provide a portion of such capital or financing to the Borrower pro rata in proportion to the respective ROFR Units (as defined below) of such Offerees, and in all other respects on the same terms as such third party’s terms, (y) only one Offeree elects to provide such capital or financing to the Borrower on the same terms as such third party’s terms pursuant to an Offer Response Notice sent by such Offeree to the Borrower within the Offer Response Period, then such Offeree shall provide (and none of the other Offerees shall have the right to provide) such capital or financing to the Borrower on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Borrower by such third party), or (z) none of the Offerees elect to provide such capital or financing to the Borrower on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Borrower within the Offer Response Period, then the Borrower may obtain such capital or financing from such third party, provided the Borrower obtains such capital or financing from such third party upon the exact same terms and conditions set forth in the Offer Notice. If none of the Offerees elects to provide such capital or financing to the Borrower on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Borrower within the Offer Response Period, and the Borrower does not receive the capital or financing from such third party in accordance with the foregoing clause (z) within thirty (30) days after the date of the last Offer Notice, so long as this Note remains outstanding at such time, the Borrower must again offer the capital or financing opportunity on the same terms as such third party’s terms by providing written notice of the offer concurrently to each of the Offerees pursuant to a further Offer Notice as described above, and the process detailed above shall be repeated. All Offer Notices required to be sent to the Holder under this Section 5.15 must be sent via electronic mail to wengland@walleyecapital.com. For purposes of allocating the opportunity to provide the capital or financing to the Borrower on the same terms as the applicable third party’s terms to the applicable Offerees under clause (x) of the fourth sentence of this Section 5.15, the Offerees shall be and hereby are allocated units (with respect to each Offeree, such Offeree’s “ROFR Units”) representing the Offerees’ respective rights in connection with any such allocation of the opportunity, with such ROFR Units being allocated to the Offerees in the following amounts: (i) to the Holder, 2,149,706 ROFR Units, (ii) to the Arena Purchasers (as a single Offeree), 3,900,000 ROFR Units, (iii) to Mast Hill, 367,500 ROFR Units, (iv) to Blue Lake, 262,500 ROFR Units, and (v) to Fourth Man, 156,525 ROFR Units.
5.16 Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price, Installment Payment Conversion Price, the number of Conversion Shares issuable upon any Conversion or Installment Payment Conversion, any prepayment amount or Default Amount, the closing bid price, or fair market value (as the case may be) or the arithmetic calculation of the Conversion Price, the number of Conversion Shares issuable upon any Conversion or Installment Payment Conversion, the applicable prepayment amount(s) or Default Amount (as the case may be), the Borrower or the Holder shall submit the disputed determinations or arithmetic calculations via facsimile (i) within one (1) Trading Day after receipt of the applicable notice giving rise to such dispute to the Borrower or the Holder or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Borrower are unable to agree upon such determination or calculation within one (1) Trading Day of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Borrower or the Holder, then the Borrower shall, within one (1) Trading Day, submit (a) the disputed determination of the Conversion Price, Installment Payment Conversion Price, the closing bid price, or fair market value (as the case may be) to an independent, reputable investment bank selected by the Borrower and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Price, Installment Payment Conversion Price, the number of Conversion Shares issuable upon any Conversion or Installment Payment Conversion, any prepayment amount or Default Amount, to an independent, outside accountant selected by the Holder that is reasonably acceptable to the Borrower. The Borrower shall cause at its expense the investment bank or the accountant to perform the determinations or calculations and notify the Borrower and the Holder of the results no later than one (1) Trading Day from the time it receives such disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation shall be binding upon all parties absent demonstrable error.
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5.17 Remedies, Characterizations, Other Obligations, Breaches, and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual and consequential damages for any failure by the Borrower to comply with the terms of this Note. The Borrower covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Borrower (or the performance thereof). The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Borrower therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Borrower shall provide all information and documentation to the Holder that is reasonably requested by the Holder to enable the Holder to confirm the Borrower’s compliance with the terms and conditions of this Note.
5.18 Disclosure. Upon receipt or delivery by the Borrower of any notice in accordance with the terms of this Note, unless the Borrower has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Borrower or its subsidiaries, the Borrower shall (i) within two (2) Business Days following any such receipt of a notice by the Borrower hereunder or (ii) immediately upon any such delivery of a notice by the Borrower hereunder, publicly disclose such material, nonpublic information on a Current Report on Form 8-K pursuant to Regulation FD. In the event that the Borrower believes that any such notice contains material, non-public information relating to the Borrower or its subsidiaries, the Borrower so shall indicate to the Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Borrower or its subsidiaries.
[signature page follows]
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IN WITNESS WHEREOF, the Borrower has caused this Note to be signed in its name by its duly authorized officer as of the date first written above.
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer |
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ANNEX A-1 - NOTICE OF CONVERSION
The undersigned hereby elects to convert $______________ in outstanding principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of CAN B̅ CORP., a Florida corporation (the “Borrower”), according to the conditions of the promissory note of the Borrower dated as of February 27, 2023 (the “Note”), as of the Conversion Date set forth below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any. Capitalized terms used but not defined herein shall have the meaning given to such terms in the Note.
Box Checked as to applicable instructions:
☐ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
Name of DTC Prime Broker: | |
Account Number: |
☐ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
Conversion Date: | ||
Converted Principal Amount (set forth above): |
$ | |
Applicable Conversion Price: | $ | |
Number of Shares of Common Stock to be issued pursuant to this Conversion of the Note: | ||
Principal Amount due remaining under the Note after this Conversion: | $ |
By: | ||
Name: | ||
Title: | ||
Date: |
[Signature Page to Annex A-1 – Notice of Conversion]
ANNEX A-2 - NOTICE OF CONVERSION
Reference is made to that certain Promissory Note dated as February 27, 2023 (the “Note”) of CAN B̅ CORP., a Florida corporation (the “Borrower”). Capitalized terms used but not defined herein shall have the meaning given to such terms in the Note. No fee will be charged to the Holder for any conversion of the Note, except for transfer taxes, if any. The undersigned hereby elects to convert, by Conversion as of the Conversion Date set forth below, $_____________ (such amount, the “Total Default Obligations Converted Amount”) in obligations outstanding of the Borrower under Section 4.2(a) of the Note consisting of:
(a) Default Amount being converted: | $ |
Principal Amount of Note being converted (included in calculation of Default Amount being converted: | $ |
Default Interest to be converted (included in calculation of Default Amount being converted): | $ |
(b) Costs, including without limitation legal fees and expenses, of collection, being converted: | $ |
Total Default Obligations Converted Amount (add lines (a) and (b) above): |
$ |
Conversion Date: | |
Total Default Obligations Converted Amount (set forth above): |
$ |
Applicable Conversion Price: | $ |
Number of Shares of Common Stock to be issued pursuant to this Conversion of the Total Default Obligations Converted Amount: | |
(a) Default Amount due remaining under the Note after this Conversion: | $ |
Principal Amount due remaining under the Note after this Conversion (included in calculation of Default Amount remaining due under the Note after this Conversion): | $ |
Default Interest due remaining under the Note after this Conversion (included in calculation of Default Amount remaining due under the Note after this Conversion): | $ |
(b) Costs, including without limitation legal fees and expenses, of collection, due remaining under the Note after this Conversion: | $ |
Total obligations of the Borrower under Section 4.2(a) of the Note due remaining due after this Conversion (add lines (a) and (b) above): | $ |
[form continues on following page]
Box Checked as to applicable instructions:
☐ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
Name of DTC Prime Broker: | |
Account Number: |
☐ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
By: | ||
Name: | ||
Title: | ||
Date: |
[Signature Page to Annex A-2 – Notice of Conversion]
ANNEX B - INSTALLMENT PAYMENT NOTICE OF CONVERSION
Reference is made to that certain Promissory Note dated as February 27, 2023 (the “Note”) of CAN B̅ CORP., a Florida corporation (the “Borrower”). Capitalized terms used but not defined herein shall have the meaning given to such terms in the Note. No fee will be charged to the Holder for any conversion of the Note, except for transfer taxes, if any. The undersigned hereby elects to convert, by Installment Payment Conversion as of the Installment Payment Conversion Date set forth below, $_____________ (such amount, the “Total Installment Payment Converted Amount”) in accrued and unpaid Installment Payment Payment(s) consisting of:
(1) | With respect to that certain Installment Payment that became due and payable under the Note on [_______]: |
(a) | $____________ in Principal Reduction Amount outstanding with respect to such Installment Payment; and | |
(b) | $____________ in Redemption Fees outstanding with respect to such Installment Payment. |
(2) | [With respect to that certain Installment Payment that became due and payable under the Note on [_______]: |
(a) | $____________ in Principal Reduction Amount outstanding with respect to such Installment Payment; and | |
(b) | $____________ in Redemption Fees outstanding with respect to such Installment Payment.] 1 |
Installment Payment Conversion Date: |
Total Installment Payment Converted Amount (set forth in recitals above): | $ |
Applicable Installment Payment Conversion Price: | $ |
Number of Shares of Common Stock to be issued pursuant to this Installment Payment Conversion of the Total Installment Payment Converted Amount: | $ |
Total Principal Reduction Amount being converted: 2 | $ |
Principal Amount due and payable under the Note as of the date of this Notice after Total Principal Reduction Amount being converted (i.e. any include total Principal Reduction Amounts of any Installment Payments that are due and payable as of the date of this Notice and subtract Total Principal Reduction Amount being converted): | $ |
Principal Amount remaining under the Note (including any Principal Amount not yet due and payable as of the date of this Notice) after Total Principal Reduction Amount being converted: | $ |
Total Redemption Fee(s) being converted: 3 | $ |
Total Redemption Fee(s) with due and payable under the Note as of the date of this Notice after Total Redemption Fees(s) being converted (i.e. any include total Redemption Fees of any Installment Payments that are due and payable as of the date of this Notice and subtract Total Redemption Fee(s) being converted: | $ |
Total Redemption Fees remaining under the Note (including any Redemption Fees in respect of any Installment Payments not yet due and payable as of the date of this Notice) after Total Principal Reduction Amount being converted: | $ |
[form continues on following page]
1 Instructions: If the Installment Payment Notice of Conversion is intended to convert only a single Installment Payment (or a portion thereof), can delete bracketed Paragraph (2) and just fill in the information for Paragraph (1). If the Installment Payment Notice of Conversion is intended to convert multiple Installment Payments (or portions thereof), fill in the information for Paragraph (2) and add mirroring Paragraphs (3), (4), (5), (6), (7), and (8) if needed, with the applicable information with respect to such Installment Payments (or portions thereof) being converted.
2 Add the total of Principal Reduction Amount(s) – from line (a) of each Paragraph (1), (2), etc… with respect to each Installment Payment (or portion thereof) being converted.
3 Add the total of the Redemption Fee(s) – from line (b) of each Paragraph (1), (2), etc… with respect to each Installment Payment (or portion thereof) being converted.
Box Checked as to applicable instructions:
☐ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Installment Payment Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
Name of DTC Prime Broker: | |
Account Number: |
☐ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
By: | ||
Name: | ||
Title: | ||
Date: |
[Signature Page to Annex B – Installment Payment Notice of Conversion]
Exhibit 10.52
REVENUE PLEDGE AND SECURITY AGREEMENT
This REVENUE PLEDGE AND SECURITY AGREEMENT (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, this “Agreement”) is made as of February 27, 2023 (the “Effective Date”), by and among DURAMED, INC., a Nevada corporation and wholly-owned subsidiary of the Borrower (together with its successors and assigns, “Duramed”), DURAMED MI, LLC, a Nevada limited liability company formerly known as DuramedNJ LLC and wholly-owned subsidiary of the Borrower (together with its successors and assigns, “Duramed MI”), CO BOTANICALS LLC, a Nevada limited liability company and wholly-owned subsidiary of the Borrower (together with its successors and assigns, “CO Botanicals”), and BOTANICAL BIOTECH LLC, a Nevada limited liability company and wholly-owned subsidiary of the Borrower (together with its successors and assigns, “Botanical Biotech”; Duramed, Duramed MI, CO Botanicals, Botanical Biotech together with any additional parties joined as debtors party hereto from time to time in accordance with the terms of this Agreement are referred to herein collectively as the “Debtors”, and each individually, as a “Debtor”), CAN B CORP., a Florida corporation (together with its successors and assigns, the “Borrower”) and WALLEYE OPPORTUNITIES MASTER FUND LTD, a Cayman Islands exempted company with limited liability, or its registered assigns (“Secured Party”). Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in the Note (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower has issued that certain promissory note in the original principal amount of $1,823,529 dated as of February 27, 2023, in favor of Secured Party (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Note”), pursuant to that certain Securities Purchase Agreement, dated as of February 27, 2023, by and between the Borrower and Secured Party (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “SPA”);
WHEREAS, each of the Debtors derives financial benefit from the financing made available to the Borrower by Secured Party evidenced by the Note; and
WHEREAS, the Debtors and Secured Party wish to enter into this Agreement in order to secure the obligations of the Borrower under the Note, subject to the terms and conditions set forth herein. As used herein, the term “Secured Obligations”, shall mean, collectively, the obligations of the Borrower under the Note, and the obligations of the Debtors hereunder.
NOW, THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
1. Debtor Revenue Pledge.
(a) Monthly Revenue Sweep Payments. Each Debtor covenants and agrees that, in the event that any Event of Default has occurred and is continuing without cure, during the period commencing on and including the first Business Day of the calendar month immediately following the calendar month during which such Event of Default occurred until the earlier to occur of (x) the curing of such Event of Default or (y) the satisfaction in full of all of the Borrower’s obligations under the Note (any such period, a “Revenue Sweep Period”), each Debtor shall make monthly payments to Secured Party, in satisfaction of any then outstanding obligations of the Borrower under the Note (each such monthly payment, a “Monthly Revenue Sweep Payment”), which Monthly Revenue Sweep Payments shall each (i) be due and payable in cash on the first Business Day of each calendar month during the applicable Revenue Sweep Period (any such due date with respect to a Monthly Revenue Sweep Payment, a “Monthly Revenue Sweep Payment Date”) and (ii) be in an amount equal to ten percent (10%) of the Eligible Revenues of such Debtor for the calendar month immediately preceding the Revenue Sweep Payment Date with respect to such Monthly Revenue Sweep Payment. As used herein, the term “Eligible Revenues” shall mean, with respect to any Debtor, with respect to any period as of any date of determination, the revenue of such Debtor for such period (x) generated from sales of goods and/or the provision of services by such Debtor occurring after the execution of the Note and/or (y) arising from accounts receivable of such Debtor generated from sales of goods and/or the provision of services by any such Debtor occurring after the execution of the Note (as determined in accordance with GAAP). As used herein, the term “GAAP” shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) and the U.S. Securities and Exchange Commission, which are applicable to the circumstances as of the date of determination. All payments due hereunder shall be made in lawful money of the United States of America. As used herein, “$” or “Dollars” means United States Dollars.
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(b) Debtor Reporting Obligations during Revenue Sweep Periods. Each Debtor covenants and agrees that during any Revenue Sweep Period, unless waived in writing by Secured Party in its sole discretion, each Debtor shall furnish to Secured Party, as soon as available and in any event within fifteen (15) days after the end of each calendar month during such Revenue Sweep Period, such Debtor’s balance sheet as of the end of such calendar month and statements of income (or loss), and cash flow of such Debtor for the period ending as of the end of the previous fiscal year of such Debtor, and ending with the end of such calendar month, all in reasonable detail and satisfactory in form, substance and scope to Secured Party, together with such other supporting documentation as Secured Party may reasonably request.
2. Grant of Security Interest.
(a) Debtor Grant of Security Interest. Each of the Debtors hereby grants to Secured Party (and its agents and designees), as continuing collateral security for the payment, performance and observance of all of the Secured Obligations, (i) a first-priority continuing security interest in, lien on and right of set-off against all right, title and interest of such Debtor to ten percent (10%) of any and all Eligible Revenues of such Debtor during any and all Revenue Sweep Periods, including without limitation any such revenue received in cash by such Debtor during any and all Revenue Sweep Periods and the products, proceeds and accessions of any such Eligible Revenues (the “Debtor Pledged Revenues”) and (ii) a continuing security interest in, lien on and right of set-off against all right, title and interest of such Debtor to all deposit accounts of such Debtor (other than those described in Schedule A-2), including those certain deposit accounts held or controlled by such Debtor described on Schedule A-1 and the products, proceeds and accessions thereof (the “Debtor Deposit Accounts”).
(b) Borrower Grant of Security Interest in Deposit Accounts. The Borrower hereby grants to Secured Party (and its agents and designees), as continuing collateral security for the payment, performance and observance of all of the Secured Obligations, a continuing security interest in, lien on and right of set-off against all right, title and interest of the Borrower, to all deposit accounts of the Borrower (other than those described in Schedule A-2), including without limitation those certain deposit accounts held or controlled by the Borrower described on Schedule A-1 hereto, and the products, proceeds and accessions thereof (the “Borrower Deposit Accounts”, and together with the Debtor Deposit Accounts and the Debtor Pledged Revenues, and the Additional Collateral (as defined below), the “Collateral”).
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3. Representations, Covenants and Agreements of the Debtors. Each Debtor and the Borrower hereby represents, covenants and agrees that:
(a) All promissory notes currently evidencing the Debtor Pledged Revenues shall be delivered to the Secured Party on or prior to the Effective Date, all other promissory notes evidencing Debtor Pledged Revenues from time to time required to be pledged to the Secured Party pursuant to the terms of this Agreement or the SPA (the “Additional Collateral”) shall be delivered to the Secured Party promptly upon, but in any event within five (5) Business Days of receipt thereof by or on behalf of any of the Debtors or the Borrower. All such promissory notes shall be (i) held by or on behalf of the Secured Party pursuant to this Agreement, and (ii) delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank.
(b) Within five (5) Business Days of the receipt by any Debtor of any Additional Collateral, an amendment to this Agreement (“PSA Amendment”) shall be delivered to the Secured Party, in respect of the Additional Collateral that must be pledged pursuant to this Agreement or the SPA. Each Debtor hereby authorizes the Secured Party to attach each PSA Amendment to this Agreement and agrees that all promissory notes listed on any PSA Amendment delivered to the Secured Party shall for all purposes hereunder constitute Debtor Pledged Revenues and Collateral and such Debtor shall be deemed upon delivery thereof to have made the representations and warranties set forth in this Section 3 with respect to such Additional Collateral.
(c) Except for (i) the security interest granted hereby and (ii) any Permitted Liens, such Debtor (or the Borrower, as applicable) is and will continue to be (or, in the case of any after-acquired Collateral (including without limitation any such after-acquired Collateral constituting Additional Collateral), at the time the Debtor acquires rights in such after-acquired Collateral (including without limitation any such after-acquired Collateral constituting Additional Collateral), the owner and holder of the Collateral, free from any adverse claim, security interest, encumbrance, lien, charge, or other right, title or interest of any person. Each Debtor and the Borrower agrees that at all times the Collateral (including any after-acquired Collateral (including without limitation any after-acquired Collateral constituting Additional Collateral) and will be and remain free of all such adverse claims, security interests, or other liens or encumbrances, other than any Permitted Lien. The Debtors and the Borrower will defend the Collateral against all claims and demands (other than any Permitted Lien) of all persons at any time claiming the same or any interest therein.
(d) Upon the filing of financing statements relating to the Collateral with the Secretary of State of the State of Nevada, with respect to the Debtors, and the Secretary of State of the State of Florida with respect to the Borrower, Secured Party will have a valid and perfected security interest in the Collateral (to the extent a security interest therein may be perfected by the filing of a financing statement).
(e) Except in connection with Permitted Liens, none of the Debtors nor the Borrower has heretofore signed any financing statement or security agreement which covers any of the Collateral, and no such financing statement or security agreement is now on file in any public office. The Debtors and the Borrower will not enter into or execute any security agreement or any financing statement covering the Collateral, other than those security agreements and financing statements in favor of Secured Party hereunder or in connection with Permitted Liens, and each Debtor and the Borrower agrees that there will not be on file in any public office any financing statement or statements (or any documents or papers filed as such) covering the Collateral, other than financing statements in favor of Secured Party hereunder or in connection with Permitted Liens, unless in any case the prior written consent of Secured Party shall have been obtained.
(f) Each Debtor and the Borrower has full legal capacity and lawful authority to enter into this Agreement and to grant to Secured Party the security interest in the Collateral as herein provided and all corporate or other action on the part of the Debtor or the Borrower, as applicable, requisite for the due execution, delivery, and performance of this Agreement has been duly and effectively taken.
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(g) The promissory notes evidencing the Debtor Pledged Revenues have been, and all other promissory notes from time to time evidencing the Debtor Pledged Revenues, when executed and delivered, will have been, duly authorized, executed and delivered by the respective makers thereof, and all such promissory notes are or will be, as the case may be, legal, valid and binding obligations of such makers, enforceable against such makers in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally.
(h) The execution, delivery and performance hereof are not in contravention of any agreement or undertaking to which any Debtor or the Borrower is a party or by which such Debtor or the Borrower, or its property, is bound and will not result in the imposition of any security interest or lien on any other property of any Debtor or the Borrower.
(i) The exact legal name of each Debtor and the Borrower is as set forth on Schedule B attached hereto.
(j) The type of organization of each Debtor and the Borrower is as set forth on Schedule B.
(k) The state or jurisdiction of incorporation, formation or organization, as applicable of each Debtor and the Borrower is as set forth on Schedule B attached hereto.
(l) The chief executive office of each Debtor and the Borrower is as set forth on Schedule B attached hereto.
(m) The organizational identification number of each Debtor and the Borrower is as set forth on Schedule B (or Schedule B states that no such organizational identification number exists).
(n) Each Debtor and the Borrower irrevocably authorizes Secured Party at any time and from time to time to file in any Uniform Commercial Code jurisdiction any initial financing statements, amendments or modifications thereto or continuations thereof that (a) indicate the Collateral secured by this Agreement, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the Uniform Commercial Code, and (b) contain any other information required by part 5 of Article 9 of the Uniform Commercial Code for the sufficiency or filing office acceptance of any financing statement or amendment, in order to and as necessary or appropriate (as determined by Secured Party in its sole discretion) perfect the security interests in the Collateral granted herein.
(o) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or any other person, is required for (i) the due execution, delivery and performance by any Debtor or by the Borrower of this Agreement, (ii) the grant by any Debtor or by the Borrower of the security interest purported to be created hereby in the applicable Collateral or (iii) the exercise by the Secured Party of any of its rights and remedies hereunder.
(p) This Agreement creates a legal, valid and enforceable security interest in favor of the Secured Party in the Collateral, as security for the Secured Obligations.
4. Certain Representations, Covenants and Agreements of the Debtors and the Borrower regarding Deposit Accounts; Deposit Account Control Agreements. The Borrower and each Debtor represents and agrees that:
(a) it does not have or maintain any deposit accounts (other than Excluded Deposit Accounts (as defined below)) as the date hereof except as set forth in Schedule A-1 hereto.
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(b) Following the termination of the Arena-Walleye Intercreditor Agreement in accordance with its terms (the date on which the Arena-Walleye Intercreditor Agreement is terminated in accordance with its terms, the “Arena-Walleye Intercreditor Agreement Termination Date”), each Debtor and the Borrower shall, upon the written request of Secured Party, use its best efforts to promptly cause each deposit account (other than Excluded Deposit Accounts) held or maintained by such Debtor and/or the Borrower, as applicable, as of the Arena-Walleye Intercreditor Agreement Termination Date, to be subject to a Deposit Account Control Agreement duly executed by such Debtor and/or the Borrower, as applicable, and the bank at which such deposit account is maintained and delivered to Secured Party. As used herein, the term “Deposit Account Control Agreement” shall mean an agreement in writing, in form and substance reasonably satisfactory to Secured Party, by and among Secured Party, and any Debtor or the Borrower, as applicable, with a deposit account at any bank and the bank at which such deposit account is at any time maintained, which provides that such bank will comply with instructions originated by Secured Party directing disposition of the funds in the deposit account without further consent by such Debtor or the Borrower, as applicable, and such other terms and conditions as Secured Party may reasonably require.
(c) Following the Arena-Walleye Intercreditor Agreement Termination Date, the Debtors and the Borrower shall not, directly or indirectly, establish any new deposit account unless each of the following conditions is satisfied (unless waived in writing by Secured Party in its sole discretion): (i) Secured Party shall have received not less than five (5) Business Days’ prior written notice of the intention of any Debtor or the Borrower, as applicable, to open or establish such account which notice shall specify in reasonable detail and specificity acceptable to Secured Party the name of the account, the owner of the account, the name and address of the bank at which such account is to be opened or established, the individual at such bank with whom such Debtor or the Borrower, as applicable, is dealing and the purpose of the account, (ii) the bank where such account is opened or maintained shall be acceptable to Secured Party, and (iii) in the case of any deposit account that is not an Excluded Deposit Account, on or before opening of such deposit account, such Debtor or the Borrower, as applicable, shall deliver to Secured Party a Deposit Account Control Agreement with respect to such deposit account duly authorized, executed and delivered by such Debtor or the Borrower, as applicable, and by the bank at which such deposit account is opened and maintained.
(d) From and after the Arena-Walleye Intercreditor Agreement Termination Date and thereafter during the term of this Agreement (unless waived in writing by Secured Party in its sole discretion), all income earned or proceeds received (including without limitation all revenues received) by any Debtor and/or the Borrower and any direct or indirect subsidiary thereof during the term of this Agreement shall be deposited promptly upon (and in any event within one (1) Business Day of) receipt thereof by such Debtor or the Borrower, as applicable, in a deposit account that is subject to a fully executed Deposit Account Control Agreement, except for such income earned or proceeds permitted to be deposited in an Excluded Deposit Account. Each Debtor and the Borrower shall take all steps to ensure that all of its account debtors forward all items of payment to a deposit account that is subject to a fully executed Deposit Account Control Agreement, and in no event shall any Debtor or the Borrower direct any account debtor to forward any item of payment to any account other than a deposit account that is subject to a fully executed Deposit Account Control Agreement. As used herein, the term “Excluded Deposit Account” means any deposit account established and used exclusively for payroll, payroll taxes and similar employment taxes or other employee wage and benefit payments in the ordinary course of business to or for the benefit of any Debtor’s or Borrower’s employees, as applicable, and identified to Secured Party as being an Excluded Deposit Account. Each Debtor and the Borrower represents and warrants that as of the date hereof, all of the Excluded Deposit Accounts maintained by any such Debtor or Borrower, as applicable, are as set forth on Schedule A-2 hereto. Each Debtor and the Borrower covenants and agrees that, from and after the Arena-Walleye Intercreditor Agreement Termination Date and thereafter during the term of this Agreement (i) each Excluded Deposit Account shall at all times be used exclusively for payroll, payroll taxes and similar employment taxes or other employee wage and benefit payments in the ordinary course of business to or for the benefit of any Debtor’s or Borrower’s employees, as applicable, and (ii) such Debtor or the Borrower, as applicable, will not make or cause any of its direct or indirect subsidiaries to make any deposits in any Excluded Deposit Account other than those necessary to fund payroll, payroll taxes and similar employment taxes or other employee wage and benefit payments in the ordinary course of business to or for the benefit of any Debtor’s or the Borrower’s employees, as applicable.
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5. Other Covenants and Agreements of the Debtors. The Borrower and each Debtor covenants and agrees that:
(a) Preservation of Business and Existence, etc. During the term of this Agreement, it shall not, without the Secured Party’s written consent, (i) change the nature of its business; (ii) sell, divest, change the structure of any material assets other than in the ordinary course of business; (iii) enter into a Variable Rate Transaction (as defined in the SPA); or (iv) enter into any merchant cash advance transactions. In addition, during the term of this Agreement, it shall maintain and preserve, and cause each of its direct and indirect subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its direct and indirect subsidiaries (other than dormant subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
(b) Advances and Loans; Affiliate Transactions. During the term of this Agreement, it shall not, without Secured Party’s written consent, lend money, give credit, make advances to, or enter into any transaction with, any person, firm, joint venture or corporation, including, without limitation, with its officers, directors, employees, subsidiaries and affiliates, except loans, credits or advances (i) in existence or committed on the Issue Date and of which the Borrower has informed Secured Party in writing prior to the Issue Date, (ii) in regard to transactions with unaffiliated third parties, made in the ordinary course of business or (iii) in regard to transactions with unaffiliated third parties, not in excess of $100,000 in the aggregate of all such transactions. During the term of this Agreement, it shall not, without Secured Party’s written consent, repay any affiliate (as defined in Rule 144) of such Debtor or the Borrower, as applicable, in connection with any indebtedness or accrued amounts owed to any such party.
(c) Dividends. During the term of this Agreement, it shall not, without Secured Party’s written consent, directly or indirectly, declare or pay any dividends on accounts of any equity securities, now or hereafter outstanding, or set aside or otherwise deposit or invest any sums for such purpose, or apply or set apart any sum, or make any other distribution (by reduction of capital or otherwise) in respect of any such equity securities or agree to do any of the foregoing.
(d) Changes in Organizational Documents. During the term of this Agreement, it shall not (i) amend in any respect its certificate of organization, certificate of formation, articles of incorporation, limited liability company agreement, operating agreement, by-laws, limited partnership agreement or other organizational documents in a manner materially adverse to Secured Party (including any provisions or resolutions therein relating to capital stock); and (ii) if as of the Effective Date, it has not adopted any limited liability company agreement, operating agreement or by-laws or equivalent organizational document, enter into or adopt any limited liability company agreement, operating agreement, by-laws or any such equivalent organizational document, as applicable, without the prior written consent of Secured Party (which shall not be unreasonably withheld or delayed).
(e) New Debtor Subsidiaries. During the term of this Agreement, if the Borrower or any Debtor forms or acquires any new direct or indirect subsidiary, the Borrower and the Debtors, as applicable, agree to, concurrently with the acquisition or formation thereof, (i) cause such newly formed or acquired subsidiary to become a party to this Agreement as a Debtor pursuant to a joinder in form satisfactory to Secured Party for the purposes of subjecting such subsidiary to the applicable provisions of this Agreement, and (ii) execute or deliver such other agreements, documents reasonably requested by Secured Party in connection therewith.
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6. Events of Default. Any one or more of the following shall constitute an “Event of Default” hereunder:
(a) Any Event of Default (under and as defined in the Note) shall occur.
(b) Any Debtor or the Borrower breaches any term, provision, agreement, covenant, warranty or representation under this Agreement which is not cured within five (5) Business Days of the earlier of (i) notice thereof being given by Secured Party to the Borrower or such Debtor, as applicable, or (ii) the Borrower or such Debtor, as applicable, becoming aware of such breach.
(c) Any Debtor or the Borrower transfers or otherwise encumbers any portion of the Collateral in violation of the provisions of this Agreement.
(d) Any custodian, receiver or trustee is appointed to take possession, custody or control of all or a material portion of the Collateral.
(e) Any involuntary lien of any kind or character attaches to any Collateral, except for Permitted Liens.
7. Rights and Remedies of Secured Party.
(a) Each Debtor and the Borrower hereby irrevocably grants Secured Party a power of attorney, coupled with an interest, with respect to the Borrower’s or such Debtor’s Collateral, as applicable, for all purposes consistent with this Agreement and the Note following the occurrence of any Event of Default. Said power of attorney shall be limited to the power to execute instruments in such Debtor’s and/or the Borrower’s name, as applicable, in connection therewith, and to take such other action to enforce any of Secured Party’s rights with respect to each Debtor’s and the Borrower’s Collateral, as applicable, in accordance with and subject to the limitations set forth herein.
(b) Upon the occurrence of any Event of Default, Secured Party shall have, in addition to its other rights and remedies under this Agreement, the Note and applicable law, all rights and remedies relating to each Debtor’s and the Borrower’s Collateral of a secured party under the Uniform Commercial Code of the State of New York and/or the Uniform Commercial Code of any other applicable jurisdiction, and subject to the limitations set forth herein and that certain letter agreement, dated as of February 27, 2023, by and among the Borrower, the Debtors, Secured Party, Arena Special Opportunities Partners I, LP, a Delaware limited partnership, Arena Special Opportunities Fund, LP, a Delaware limited partnership, and Arena Investors, LP, a Delaware limited partnership (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena-Walleye Intercreditor Agreement”), Secured Party shall be permitted to (i) transfer any of the Collateral into the name of the Secured Party or its nominee; (ii) notify parties obligated on any of the Collateral to make payment to Secured Party of any amounts due or to become due thereunder; (iii) enforce collection of any of the Collateral by suit or otherwise; surrender, release or exchange all or any part thereof, or compromise or extend or renew for any period (whether or not longer than the original period) any obligation of any nature of any party with respect thereto take possession or control of any proceeds of the Collateral; and/or (iv) take possession or control of any proceeds of the Collateral. Without limiting the foregoing subject to the terms of this Agreement and subject to the Arena-Walleye Intercreditor Agreement, Secured Party shall have the right to take possession of all or any part of the Collateral in any of such Debtor’s or the Borrower’s possession or control which are not already in Secured Party’s possession.
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(c) In addition, if permitted by applicable law, Secured Party will be entitled to appoint any Person as receiver or receiver and manager (a “Receiver”) of all or any part of the Collateral in which any Debtor or the Borrower has an interest, and any Receiver so appointed will have all the rights and remedies of Secured Party (except the right to appoint a Receiver). To the extent permitted by law, each Debtor and the Borrower expressly waives any notice of sale or other disposition of the Collateral and all other rights or remedies of such Debtor and/or the Borrower or formalities prescribed by law relative to sale or disposition of the Collateral or exercise of any other right or remedy of Secured Party existing after default hereunder; and to the extent any such notice is required and cannot be waived, such Debtor and the Borrower agrees that if such notice is given in the manner provided in Section 9 hereof at least five (5) days before the time of the sale or disposition, such notice shall be deemed reasonable and shall fully satisfy any requirement for giving of said notice. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale.
(d) All rights to marshalling of assets of any Debtor and the Borrower, including any such right with respect to the Collateral are hereby waived by each Debtor and the Borrower.
(e) No application of all or any part of any Debtor’s or the Borrower’s Collateral pursuant to this Section shall in any way release, satisfy or discharge any of the unpaid portion of the Borrower’s obligations under the Note that remain after such application. No delay or omission of Secured Party to exercise any of its rights or remedies available after the occurrence of any default by the Borrower under the Note (including without limitation any Event of Default) shall waive, exhaust or impair any of Secured Party’s rights or remedies under the Note or this Agreement, nor shall any such delay or omission be deemed to be a waiver of, or acquiescence in or to, any default by the Borrower under the Note (including without limitation any Event of Default). Notwithstanding any such delay or omission, Secured Party thereafter shall have the right, from time to time and as often as Secured Party deems advisable, to exercise any of its rights or remedies available after the occurrence of any default by the Borrower under the Note (including without limitation any Event of Default), including without limitations the rights and remedies of Secured Party under the Note and this Agreement.
8. Further Assurances; Additional Information. Subject to the Arena-Walleye Intercreditor Agreement, each Debtor and the Borrower shall reasonably cooperate with Secured Party and shall execute and deliver, or cause to be executed and delivered, all such other documents and instruments, and shall take all such other action that Secured Party may reasonably request from time to time in order to accomplish and satisfy the provisions and purposes of this Agreement. Each Debtor and the Borrower agrees to furnish Secured Party from time to time with such additional information and copies of such documents relating to this Agreement and the Collateral, as Secured Party may reasonably request.
9. Notices. All notices, requests, demands, and other communications provided for hereunder must be in writing and will be deemed to have been duly given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via e-mail prior to 5:30 p.m. (New York City time) on any Business Day; (b) the next Business Day after the date of transmission, if such notice or communication is delivered via e-mail on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day; (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given, addressed as follows:
If to any Debtor or the Borrower:
c/o
CAN B̅ CORP.
960 South Broadway, Suite 120
Hicksville, NY 11801
Attention: Marco Alfonsi
e-mail: info@canbiola.com
If to Secured Party:
Walleye Opportunities Master Fund Ltd
2800 Niagara Lane N.
Plymouth, MN 55447
Attention: William England
e-mail: wengland@walleyecapital.com
or as to any Debtor or the Borrower, or Secured Party, at such other address as shall be designated by such party in a written notice to the other party delivered in accordance with this Section 9.
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10. Indemnity and Expenses. Each Debtor and the Borrower agrees to indemnify Secured Party from and against any and all claims, losses and liabilities growing out of or resulting from this Agreement (including, without limitation, enforcement of any rights under this Agreement, and any claims or demands of any persons at any time claiming the Collateral or any interest therein), except claims, losses or liabilities resulting from Secured Party’s gross negligence or willful misconduct. Each Debtor and the Borrower agrees to pay on demand all out-of-pocket expenses (including the reasonable fees and expenses of Secured Party’s legal counsel, experts and agents) in any way relating to the monitoring, administration, enforcement or protection of the rights of Secured Party hereunder.
11. Entire Agreement and Changes. This Agreement contains the entire agreement among the parties hereto with respect to the subject matter hereof. Neither this Agreement nor any provision hereof may be changed, waived, released, discharged, withdrawn, revoked or terminated orally, or by any action or inaction. In order to be effective and enforceable, any such change, waiver, release, discharge, withdrawal, revocation or termination must be evidenced by a written document or instrument signed by the party against which enforcement of such change, waiver, release, discharge, withdrawal, revocation or termination is sought, and then shall be effective and enforceable only to the extent specifically provided in such document or instrument.
12. Termination. This Agreement and the security interest created hereunder shall terminate upon such date on which all the Secured Obligations have been paid and satisfied in full. Upon termination hereof, Secured Party shall execute and deliver (and file all instruments, terminations, and certificates) to the Debtors and the Borrower all documents which the Debtors and the Borrower shall reasonably request to evidence termination of such security interest and shall return physical possession of any Collateral then held by Secured Party to the applicable Debtor and/or the Borrower; provided, however, that all indemnities of the Debtor and the Borrower contained in this Agreement shall survive, and remain in full force and effect regardless of the termination of the security interest or this Agreement. Notwithstanding the foregoing, this Agreement and the security interest granted hereunder shall be reinstated if at any time any payment or delivery pursuant to any Secured Obligation, in whole or in part, is rescinded or must otherwise be returned by Secured Party under the application of the Title 11 of the United States Code, as amended from time to time, or any similar federal or state law for the relief of debtors, all as though such payment or delivery had not been made.
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13. Separability. All rights and remedies provided in this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable law and are intended to be limited to the extent necessary to avoid rendering this Agreement invalid, illegal or unenforceable. In the event that any of the provisions of this Agreement shall be deemed invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall in no way be affected, prejudiced or disturbed thereby.
14. Counterparts and PDF’s. This Agreement may be executed in any number of counterparts and when so executed shall constitute one and the same agreement. Facsimile and e-mailed (PDF) signatures shall be afforded the full force and effect of any original signature.
15. Binding Effect. This Agreement shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. Each reference in this Agreement to the Borrower, the Debtors or Secured Party shall be deemed also to include the successors and assigns of such party. Nothing set forth in this Section shall be deemed or construed to create, recognize or allow any assignment or transfer rights not otherwise provided for in this Agreement or in the Notes.
16. Governing Law; Waiver of Jury Trial; Venues. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement, by the Note or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware. The Borrower and each Debtor hereby irrevocably waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH DEBTOR AND THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof.
17. Assignment; Binding Effect; Benefit. The rights and obligations of the parties under this Agreement are not assignable without the prior written consent of the other parties, except that Secured Party may assign all or any of its rights and benefits hereunder, and may delegate all or any of its obligations or liabilities (whether by assignment, merger, liquidation or otherwise), and upon any such assignment, Secured Party’s rights, benefits, obligations and liabilities shall automatically cease. Subject to the immediately preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns. Nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement.
18. Third Party Rights. Any obligations or rights of the Debtors, the Borrower or the Secured Party of any nature under the terms of this Agreement will not be construed to confer any right or benefit upon any unrelated third-party (individual or entity) that is not party to this Agreement, including, without limitation, any third-party creditor of any Debtor, the Borrower or the Secured Party.
19. Disclosure. Upon receipt or delivery by the Borrower or any Debtor of any notice in accordance with the terms of this Agreement, unless the Borrower has in good faith determined that the matters relating to such notice do not constitute material, nonpublic information relating to the Borrower or its subsidiaries, the Borrower shall (i) within two (2) Business Days following any such receipt by the Borrower or any such Debtor or (ii) immediately upon any such delivery by the Borrower or any such Debtor, publicly disclose such material, nonpublic information on a Current Report on Form 8-K pursuant to Regulation FD. In the event that the Borrower believes that any such notice contains material, non-public information relating to the Borrower or its subsidiaries, the Borrower so shall indicate to Secured Party contemporaneously with delivery of such notice, and in the absence of any such indication, Secured Party shall be allowed to presume that all matters relating to such notice do not constitute material, nonpublic information relating to the Borrower or its subsidiaries.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written.
DEBTORS: | ||
Duramed, Inc. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | President | |
DURAMED MI, LLC | ||
By: | CAN B̅ CORP, its Manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
CO BOTANICALS LLC | ||
By: | CAN B̅ CORP, its Manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
BOTANICAL BIOTECH LLC | ||
By: | CAN B̅ CORP, its Manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer |
BORROWER: | ||
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
SECURED PARTY: | ||
WALLEYE OPPORTUNITIES MASTER FUND LTD | ||
By: | /s/ William England | |
Name: | William England | |
Title: | Chief Executive Officer of the Manager |
[Signature Page to Revenue Pledge and Security Agreement]
SCHEDULE A-2
EXCLUDED DEPOSIT ACCOUNT
None.
SCHEDULE B
DEBTOR INFORMATION
Debtor’s Legal Name | Type of Organization | Debtor’s State of Incorporation/Formation | Debtor’s Chief Executive Office | Organizational Identification Number | ||||
Duramed, Inc. | Corporation | Nevada | 960 South Broadway, Suite 120 Hicksville, NY 11801 | NV Entity Number: E0549052018-1
NV Business ID: NV20181860804 | ||||
Duramed MI, LLC | Limited liability company | Nevada | 960 South Broadway, Suite 120 Hicksville, NY 11801 | NV Entity Number: E00250182019-7
NV Business ID: NV20191403538 | ||||
CO Botanicals LLC | Limited liability company | Nevada | 960 South Broadway, Suite 120 Hicksville, NY 11801 | NV Entity Number: E16529372021-0
NV Business ID: NV20212189004 | ||||
Botanical Biotech LLC | Limited liability company | Nevada | 960 South Broadway, Suite 120 Hicksville, NY 11801 | NV Entity Number: E12967242021-8
NV Business ID: NV20212037490 |
BORROWER INFORMATION
Borrower’s Legal Name | Type of Organization | Borrower’s State of Incorporation/Formation | Borrower’s Chief Executive Office | Organizational Identification Number | ||||
CAN B Corp. | Corporation | Florida | 960 South Broadway, Suite 120 Hicksville, NY 11801 | FL Document Number: P05000139155 |
Exhibit 10.53
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
CAN B̅ CORP.
Warrant Shares: 1,307,190
Date of Issuance: February 27, 2023 (“Issuance Date”)
This COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received (in connection with the issuance of the promissory note in the principal amount of $1,823,529.00 to the Holder (as defined below) of even date) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Note”), Walleye Opportunities Master Fund Ltd, a Cayman Islands company (including any permitted and registered assigns, the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof, to purchase from CAN B̅ CORP., a Florida corporation (the “Company”), 1,307,190 shares of Common Stock (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. This Warrant is issued by the Company as of the date hereof in connection with that certain securities purchase agreement dated February 27, 2023, by and among the Company and the Holder (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”).
Capitalized terms used in this Warrant shall have the meanings set forth in the Purchase Agreement unless otherwise defined in the body of this Warrant or in Section 12 below. For purposes of this Warrant, the term “Exercise Price” shall mean 90% of the lowest VWAP during the five (5) Trading Days preceding the date of the delivery of an Exercise Notice pursuant to this Warrant. “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (i) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (ii) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX or any other Trading Market, and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (iii) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Borrower, the fees and expenses of which shall be paid by the Borrower. “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
1. | EXERCISE OF WARRANT. |
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the second Trading Day (the “Warrant Share Delivery Date”) following the date on which the Holder sent the Exercise Notice to the Company or the Company’s transfer agent, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) either (i) cause the Warrant Shares purchased hereunder to be transmitted by its transfer agent to the Holder by crediting the account of the Holder’s or its designee’s balance account with the Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (x) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder, or (y) the Warrant Shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144 (assuming cashless exercise of the Warrants), or otherwise issue and deliver by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise (or deliver such shares of Common Stock in electronic format if requested by the Holder). Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate (but not Rule 144) purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three (3) business days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
If the Company fails to cause its transfer agent to issue to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion in addition to all other rights and remedies at law, under this Warrant, or otherwise, and such failure shall also be deemed an event of default under the Note, a material breach under this Warrant, and a material breach under the Purchase Agreement. In addition, if the Company fails for any reason to deliver to the Holder the Warrant Shares subject to a Notice of Exercise by the Warrant Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of Warrant Shares subject to such exercise (based on the VWAP of the Common Stock on the date of the applicable Exercise Notice), $10 per Trading Day (increasing to $20 per Trading Day on the third (3rd) Trading Day the Warrant Share Delivery Date) for each Trading Day after such Warrant Share Delivery Date until such Warrant Shares are delivered or Holder rescinds such exercise. The Company agrees to maintain a transfer agent that is a participant in the FAST program so long as this Warrant remains outstanding and exercisable.
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If the Market Price of one share of Common Stock is greater than the Exercise Price, then, unless there is an effective non-stale registration statement of the Company which contains a prospectus that complies with Section 5(b) and Section 10 of the Securities Act of 1933 at the time of exercise and covers the Holder’s immediate resale of all of the Warrant Shares at prevailing market prices (and not fixed prices) without any limitation, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and an Exercise Notice, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:
X = | Y (A-B) | ||
A |
Where | X = | the number of Shares to be issued to Holder. | |
Y = | the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). | ||
A = | the Market Price (at the date of such calculation). | ||
B = | Exercise Price (as adjusted to the date of such calculation). |
(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.
(c) Holder’s Exercise Limitations. Notwithstanding anything to the contrary contained herein, the Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 1 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Exercise Notice, the Holder (together with the Holder’s affiliates (the “Affiliates”), and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates (such Persons, “Attribution Parties”)), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and Attribution Parties shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates or Attribution Parties and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates or Attribution Parties. Except as set forth in the preceding sentence, for purposes of this Section 1(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Holder is solely responsible for any schedules required to be filed in accordance therewith. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 1(c), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates or Attribution Parties since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding at the time of the respective calculation hereunder. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.
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(d) Compensation for Buy-In on Failure to Timely Deliver Warrant Shares Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to cause the Company’s transfer agent to transmit to the Holder the Warrant Shares in accordance with the provisions of this Warrant (including but not limited to Section 1(a) above pursuant to an exercise on or before the respective Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder, within one (1) business day of Holder’s request, the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the product of (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder within one (1) business day of Holder’s request the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases, or effectuates a cashless exercise hereunder for, Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.
(e) Charges, Taxes and Expenses. Issuance of Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such Warrant Shares, all of which taxes and expenses shall be paid by the Company, and such Warrant Shares shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event that Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by an Assignment Form, in a form that is reasonably acceptable to Holder and the Company, duly executed by the Holder. The Company shall pay all Transfer Agent fees required for same-day processing of any Exercise Notice and all fees to the Depository Trust Company (or another established clearing corporation performing similar functions) required for same-day electronic delivery of the Warrant Shares. The Company shall pay all attorney fees required for the issuance of attorney legal opinions for removal of restrictive legends on Warrant Shares.
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(f) Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.
2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:
(i) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and
(ii) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).
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(b) Anti-Dilution Adjustments to Exercise Price. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities (including but not limited to Common Stock Equivalents) entitling any person or entity (for purposes of clarification, including but not limited to the Holder pursuant to (i) any other security of the Company currently held by Holder, (ii) any other security of the Company issued to Holder on or after the Issuance Date (including but not limited to the Note), or (iii) any other agreement entered into between the Company and Holder) to acquire shares of Common Stock (upon conversion, exercise or otherwise), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, elimination of an applicable floor price for any reason in the future (including but not limited to the passage of time or satisfaction of certain condition(s)), reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled or potentially entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price at any time while such Common Stock or Common Stock Equivalents are in existence, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance (regardless of whether the Common Stock or Common Stock Equivalents are (A) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (B) actually converted or exercised at such Base Share Price), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued, regardless of whether the Common Stock or Common Stock Equivalents are (1) subsequently redeemed or retired by the Company after the date of the Dilutive Issuance or (2) actually converted or exercised at such Base Share Price by the Holder thereof (for the avoidance of doubt, the Holder may utilize the Base Share Price even if the Company did not actually issue shares of its common stock at the Base Share Price under the respective Common stock Equivalents). The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 2(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, regardless of whether (x) the Company provides a Dilutive Issuance Notice pursuant to this Section 2(b) upon the occurrence of any Dilutive Issuance or (y) the Holder accurately refers to the Base Share Price in the Exercise Notice, the Holder is entitled to receive the Base Share Price at all times on and after the date of such Dilutive Issuance.
(c) Subdivision or Combination of Common Stock. If the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision will be proportionately reduced and the number of Warrant Shares will be proportionately increased. If the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Exercise Price in effect immediately prior to such combination will be proportionately increased and the number of Warrant Shares will be proportionately decreased. Any adjustment under this Section 2(c) shall become effective at the close of business on the date the subdivision or combination becomes effective. Each such adjustment of the Exercise Price shall be calculated to the nearest one-hundredth of a cent. Such adjustment shall be made successively whenever any event covered by this Section 2(c) shall occur.
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3. FUNDAMENTAL TRANSACTIONS.
(a) If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
(b) Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity shall, at the Holder’s option, exercisable at any time concurrently with, or within thirty (30) days after, the consummation of the Fundamental Transaction (or, if later, the date of the public announcement of the applicable Fundamental Transaction), purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value (as defined below) of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction; provided, however, that, if the Fundamental Transaction is not within the Company’s control, including not approved by the Company’s board of directors, the Holder shall only be entitled to receive from the Company or any Successor Entity the same type or form of consideration (and in the same proportion), at the Black Scholes Value of the unexercised portion of this Warrant, that is being offered and paid to the holders of Common Stock in connection with the Fundamental Transaction, whether that consideration is in the form of cash, stock or any combination thereof, or whether the holders of Common Stock are given the choice to receive from among alternative forms of consideration in connection with the Fundamental Transaction; provided, further, that if holders of Common Stock of the Company are not offered or paid any consideration in such Fundamental Transaction, such holders of Common Stock will be deemed to have received common stock of the Successor Entity (which entity may be the Company following such Fundamental Transaction) in such Fundamental Transaction. “Black Scholes Value” means the value of this Warrant based on the Black-Scholes Option Pricing Model obtained from the “OV” function on Bloomberg determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Trading Day of the Holder’s request pursuant to this Section 3(b), (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the public announcement of the applicable contemplated Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the greater of (i) the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (ii) the highest VWAP during the period beginning on the Trading Day immediately preceding the public announcement of the applicable contemplated Fundamental Transaction (or the consummation of the applicable Fundamental Transaction, if earlier) and ending on the Trading Day of the Holder’s request pursuant to this Section 3(b) and (D) a remaining option time equal to the time between the date of the public announcement of the applicable contemplated Fundamental Transaction and the Trading Day of the Holder’s request pursuant to this Section 3(b) and (E) a zero cost of borrow. The payment of the Black Scholes Value will be made by wire transfer of immediately available funds (or such other consideration) within the later of (i) five business days of the Holder’s election and (ii) the date of consummation of the Fundamental Transaction. The Company shall cause any Successor Entity to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(b) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant (without regard to any limitations on the exercise of this Warrant) prior to such Fundamental Transaction, and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
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4. NON-CIRCUMVENTION. The Company covenants and agrees that it will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, two (2) times the number of shares of Common Stock into which the Warrants are then exercisable into to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).
5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
6. REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
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(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.
7. TRANSFER. This Warrant shall be binding upon the Company and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Notwithstanding anything to the contrary herein, the rights, interests or obligations of the Company hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior signed written consent of the Holder, which consent may be withheld at the sole discretion of the Holder (any such assignment or transfer shall be null and void if the Company does not obtain the prior signed written consent of the Holder). This Warrant or any of the severable rights and obligations inuring to the benefit of or to be performed by Holder hereunder may be assigned by Holder to a third party, in whole or in part, without the need to obtain the Company’s consent thereto.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Purchase Agreement. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
9. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.
10. GOVERNING LAW AND VENUE. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN CONNECTION WITH OR ARISING OUT OF THIS WARRANT, OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Warrant or any other transaction document entered into in connection with this Warrant by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under the Purchase Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
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11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
12. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Quotestream or other similar quotation service provider designated by the Holder, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Quotestream or other similar quotation service provider designated by the Holder, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Quotestream or other similar quotation service provider designated by the Holder, or (iii) if no last trade price is reported for such security by Quotestream or other similar quotation service provider designated by the Holder, the average of the bid and ask prices of any market makers for such security as reported by Quotestream or other similar quotation service provider designated by the Holder. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(b) “Common Stock” means the Company’s common stock, nil par value, and any other class of securities into which such securities may hereafter be reclassified or changed.
(c) “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
(d) “Exercise Period” means the period commencing on the date that is six (6) months after the Issuance Date and ending on 5:00 p.m. eastern standard time on the date that is sixty six (66) months after the Issuance Date.
(e) “Person” and “Persons” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity and any governmental entity or any department or agency thereof.
(f) “Principal Market” means the principal securities exchange or trading market where such Common Stock is listed or quoted, including but not limited to any tier of the OTC Markets, any tier of the NASDAQ Stock Market (including NASDAQ Capital Market), or the NYSE American, or any successor to such markets.
(g) “Market Price” means the highest traded price of the Common Stock during the one hundred and fifty Trading Days prior to the date of the respective Exercise Notice.
(h) “Trading Day” means any day on which the Common Stock is listed or quoted on its Principal Market, provided, however, that if the Common Stock is not then listed or quoted on any Principal Market, then any calendar day.
* * * * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer |
EXHIBIT A
EXERCISE NOTICE
(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)
THE UNDERSIGNED holder hereby exercises the right to purchase_________________________of the shares of Common Stock (“Warrant Shares”) of CAN B̅ CORP., a Florida corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
1. | Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): |
☐ | a cash exercise with respect to __________________Warrant Shares; or | |
☐ | by cashless exercise pursuant to the Warrant. |
2. | Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $ ______________________to the Company in accordance with the terms of the Warrant. |
3. | Delivery of Warrant Shares. The Company shall deliver to the holder____________________Warrant Shares in accordance with the terms of the Warrant. |
Date: |
(Print Name of Registered Holder) | ||
By: | ||
Name: | ||
Title: |
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto ________________________
the right to purchase shares of common stock of CAN B̅ CORP., to which the within Common Stock Purchase Warrant relates and appoints , as attorney-in-fact, to transfer said right on the books of CAN B̅ CORP. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
Dated: |
(Signature) * | |
(Name) | |
(Address) | |
(Social Security or Tax Identification No.) |
* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.
Exhibit 10.54
AMENDMENT TO COMMON STOCK PURCHASE WARRANT
OF
CAN B̅ CORP.
This Amendment to the Common Stock Purchase Warrant of Can B̅ Corp. (this “Amendment”), dated February 27, 2023, is made by and between Can B̅ Corp., a Florida corporation (the “Company”) and Walleye Opportunities Master Fund Ltd, a Cayman Islands company (“Walleye”, collectively with the Company, the “Parties”) in order to amend that certain Common Stock Purchase Warrant, dated August 30, 2022 (the “Warrant”), issued by the Company to Walleye.
WITNESSETH:
WHEREAS, the Parties wish to amend the exercise price and other related provisions of the Warrant.
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the parties hereto agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to them in the Warrant.
2. Amendments to Warrant.
a. | The second recital of the Warrant is hereby amended to read in its entirety as follows: |
Capitalized terms used in this Warrant shall have the meanings set forth in the Purchase Agreement unless otherwise defined in the body of this Warrant or in Section 12 below. For purposes of this Warrant, the term “Exercise Price” shall mean the lower of (a) $5.40 per share of Common Stock or (b) 90% of the lowest VWAP during the five (5) Trading Days preceding the date of the delivery of an Exercise Notice pursuant to this Warrant. “VWAP” means, for any date, the price determined by the first of the following clauses that applies: (i) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (ii) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX or any other Trading Market, and if prices for the Common Stock are then reported on The Pink Open Market (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (iii) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holder and reasonably acceptable to the Borrower, the fees and expenses of which shall be paid by the Borrower. “Trading Market” means any of the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date in question: the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, OTCQB or OTCQX (or any successors to any of the foregoing).
b. | Section 2(b) of the Warrant is hereby amended such that the following sentence is deleted in its entirety: |
Notwithstanding the foregoing, the Holder may only enforce its rights under this Section 2(b) after the date that is one hundred eights (180) calendar days after the Issuance Date, provided, however, that at such times the Holder may enforce its rights to all adjustments under this Section 2(b) that apply even if the Dilutive Issuance occurred prior to the date that is one hundred eighty (180) calendar days after the Issuance Date, provided, further, that (i) if the Exercise Price is adjusted to the Uplist Exercise Price as described in this Warrant and (ii) that the Note has been repaid in the entirety pursuant to Section 1.10 of the Note, then the Holder shall never be entitled to enforce its rights to the adjustments under this Section 2(b) with respect to any Dilutive Issuance(s).
3. Limited Nature of Amendments and Waivers. This Amendment is limited as provided herein and does not extend to any other provisions of the Warrant not specified herein nor to any other matter. Except as expressly amended hereby, the terms and provisions of the Warrant shall remain in full force and effect.
4. Effectiveness. This Amendment shall become effective as of the date hereof.
5. Counterparts; Execution. This Amendment may be executed in counterparts and all such counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of this Amendment by telefacsimile or electronic mail shall be equally as effective as delivery of an original executed counterpart of this Amendment.
6. Governing Law. This Amendment shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
WALLEYE OPPORTUNITIES MASTER FUND LTD | ||
By: | /s/ William England | |
Name: | William England | |
Title: | Chief Executive Officer of the Manager |
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Exhibit 10.55
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of February 27, 2023, by and between CAN B̅ CORP., a Florida corporation (the “Company”), and the investor identified on the signature page hereto (together with it permitted assigns, the “Investor”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the securities purchase agreement by and between the parties hereto, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”).
WHEREAS:
The Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to sell to the Investor the Securities and to induce the Investor to enter into the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws. Capitalized terms used but not defined herein have the meanings set forth in the Purchase Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Investor hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the following meanings:
a. “Effective Date” means the date that the applicable Registration Statement has been declared effective by the SEC.
b. “Investor” shall have the meaning set forth above.
c. “Person” means any individual or entity including but not limited to any corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
d. “Register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more registration statements of the Company in compliance with the Securities Act and/or pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such registration statement(s) by the United States Securities and Exchange Commission (the “SEC”).
e. “Registrable Securities” means all of (i) the Conversion Shares and Exercise Shares, including any Conversion Shares or Exercise Shares as a result of any events of default under the Note, (ii) the Conversion Shares (as defined in that certain Securities Purchase Agreement, dated as of August 30, 2022, by and between the Company and the Investor (the “Prior Purchase Agreement”)), and (iii) shares of Common Stock issued to the Investor as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on purchases under the Purchase Agreement, the Prior Purchase Agreement or the related agreements entered into therewith.
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f. “Registration Statement” means one or more registration statements of the Company covering only the sale of the Registrable Securities.
2. REGISTRATION.
a. Mandatory Registration. The Company shall, within forty five (45) calendar days from the date of this Agreement (the “Filing Deadline”), file with the SEC an initial Registration Statement covering the maximum number of Registrable Securities as shall be permitted to be included thereon in accordance with applicable SEC rules, regulations and interpretations, including but not limited to Rule 415 under the Securities Act, so as to permit the resale of such Registrable Securities by the Investor at then-prevailing market prices (and not fixed prices), subject to the aggregate number of authorized shares of the Company’s Common Stock then available for issuance in its Certificate of Incorporation. The initial Registration Statement shall register only Registrable Securities unless otherwise approved by the Investor. The Investor and its counsel shall have a reasonable opportunity to review and comment upon such Registration Statement and any amendment or supplement to such Registration Statement and any related prospectus prior to its filing with the SEC, and the Company shall give due consideration to all reasonable comments. The Investor shall furnish all information reasonably requested by the Company for inclusion therein. The Company shall have the Registration Statement and any amendment declared effective by the SEC no later than the Effectiveness Deadline. The Company shall keep the Registration Statement effective pursuant to Rule 415 promulgated under the Securities Act and available for the resale by the Investor of all of the Registrable Securities covered thereby at all times until the date on which the Investor shall have resold all the Registrable Securities covered thereby and no Available Amount remains under the Purchase Agreements (the “Registration Period”). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. In the event that the Registration Statement becomes stale, the Company shall immediately file one or more post-effective amendments to obtain an effective Registration Statement.
b. Rule 424 Prospectus. The Company shall, as required by applicable securities regulations, from time to time file (in each case, at the earliest possible date) with the SEC, pursuant to Rule 424 promulgated under the Securities Act, the prospectus and prospectus supplements, if any, to be used in connection with sales of the Registrable Securities under the Registration Statement. The Company shall file such initial prospectus covering the Investor’s sale of the Registrable Securities on the same date that the Registration Statement is declared effective by the SEC. The Investor and its counsel shall have a reasonable opportunity to review and comment upon such prospectus prior to its filing with the SEC, and the Company shall give due consideration to all such comments. The Investor shall use its reasonable best efforts to comment upon such prospectus within one (1) Business Day from the date the Investor receives the final pre-filing version of such prospectus.
c. Sufficient Number of Shares Registered. In the event the number of shares available under the Registration Statement is insufficient to cover all of the Registrable Securities, the Company shall amend the Registration Statement or file a new Registration Statement (a “New Registration Statement”), so as to cover all of such Registrable Securities (subject to the limitations set forth in Section 2(a)) as soon as practicable, but in any event not later than ten (10) Business Days after the necessity thereof arises, subject to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act. The Company shall use it reasonable best efforts to cause such amendment and/or New Registration Statement to become effective as soon as practicable following the filing thereof. In the event that any of the Registrable Securities are not included in the Registration Statement, or have not been included in any New Registration Statement and the Company files any other registration statement under the Securities Act (other than on Form S-4, Form S-8, or with respect to other employee related plans or rights offerings) (“Other Registration Statement”) then the Company shall include such remaining Registrable Securities in such Other Registration Statement. The Company agrees that it shall not file any such Other Registration Statement unless all of the Registrable Securities have been included in such Other Registration Statement or otherwise have been registered for resale as described above.
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d. Offering. If the staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering pursuant to a Registration Statement filed pursuant to this Agreement as constituting an offering of securities that does not permit such Registration Statement to become effective and be used for resales by the Investor under Rule 415 at then prevailing market prices (and not fixed prices), or if after the filing of the initial Registration Statement with the SEC pursuant to Section 2(a), the Company is otherwise required by the Staff or the SEC to reduce the number of Registrable Securities included in such initial Registration Statement, then the Company shall reduce the number of Registrable Securities to be included in such initial Registration Statement (with the prior consent, which shall not be unreasonably withheld, of the Investor and its legal counsel as to the specific Registrable Securities to be removed therefrom) until such time as the Staff and the SEC shall so permit such Registration Statement to become effective and be used as aforesaid. In the event of any reduction in Registrable Securities pursuant to this paragraph, the Company shall file one or more New Registration Statements in accordance with Section 2(c) until such time as all Registrable Securities have been included in Registration Statements that have been declared effective and the prospectus contained therein is available for use by the Investor. Notwithstanding any provision herein or in the Purchase Agreement to the contrary, the Company’s obligations to register Registrable Securities (and any related conditions to the Investor’s obligations) shall be qualified as necessary to comport with any requirement of the SEC or the Staff as addressed in this Section 2(d).
e. Effect of Failure to File and Obtain and Maintain Effectiveness of any Registration Statement.
(i) If a Registration Statement covering the resale of all of the Registrable Securities required to be covered thereby (disregarding any reduction pursuant to Section 2(d)) and required to be filed by the Company pursuant to this Agreement is not filed with the SEC on or before the Filing Deadline for such Registration Statement then, as partial relief for the damages to Investor by reason of any such delay in its ability to sell the underlying Common Shares (which remedy shall not be exclusive of any other remedies available at law or in equity, including, without limitation, specific performance), to the extent no Conversion Shares have been registered, the Company shall be obligated to make payments to Investor, as liquidated damages and not as a penalty, in an amount equal to 2% of the amount then currently outstanding under the Note (including, without limitation, all Principal, interest and other payments due thereon) for each 30-day period following the Filing Deadline, or pro rata for any portion thereof following the Filing Deadline, and such payments shall be made to Investor in cash not later than two (2) Trading Days after the end of each 30-day period.
(ii) If a Registration Statement covering the resale of all of the Registrable Securities required to be covered thereby (disregarding any reduction pursuant to Section 2(d)) and required to be filed by the Company pursuant to this Agreement (x) is not declared effective by the SEC on or before the Effectiveness Deadline (as defined below) for such Registration Statement (an “Effectiveness Failure”), and (y) if on the Business Day immediately following the Effective Date for such Registration Statement the Company shall not have filed a “final” prospectus for such Registration Statement with the SEC under Rule 424 in accordance with Section 2(b) (whether or not such a prospectus is technically required by such rule), then, as partial relief for the damages to Investor by reason of any such delay in its ability to sell the underlying Common Shares (which remedy shall not be exclusive of any other remedies available at law or in equity, including, without limitation, the remedies set forth in Section 2(e)(i) above) the Company shall be deemed to not have satisfied this clause (ii) and such event shall be deemed to be an Effectiveness Failure), then to the extent no Conversion Shares have been registered, the Company shall be obligated to make payments to Investor, as liquidated damages and not as a penalty, in an amount equal to 2% of the amount then currently outstanding under the Note (including, without limitation, all principal, interest and other payments due thereon) for each 30-day period or pro rata for any portion thereof following the Effectiveness Deadline, and such payments shall be made to Investor in cash not later than two (2) Trading Days after the end of each 30-day period. “Effectiveness Deadline” means (i) with respect to the initial Registration Statement required to be filed pursuant to Section 2(a), the earlier of the (A) 90th calendar day following the date of this Agreement (or, if such Registration Statement is subject to a full review by the SEC, the 120th calendar day after the date of this Agreement) and (B) 2nd Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement will not be reviewed or will not be subject to further review and (ii) with respect to any additional Registration Statements that may be required to be filed by the Company pursuant to this Agreement, the earlier of the (A) 30th calendar day following the date on which the Company was required to file such additional Registration Statement (or, if such Registration Statement is subject to a full review by the SEC, the 90th calendar day after such required filing date) and (B) 2nd Business Day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that such Registration Statement will not be reviewed or will not be subject to further review.
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3. RELATED OBLIGATIONS.
With respect to the Registration Statement and whenever any Registrable Securities are to be registered pursuant to Section 2 including on any New Registration Statement, the Company shall use its reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to any registration statement and the prospectus used in connection with such registration statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep the Registration Statement or any New Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement or any New Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such registration statement.
b. The Company shall permit the Investor to review and comment upon the Registration Statement or any New Registration Statement and all amendments and supplements thereto at least two (2) Business Days prior to their filing with the SEC, and not file any document in a form to which Investor reasonably objects. The Investor shall use its reasonable best efforts to comment upon the Registration Statement or any New Registration Statement and any amendments or supplements thereto within two (2) Business Days from the date the Investor receives the final version thereof. The Company shall furnish to the Investor, without charge, any correspondence from the SEC or the Staff to the Company or its representatives relating to the Registration Statement or any New Registration Statement.
c. Upon request of the Investor, the Company shall furnish to the Investor, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such registration statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any registration statement, a copy of the prospectus included in such registration statement and all amendments and supplements thereto (or such other number of copies as the Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as the Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by the Investor. For the avoidance of doubt, any filing available to the Investor via the SEC’s live EDGAR system shall be deemed “furnished to the Investor” hereunder.
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d. The Company shall use reasonable best efforts to (i) register and qualify the Registrable Securities covered by a registration statement under such other securities or “blue sky” laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or “blue sky” laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.
e. As promptly as practicable after becoming aware of such event or facts, the Company shall notify the Investor in writing of the happening of any event or existence of such facts as a result of which the prospectus included in any registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and deliver a copy of such supplement or amendment to the Investor (or such other number of copies as the Investor may reasonably request). The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a registration statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by email on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to any registration statement or related prospectus or related information, and (iii) of the Company’s reasonable determination that a post-effective amendment to a registration statement would be appropriate.
f. The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any registration statement, or the suspension of the qualification of any Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
g. The Company shall (i) cause all the Registrable Securities to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section.
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h. The Company shall cooperate with the Investor to facilitate the timely preparation and delivery of the Registrable Securities (not bearing any restrictive legend) either by DWAC, DRS, or in certificated form if DWAC or DRS is unavailable, to be offered pursuant to any registration statement and enable such Registrable Securities to be in such denominations or amounts as the Investor may reasonably request and registered in such names as the Investor may request.
i. The Company shall at all times provide a transfer agent and registrar with respect to its Common Stock.
j. If reasonably requested by the Investor, the Company shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such information as the Investor believes should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as practicable upon notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any registration statement.
k. The Company shall use its reasonable best efforts to cause the Registrable Securities covered by any registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
l. Within one (1) Business Day after any registration statement which includes the Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such registration statement has been declared effective by the SEC in the form attached hereto as Exhibit A. Thereafter, if requested by the Investor at any time, the Company shall require its counsel to deliver to the Investor a written confirmation whether or not the effectiveness of such registration statement has lapsed at any time for any reason (including, without limitation, the issuance of a stop order) and whether or not the registration statement is current and available to the Investor for sale of all of the Registrable Securities.
m. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to any registration statement.
4. OBLIGATIONS OF THE INVESTOR.
a. The Company shall notify the Investor in writing of the information the Company reasonably requires from the Investor in connection with any registration statement hereunder. The Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.
b. The Investor agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any registration statement hereunder.
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c. The Investor agrees that, upon receipt of any notice from the Company of the happening of any event or existence of facts of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any registration statement(s) covering such Registrable Securities until the Investor’s receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or the first sentence of 3(e). Notwithstanding anything to the contrary, the Company shall cause its transfer agent to promptly deliver shares of Common Stock without any restrictive legend in accordance with the terms of the Purchase Agreement, the Prior Purchase Agreement or the related agreements entered into therewith, as applicable, in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor’s receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of Section 3(e) and for which the Investor has not yet settled.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than sales or brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company, shall be paid by the Company.
6. INDEMNIFICATION.
a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, each Person, if any, who controls the Investor, the members, the directors, officers, partners, employees, agents, representatives of the Investor and each Person, if any, who controls the Investor within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys’ fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in the Registration Statement, any New Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the Registration Statement or any New Registration Statement or (iv) any material violation by the Company of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”). The Company shall reimburse each Indemnified Person promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information about the Investor furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement, any New Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); (ii) with respect to any superseded prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the superseded prospectus was corrected in the revised prospectus, as then amended or supplemented, if such revised prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 9.
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b. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
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c. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
d. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS.
With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees, at the Company’s sole expense, to:
a. make and keep public information available, as those terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144;
c. furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting and or disclosure provisions of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration; and
d. take such additional action as is requested by the Investor to enable the Investor to sell the Registrable Securities pursuant to Rule 144, including, without limitation, delivering all such legal opinions, consents, certificates, resolutions and instructions to the Company’s Transfer Agent as may be requested from time to time by the Investor and otherwise fully cooperate with Investor and Investor’s broker to effect such sale of securities pursuant to Rule 144.
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The Company agrees that damages may be an inadequate remedy for any breach of the terms and provisions of this Section 8 and that Investor shall, whether or not it is pursuing any remedies at law, be entitled to equitable relief in the form of a preliminary or permanent injunctions, without having to post any bond or other security, upon any breach or threatened breach of any such terms or provisions.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor.
10. AMENDMENT OF REGISTRATION RIGHTS.
No provision of this Agreement may be amended or waived by the parties from and after the date that is one Business Day immediately preceding the initial filing of the Registration Statement with the SEC. Subject to the immediately preceding sentence, no provision of this Agreement may be (i) amended other than by a written instrument signed by both parties hereto or (ii) waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
11. MISCELLANEOUS.
a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by email (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party); or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:
If to the Company, to:
CAN B̅ CORP.
960 South Broadway, Suite 120
Hicksville, NY 11801
Email: info@canbiola.com
Attention: Marco Alfonsi
If to the Investor:
As provided on the signature page hereto
or at such other address and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender’s email account containing the time, date, recipient email address, as applicable, and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by, or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
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c. The corporate laws of the State of Delaware shall govern all issues concerning this Agreement. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware. Each party hereby irrevocably submits to the exclusive jurisdiction of the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
d. The Agreement, Purchase Agreement, Prior Purchase Agreement, Note, Warrant and ancillary documentation entered into between the Company and Investor therewith constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. The Agreement, Purchase Agreement, Prior Purchase Agreement, and ancillary documentation entered into between the Company and Investor therewith supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.
e. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties hereto.
f. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
g. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by e-mail in a “.pdf” format data file of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
h. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
i. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
j. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of day and year first above written.
THE COMPANY:
CAN B̅ CORP.
By: | /s/ Marco Alfonsi | |
Name: | MARCO ALFONSI | |
Title: | CHIEF EXECUTIVE OFFICER |
INVESTOR:
WALLEYE OPPORTUNITIES MASTER FUND LTD
By: | /s/ William England | |
Name: | William England | |
Title: | Chief Executive Officer of the Manager |
Address for Notice: 2800 Niagara Lane North, Plymouth, MN 55447
E-mail for Notice: legal@walleyecapital.com
[Signature Page to registration rights agreement]
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EXHIBIT A
TO REGISTRATION RIGHTS AGREEMENT
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
______, 2023
________________
________________
________________
Re: Effectiveness of Registration Statement
Ladies and Gentlemen:
We are counsel to CAN B̅ CORP., a Florida corporation (the “Company”), and have represented the Company in connection with that certain Securities Purchase Agreement, dated as of February 27, 2023 (the “Purchase Agreement”), and Securities Purchase Agreemennt, dated as of August 30, 2022 (the “Prior Purchase Agreement”, and collectively, the “Purchase Agreements”), entered into by and between the Company and Walleye Opportunities Master Fund Ltd, a Cayman Islands company (the “Investor”) pursuant to which the Company has agreed to issue to the Investor certain shares of common stock of the Company, nil par value per share, in accordance with the terms of the Purchase Agreements and the related documents referenced below. In connection with the transactions contemplated by the Purchase Agreements, the Company has registered with the U.S. Securities & Exchange Commission the following shares of Common Stock:
(1) | __________ Exercise Shares (as defined in the Prior Purchase Agreement) issued and/or to be issued to the Investor upon exercise of the Warrant (as defined in the Prior Purchase Agreement) (the “August Warrant”) in accordance with the August Warrant. |
(2) | __________ Conversion Shares (as defined in the Prior Purchase Agreement) issued and/or to be issued to the Investor upon the conversion of the Note (as defined in the Prior Purchase Agreement) (the “August Note”) in accordance with the August Note. |
(3) | __________ Exercise Shares (as defined in the Purchase Agreement) issued and/or to be issued to the Investor upon exercise of the Warrant (as defined in the Purchase Agreement) (the “2023 Warrant”) in accordance with the 2023 Warrant. |
(4) | __________ Conversion Shares (as defined in the Purchase Agreement) issued and/or to be issued to the Investor upon the conversion of the Note (as defined in the Purchase Agreement) (the “2023 Note”) in accordance with the 2023 Note. |
Pursuant to the Purchase Agreement, the Company also has entered into a Registration Rights Agreement, of even date with the Purchase Agreement with the Investor (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Reigstration Rights Agreement) under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Company’s obligations under the Purchase Agreements and the Registration Rights Agreement, on [_____], 2023, the Company filed a Registration Statement (File No. 333-[_________]) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the resale of the Registrable Securities.
In connection with the foregoing, we advise you that a member of the SEC’s staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [_____] [A.M./P.M.] on [__________], 2023 and we have no knowledge, after telephonic inquiry of a member of the SEC’s staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the Securities Act pursuant to the Registration Statement and may be issued without any restrictive legend.
Very truly yours, | ||
[Company Counsel] | ||
By: |
cc: Walleye Opportunities Master Fund Ltd
Exhibit 10.56
February 27, 2023
Walleye Opportunities Master Fund Ltd
2800 Niagara Lane North
Plymouth, MN 55447
Re: | Can B̅ Corp. – Promissory Notes and Security Interest in favor of Walleye Opportunities Master Fund Ltd |
Ladies and Gentlemen:
Reference is made to (a) that certain Securities Purchase Agreement dated as of December 10, 2020, by and among Can B̅ Corp., a Florida corporation (together with its successors and assigns, the “Company” or the “Parent”), Arena Special Opportunities Partners I, LP, a Delaware limited partnership, in its capacity as a purchaser (“Arena Partners I”), Arena Special Opportunities Fund, LP, a Delaware limited partnership, in its capacity as a purchaser (“Arena Fund”, and together with Arena Partners I, collectively, the “Arena Purchasers”, “we” or “us”) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2020 Arena Purchase Agreement”), pursuant to which the Company issued to the Arena Purchasers, among other things, those certain Original Issue Discount Senior Secured Convertible Promissory Notes in the aggregate original principal amount of two million seven hundred thousand seven hundred seventy eight Dollars ($2,777,778) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2020 Arena Notes”), (b) that certain Securities Purchase Agreement dated as of May 17, 2021, by and among the Company, Arena Partners I in its capacity as a purchaser and Arena Fund in its capacity as a purchaser (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2021 Arena Purchase Agreement”, and together with the 2020 Arena Purchase Agreement, collectively, the “Arena Purchase Agreements”), pursuant to which the Company issued to the Arena Purchasers, among other things, those certain Original Issue Discount Senior Secured Convertible Promissory Notes in the aggregate original principal amount of one million five hundred thousand Dollars ($1,500,000) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena Notes”), (c) that certain Security Agreement dated as of December 10, 2020, by and among the Company and its subsidiaries, each in its respective capacity as a debtor, and the Arena Purchasers as secured parties (the “Arena Secured Parties”) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena Security Agreement”), pursuant to which, in order secure the obligations of the Company and its subsidiaries under the Arena Transaction Documents (as defined below) (collectively, the “Arena Obligations”), the Company and its subsidiaries have granted security interests in all their present and after-acquired property (the “Arena Collateral”) to the Arena Secured Parties, (d) that certain Assignment Agreement, an executed copy of which is attached as Exhibit A hereto (the “Arena-Can B AR Assignment Agreement”) dated as of February 27, 2023 by and among the Company, the Arena Purchasers, Duramed, Inc., a Nevada corporation and wholly-owned subsidiary of the Company (together with its successors and assigns, “Duramed”), Duramed MI, LLC, a Nevada limited liability company formerly known as DuramedNJ LLC and wholly-owned subsidiary of the Company (together with its successors and assigns, “Duramed MI” and together with Duramed, the “Duramed Subsidiaries”), pursuant to which the Duramed Subsidiaries have assigned to the Arena Purchasers certain Receivables (defined therein), and (e) that certain Forbearance Agreement, an executed copy of which is attached as Exhibit B hereto (the “Arena-Can B Forberance Agreement”) dated as of February 27, 2023 by and among the Company, the Arena Purchasers, Arena Investors, LP, as agent for the Arena Purchasers (the “Arena Agent”), the Duramed Subsidiaries, CO Botanicals LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company (together with its successors and assigns, “CO Botanicals”), and Botanical Biotech LLC, a Nevada limited liability company and wholly-owned subsidiary of the Company (together with its successors and assigns, “Botanical Biotech LLC”, and together with CO Botanicals and the Duramed Subsidiaries, collectively, the “Revenue Sweep Subsidiaries”, and each individually, a “Revenue Sweep Subsidiary”), TN Botanicals LLC, a Nevada limited liability company, Imbibe Wellness Solutions, LLC, a Nevada limited liability company, formerly known as Radical Tactical LLC, Imbibe Wellness Solutions II, LLC, a Nevada limited liability company, Pure Health Products LLC, a New York limited liability company, Green Grow Farms Inc., a New York corporation, and Pivt Labs, LLC, a Nevada limited liability company, formerly known as NY Hemp Depot LLC, pursuant to which it is contemplated, among other things, that the Company and the Revenue Sweep Subsidiaries shall be required to deliver and execute deposit account control agreements for the benefit of the Arena Agent on behalf of Arena Purchasers with respect to the deposit accounts maintained and controlled by the Company and the Revenue Sweep Subsidiaries (collectively, the “Arena DACAs”, and each individually an “Arena DACA”), and M&T Bank. As used herein, the term “Arena Transaction Documents” shall mean, collectively, the Arena Purchase Agreements, the Arena Notes, the Arena Security Agreement, the Arena-Can B AR Assignment Agreement, the Arena-Can B Forbearance Agreement, the Arena DACAs and any other documents, amendments or supplements delivered or executed by the Company or any of its affiliates or subsidiaries in connection therewith, each individually, an “Arena Transaction Document”).
1. | Each of the Arena Notes prohibits the Company from, and prohibits the Company from permitting any of its subsidiaries to, without the prior written consent of the holder of such Arena Note (each such holder, an “Arena Note Holder”), (a) creating, incurring, guaranteeing or suffering to exist Indebtedness (as defined in the Arena Notes, “Indebtedness”) other than Permitted Indebtedness (as defined in the Arena Notes, “Permitted Indebtedness”), (b) repaying or offering to repay any Indebtedness other than the Liabilities (as defined in the Arena Notes), and other than regularly scheduled payments of Permitted Indebtedness, as such terms are in effect on the Original Issue Date (as defined in the Arena Notes), and (c) creating, incurring, guaranteeing or suffering to exist Liens (as defined in the Arena Notes, “Liens”) other than Permitted Liens (as defined in the Arena Notes). |
2. | Arena Note Holder Consent to Walleye Transactions and Walleye Transaction Documents. |
We understand that:
(a) the Company entered into that certain Securities Purchase Agreement dated as of August 30, 2022 by and between the Company and Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability (“Walleye”) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2022 Walleye Purchase Agreement”), pursuant to which the Company issued, among other things, that certain Promissory Note in the original principal amount of three hundred eighty five thousand Dollars ($385,000) dated as of August 30, 2022 for the benefit of Walleye (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Walleye Note”);
(b) the Company is contemplating entering into that certain Securities Purchase Agreement dated as of the date hereof by and between the Company and Walleye (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2023 Walleye Purchase Agreement”, and together with the 2022 Walleye Purchase Agreement, collectively, the “Walleye Purchase Agreements”), pursuant to which, among other things, the Company plans to issue a further Promissory Note in the original principal amount of one million eight hundred twenty three thousand five hundred and twenty-nine Dollars ($1,823,529) on or about the date hereof for the benefit of Walleye in the form attached hereto as Exhibit C (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Second Walleye Note”, and together with the First Walleye Note, collectively, the “Walleye Notes”, and each individually, a “Walleye Note”), which Second Walleye Note shall provide, among other things, that upon the occurrence of an Event of Default (under and as such term is defined in the Second Walleye Note), during the period commencing on and including the first Business Day of the calendar month immediately following the calendar month during which such Event of Default occurred until the earlier to occur of (x) the curing of such Event of Default and (y) the satisfaction in full of all of the Company’s obligations under the Second Walleye Note (any such period, a “Revenue Sweep Period”) each of the Revenue Sweep Subsidiaries shall be required to make monthly payments to Walleye, in satisfaction of the Company’s obligations under the Second Walleye Note (the “Second Walleye Note Obligations”), with each such monthly payment being payable in cash on the first Business Day of each calendar month during the applicable Revenue Sweep Period (each such date, a “Monthly Revenue Sweep Payment Date”) by each Revenue Sweep Subsidiary in an amount equal to ten percent (10%) of such Revenue Sweep Subsidiary’s Eligible Revenues (as defined below) for the preceding calendar month (such monthly payments, collectively, the “Monthly Revenue Sweep Payments”, and each individually, a “Monthly Revenue Sweep Payment”); provided, however, and for the avoidance of doubt, (i) any Revenue Sweep Period and (ii) any entitlement and rights of Walleye with respect to any Monthly Revenue Sweep Payments and any Revenue Sweep Subsidiary Pledged Revenues (as defined below) shall only exist following the execution of the Second Walleye Note; and
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(c) in order to secure the obligations of the Company under the Second Walleye Note and the obligations of each of the Revenue Sweep Subsidiaries to make the Monthly Revenue Sweep Payments to Walleye as such payments become due and payable, the Company and each of the Revenue Sweep Subsidiaries intend to enter into a Revenue Pledge and Security Agreement on or around the date hereof by and among the Revenue Sweep Subsidiaries as debtors, the Company, and Walleye as secured party, in the form attached hereto as Exhibit D (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Walleye Revenue Pledge and Security Agreement”), which shall provide, among other things, that, subject to the terms of this Agreement: (i) each Revenue Sweep Subsidiary shall grant to Walleye (1) a first-priority continuing security interest in, Lien on and right of set-off against ten percent (10%) of any and all Eligible Revenues (as defined below) of such Revenue Sweep Subsidiary during any and all Revenue Sweep Periods, including without limitation any such Eligible Revenues received in cash by such Revenue Sweep Subsidiary during any and all Revenue Sweep Periods and the products, proceeds and accessions of any such Eligible Revenues (the “Revenue Sweep Subsidiary Pledged Revenues”) and (2) a security interest in, Lien on and right of set-off against all deposit accounts of such Revenue Sweep Subsidiary; and (ii) the Company shall grant to Walleye a security interest in, Lien on and right of set-off against all deposit accounts of the Company.
As used herein, the term “Eligible Revenues” shall mean, with respect to Revenue Sweep Subsidiary, with respect to any period as of any date of determination, the revenue of such Revenue Sweep Subsidiary for such period (x) generated from sales of goods and/or the provision of services by any such Revenue Sweep Subsidiary occurring after the execution of the Second Walleye Note and/or (y) arising from accounts receivable of such Revenue Sweep Subsidiary generated from sales of goods and/or the provision of services by any such Revenue Sweep Subsidiary occurring after the execution of the Second Walleye Note (as determined in accordance with GAAP).
As used herein, the term “Non-Eligible Revenues” shall mean, with respect to any Revenue Sweep Subsidiary, with respect to any period as of any date of determination, the revenue of such Revenue Sweep Subsidiary for such period (x) generated from sales of goods and/or the provision of services by any such Revenue Sweep Subsidiary, (y) arising from accounts receivable of such Revenue Sweep Subsidiary generated from sales of goods and/or the provision of services by any such Revenue Sweep Subsidiary, and/or (z) which is not Revenue Sweep Subsidiary Pledged Revenues (as determined in accordance with GAAP).
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As used herein, the term “GAAP” shall mean generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession) and the U.S. Securities and Exchange Commission, which are applicable to the circumstances as of the date of determination.
As used herein, the term “Walleye Transaction Documents” shall mean, collectively, the Walleye Purchase Agreements, the Walleye Notes, the Walleye Revenue Pledge and Security Agreement, and any other documents delivered or executed by the Company or any of its subsidiaries in connection therewith, each individually, a “Walleye Transaction Document”).
Notwithstanding anything to the contrary contained in the Arena Notes or any other Arena Transaction Document, each of the Arena Purchasers, each in its respective capacity as an Arena Note Holder, and the Arena Agent hereby (a) consent to (i) the incurrence by the Company of the Indebtedness under the Walleye Notes and the Company’s execution and issuance of, and performance of its obligations under, the Walleye Notes, (ii) the repayment by the Company of any Indebtedness owing to Walleye under the Walleye Notes in accordance with the terms of the Walleye Notes and this letter agreement (this “Agreement”), (iii) the incurrence by each of the Revenue Sweep Subsidiaries of any Indebtedness owing as a result of their respective obligations to make Monthly Revenue Sweep Payments pursuant to the Second Walleye Note and the Walleye Revenue Pledge and Security Agreement, (iv) the grant by each the Revenue Sweep Subsidiaries to Walleye of a first-priority continuing security interest in, Lien on and right of set-off against the Revenue Sweep Subsidiary Pledged Revenues ranking senior to any security interests and/or Liens granted to the Arena Secured Parties and/or the Arena Agent for and on behalf of the Arena Secured Parties therein, subject to the terms and conditions of the Walleye Revenue Pledge and Security Agreement and this Agreement , and (v) the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and performance of each of their obligations under and in connection with, the Walleye Revenue Pledge and Security Agreement (the “Walleye Transactions”), subject to the terms and conditions of this Agreement and (b) agree that the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and the performance by the Company and each of the Revenue Sweep Subsidiaries of any of their respective obligations under the Walleye Notes and/or the Walleye Revenue Pledge and Security Agreement, as applicable, shall not constitute an Event of Default (under and as defined in the Arena Notes), subject to the terms and conditions of this Agreement.
As it relates to relative rights of the Arena Secured Parties and the Arena Agent, on the one hand, and Walleye, on the other hand, in the accounts receivable of the Revenue Sweep Subsidiaries, notwithstanding anything herein to the contrary, Walleye shall only have rights in respect of those accounts receivable of the Revenue Sweep Subsidiaries generated from sales of goods and/or the provision of services by the Revenue Sweep Subsidiaries occurring after the execution of the Second Walleye Note; provided, further, the Arena Secured Parties and the Arena Agent are limiting the subordination of their Liens and secured creditor rights with respect the accounts receivable of the Revenue Sweep Subsidiaries pursuant to this Agreement solely with respect to any such accounts receivable of the Revenue Sweep Subsidiaries generated from sales of goods and/or the provision of services by the Revenue Sweep Subsidiaries occurring after the execution of the Second Walleye Note.
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3. | Limitation of Walleye Security Interest; Certain Representations, Covenants and Agreements of Walleye. |
(a) The Company, each of the Revenue Sweep Subsidiaries and Walleye hereby agree that, (a) except for (i) the Revenue Sweep Subsidiary Pledged Revenues and (ii) the deposit accounts held or controlled by the Revenue Sweep Subsidiaries and subject to the terms and conditions of the Walleye Revenue Pledge and Security Agreement, the Arena Transaction Documents and this Agreement, the Second Walleye Note Obligations shall not be secured by any additional property or assets of the Company or any of the Revenue Sweep Subsidiaries (or any other subsidiary or other affiliate of the Company), (b) the First Walleye Note and the obligations of the Company thereunder shall not be secured by any property or assets of the Company or any subsidiary or affiliate of the Company, and (c) none of them will amend the First Walleye Note, Second Walleye Note, the Walleye Revenue Pledge and Security Agreement or any other Walleye Transaction Document to permit any additional property or assets of the Company and/or the Revenue Sweep Subsidiaries (or any subsidiary or other affiliate of the Company) to secure the Second Walleye Note Obligations other than (i) the Revenue Sweep Subsidiary Pledged Revenues and (ii) the deposit accounts held or controlled by the Revenue Sweep Subsidiaries, pursuant to and subject the terms and conditions in the Walleye Revenue Pledge and Security Agreement in the form attached hereto as Exhibit D and subject in each case to the terms of this Agreement.
(b) Walleye hereby represents, warrants, covenants and agrees, notwithstanding and term or provision of the Walleye Revenue Pledge and Security Agreement and/or any other Walleye Transaction Document (including without limitation any right or remedy in favor of Walleye thereunder), that: (a) as of the date hereof, Walleye has not entered into a deposit account control agreement with the Company or any of its subsidiaries with respect to any deposit account of the Company and/or any subsidiary of the Company securing the Second Walleye Note Obligations; (b) until the Arena Obligations are paid in full, Walleye shall not (i) enter into any deposit account control agreement with the Company and/or any subsidiary thereof with respect to any deposit account of the Company or any subsidiary thereof in order to secure the Second Walleye Note Obligations or (ii) require the Company or any subsidiary thereof to enter into any deposit account control agreement with respect to any deposit account of the Company or any subsidiary thereof in order to secure the Second Walleye Note Obligations.
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4. | Relative Rights of Arena and Walleye with Respect to Revenue Sweep Subsidiary Pledged Revenues and Non-Eligible Revenues. In reliance upon the representations, covenants and agreements of the Company, the Revenue Sweep Subsidiaries and Walleye in the foregoing paragraph, each of the Arena Purchasers, each in its respective capacity as an Arena Secured Party, the Arena Agent, for and on behalf itself and the Arena Secured Parties, and Walleye hereby agree and acknowledge that: |
(a) solely in respect of any Revenue Sweep Subsidiary Pledged Revenue, (i) Walleye’s security interest and Lien in such Revenue Sweep Subsidiary Pledged Revenues to be granted pursuant to the Walleye Revenue Pledge and Security Agreement shall rank senior to any security interests and/or Liens granted to the Arena Secured Parties and/or the Arena Agent for and on behalf of the Arena Secured Parties therein, regardless of time, order or manner of creation and/or perfection, and regardless of whether any such security interest and/or Lien of Walleye, the Arena Secured Parties and/or the Arena Agent on behalf of the Arena Secured Parties has been perfected, (ii) subject to Section 5 below, Walleye’s right and ability to exercise secured creditor rights and remedies with respect to such Revenue Sweep Subsidiary Pledged Revenues pursuant to the Walleye Revenue Pledge and Security Agreement shall be prior in right to any of the Arena Secured Parties’ and the Arena Agent’s secured creditor rights with respect thereto, regardless of time, order or manner of creation and/or perfection, and regardless of whether any of such secured creditor rights and remedies of Walleye, the Arena Secured Parties and/or the Arena Agent on behalf of the Arena Secured Parties has been perfected, (iii) subject to Section 5 below, until the Second Walleye Note Obligations are paid in full, Walleye shall have the exclusive right to exercise rights and remedies, with respect to such Revenue Sweep Subsidiary Pledged Revenues, subject to and in accordance with the terms and conditions of the Walleye Revenue Pledge and Security Agreement and this Agreement; provided, that upon the occurrence of any Event of Default (under and as defined in any of the Arena Notes) and/or any Event of Default (under and as defined in the Second Walleye Note), the proceeds resulting from the exercise of any secured party’s rights with respect to, any such Revenue Sweep Subsidiary Pledged Revenues described in this clause (a), including without limitation in connection with any Insolvency Proceeding (as defined below), shall be applied as follows: (1) first, to the payment of any outstanding Second Walleye Note Obligations, until the Second Walleye Note Obligations are paid in full, and (2) second, to the payment of any outstanding Arena Obligations; and
(b) solely in respect of any Non-Eligible Revenues of any Revenue Sweep Subsidiary, (i) Arena’s security interest and Lien in such Non-Eligible Revenues granted pursuant to the Arena Transaction Documents shall rank senior to any security interests and/or Liens granted to Walleye therein (if any), regardless of time, order or manner of creation and/or perfection, and regardless of whether any such security interest and/or Lien of Walleye, the Arena Secured Parties and/or the Arena Agent on behalf of the Arena Secured Parties has been perfected, (ii) Arena’s right and ability to exercise secured creditor rights and remedies with respect to such Non-Eligible Revenues pursuant to the Arena Transaction Documents shall be prior in right to any of Walleye’s secured creditor rights with respect thereto (if any), regardless of time, order or manner of creation and/or perfection, and regardless of whether any of such secured creditor rights and remedies of Walleye (if any), the Arena Secured Parties and/or the Arena Agent on behalf of the Arena Secured Parties has been perfected, and (iii) until the Arena Obligations are paid in full, Arena shall have the exclusive right to exercise rights and remedies with respect to such Non-Eligible Revenues, subject to and in accordance with the terms and conditions of the Arena Transaction Documents and this Agreement; provided, that upon the occurrence of any Event of Default (under and as defined in any of the Arena Notes) and/or any Event of Default (under and as defined in the Second Walleye Note), the proceeds resulting from the exercise of any secured party’s rights with respect to, any such Non-Eligible Revenues, including without limitation in connection with any Insolvency Proceeding (as defined below), shall be applied as follows: (1) first, to the payment of any outstanding Arena Obligations, until the Arena Obligations are paid in full, and (2) second, to the payment of any Second Walleye Note Obligations, until the Second Walleye Note Obligations are paid in full, pursuant to the Walleye Transaction Documents and not in violation of this Agreement.
As used in this Agreement, the term “Insolvency Proceeding” means any proceeding in respect of bankruptcy, insolvency, winding up, receivership, dissolution or assignment for the benefit of creditors, for each of the foregoing events whether under the Title 11 of the United States Code, as amended from time to time, or any similar federal or state law for the relief of debtors.
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5. | Certain Covenants and Agreements of the Parties Regarding Payments of Revenue Sweep Subsidiary Pledged Revenues; Information Sharing and Cooperation. |
(a) In furtherance of the foregoing, notwithstanding anything to the contrary set forth herein or in any Arena Transaction Document or any Walleye Transaction Document, each of the Arena Purchasers, each in its respective capacity as an Arena Secured Party, the Arena Agent, for and on behalf itself and the Arena Secured Parties, the Company and each of the Revenue Sweep Subsidiaries hereby agree and acknowledge that, until the Second Walleye Note Obligations are paid in full, upon the occurrence of and during the continuance of any Revenue Sweep Period under the Second Walleye Note, the Revenue Sweep Subsidiaries shall be required and permitted to pay to Walleye any Monthly Revenue Sweep Payments as the same become due and payable during such Revenue Sweep Period under and in accordance with the Second Walleye Note and subject to this Agreement; provided that in the event any Event of Default (under and as defined in the Arena Notes) shall occur and be continuing during the continuance of any such Revenue Sweep Period under the Second Walleye Note, to the extent any Arena Transaction Document, including without limitation any Arena DACA, permits the Arena Agent and/or any Arena Secured Party to exercise control over any deposit account held or maintained by any Revenue Sweep Subsidiary or the Company in which any Subsidiary Pledged Revenues are deposited, the Arena Agent and each applicable Arena Secured Party permitted to exercise control with respect to such deposit account (any such party in such capacity, an “Arena Controlling Party”, collectively, the “Arena Controlling Parties”) agrees and acknowledges that notwithstanding anything to the contrary set forth in this Agreement, any such Arena Controlling Party shall be permitted to exercise control of any such deposit account in accordance with the applicable Arena Transaction Documents, provided that (i) if any such Arena Controlling Party exercises its right to assume control of any such deposit account during such Revenue Sweep Period, such Arena Controlling Party shall, with respect to any Revenue Sweep Subsidiary Pledged Revenues of any Revenue Sweep Subsidiary deposited in such account, direct that, on each Monthly Revenue Sweep Payment Date during such Revenue Sweep Period, the requisite portion of such Revenue Sweep Subsidiary Pledged Revenues be paid to Walleye in the amount necessary to satisfy obligation of the applicable Revenue Sweep Subsidiary to pay the Monthly Revenue Sweep Payment payable to Walleye on such Monthly Revenue Sweep Payment Date; and (ii) if no such Arena Controlling Party exercises its right to assume control of any such deposit account during such Revenue Sweep Period, the Company and/or any applicable Revenue Sweep Subsidiary, as applicable, shall and shall be permitted to, with respect to any Revenue Sweep Subsidiary Pledged Revenues of any Revenue Sweep Subsidiary deposited in such deposit account, pay the requisite portion of such Revenue Sweep Subsidiary Pledged Revenues out of such deposit account to Walleye in the amount necessary to satisfy the obligation of the applicable Revenue Sweep Subsidiary to pay the Monthly Revenue Sweep Payment payable to Walleye on such Monthly Revenue Sweep Payment Date.
(b) To effect the provisions of the foregoing clause (a) of this Section 5, (i) Walleye agrees to provide written notice to the Arena Agent of the occurrence and continuance of any Event of Default (under and as defined under the Walleye Notes) triggering a Revenue Sweep Period concurrently with the provision of any such notice provided to the Company, and (ii) the Arena Agent for and on behalf itself and the Arena Secured Parties, agrees to provide written notice to Walleye of the occurrence of any Event of Default concurrently with the provision of any such notice provided to the Company and to provide Walleye from time to time any other information reasonably necessary to permit the Company and the applicable Controlling Party or Controlling Party, as applicable, to satisfy their obligations under the foregoing clause (a) of this Section 5, including, upon the request of Walleye, information as to any Controlling Party’s election to assume control or to waive any such control right with respect to any applicable deposit account of the Company or any Revenue Sweep Subsidiary as contemplated by the foregoing clause (a) of this Section 5. The parties hereto agree to cooperate and provide to each of the other parties hereto such information as reasonably requested by any other party hereto in order to permit such party to comply with and ensure compliance of the other parties hereto with the provisions of the foregoing clause (a) of this Section 5, including without limitation, (i) in the case of Arena Agent, information requested by the other parties hereto as to the election of any Arena Controlling Party to assume control or to waive any such control right with respect to any applicable deposit account of the Company or any Revenue Sweep Subsidiary, and (ii) with respect to the Company, any relevant financial information with respect to the accounts receivable of the Revenue Sweep Subsidiaries or the Revenue Sweep Subsidiary Pledged Revenues of any Revenue Sweep Subsidiary.
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6. | Limitation on Certain Rights of Arena Secured Parties and Arena Agent with respect to Accounts Receivable of Revenue Sweep Subsidiaries. In furtherance of the foregoing, notwithstanding anything to the contrary set forth in the Arena Transaction Documents, each of the Arena Purchasers, each in its respective capacity as an Arena Secured Party, and the Arena Agent, for and on behalf itself and the Arena Secured Parties agree that, until the Second Walleye Note Obligations are paid in full, with respect to any accounts receivable of any Revenue Sweep Subsidiary generated from sales of goods and/or the provision of services by any such Revenue Sweep Subsidiary occurring after the execution of the Second Walleye Note (“Eligible Accounts Receivable”) , none of the Arena Secured Parties nor the Arena Agent shall exercise any secured creditor rights with respect to any such Eligible Accounts Receivable, including without limitation, the sale by the Arena Agent and/or any of the Arena Secured Parties of any such Eligible Accounts Receivable in connection with any enforcement action brought by or on behalf the Arena Agent and/or any of the Arena Secured Parties; provided that, until the Walleye Obligations are paid in full, in the event of any such exercise of secured creditor rights by the Arena Agent and/or any of the Arena Secured Parties with respect to any such Eligible Accounts Receivable, if the amount of Revenue Sweep Subsidiary Pledged Revenues actually paid by such Revenue Sweep Subsidiary to Walleye on any Monthly Revenue Sweep Payment Date during any Revenue Sweep Period following the date of such exercise of secured creditor rights is less than ten percent (10%) of the amount aggregate amount of such Eligible Accounts Receivable that at any point in time (including but not limited to immediately prior to such exercise by the Arena Agent and/or the applicable Arena Secured Parties of any secured creditor rights with respect to such Eligible Accounts Receivable) were due and payable to such Revenue Sweep Subsidiary during the calendar month immediately preceding such Monthly Revenue Sweep Payment Date, the Arena Agent and/or the applicable Arena Secured Parties shall, promptly and in any event within three (3) Business Days following any such Monthly Revenue Sweep Payment Date, turn over to Walleye the proceeds realized from of any such exercise of secured creditor rights in an amount equal to the difference calculated as (A) ten percent (10%) of the average monthly revenue of such Revenue Sweep Subsidiary during the three (3) calendar months immediately preceding such Monthly Revenue Sweep Payment Date minus (B) the aggregate amount of Revenue Sweep Subsidiary Pledged Revenues actually paid to Walleye by such Revenue Sweep Subsidiary on such Monthly Revenue Sweep Payment Date. As used in this Agreement, the term “Business Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed; provided, for the avoidance of doubt, that no such commercial banks shall be considered to be authorized or required by law or executive order to remain closed as a result of “stay at home”, “shelter-in-place”, “non-essential employee” or other similar orders or restrictions or the closure of any physical branch locations at the direction of any governmental authority so long as the electronic funds transfer systems (including for wire transfers) of such commercial banks are generally open for sue by customers on such day. |
7. | Restrictions on Transfer. Each of the Arena Purchasers, each in its respective capacity as an Arena Secured Party, and the Arena Agent, for and on behalf itself and the Arena Secured Parties covenants and agrees that, until the Second Walleye Note Obligations are paid in full, neither the Arena Agent nor any Arena Secured Party shall transfer or assign any of the Arena Obligations to any Person unless the transferee or assignee thereof first agrees in writing with Walleye to be bound by the terms of this Agreement, in form and substance satisfactory to Walleye in its good faith and reasonable discretion. Walleye hereby covenants and agrees that, until the Arena Obligations are paid in full, Walleye shall not transfer or assign any of the Second Walleye Note Obligations to any Person unless the transferee or assignee thereof first agrees in writing with the Arena Agent (acting on behalf of the Arena Secured Parties) to be bound by the terms of this Agreement, in form and substance satisfactory to the Arena Agent in its good faith and reasonable discretion. As used in this Agreement, the term “Person” shall mean shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. |
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8. | Notices. All notices, requests, demands, and other communications provided for hereunder must be in writing and will be deemed to have been duly given and effective on the earliest of: (a) the date of transmission, if such notice or communication is delivered via e-mail prior to 5:30 p.m. (New York City time) on any Business Day; (b) the next Business Day after the date of transmission, if such notice or communication is delivered via e-mail on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day; (c) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (d) upon actual receipt by the party to whom such notice is required to be given, addressed as follows: |
If to the Company or any Revenue Sweep Subsidiary:
c/o CAN B̅ CORP.
960 South Broadway, Suite 120
Hicksville, NY 11801
Attention: Marco Alfonsi
e-mail: info@canbiola.com
If to Arena Agent or any Arena Purchaser:
Arena Special Opportunities Partners I, LP
Arena Special Opportunities Fund, LP
c/o Arena Investors, LP
405 Lexington Avenue, 59th Floor
New York, 10174
Attn: Lawrence Cutler, CFO
e-mail: lcutler@arenaco.com
If to Walleye:
Walleye Opportunities Master Fund Ltd
2800 Niagara Lane N.
Plymouth, MN 55447
Attention: William England
e-mail: wengland@walleyecapital.com
or as to the Company or any Revenue Sweep Subsidiary, Walleye, Arena Agent or any of the Arena Purchasers, at such other address as shall be designated by such party in a written notice to the other parties delivered in accordance with this Section 8.
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9. | Rights of First Refusal. If at any time while any of the Arena Notes and/or the Walleye Notes is outstanding, the Company has a bona fide offer of capital or financing from any third party that the Company intends to act upon, then the Company must offer such opportunity on the same terms as such third party’s terms by providing written notice of the offer (an “Offer Notice”) concurrently to the Arena Purchasers, Walleye, Mast Hill Fund, L.P., a Delaware limited partnership (“Mast Hill”), Blue Lake Partners, LLC, a Delaware limited liability company (“Blue Lake”), and Fourth Man, LLC, a Nevada limited liability company (“Fourth Man”), subject to the terms of this Section 9. As used in this Section 9, the term “Offerees” shall mean, collectively, (i) the Arena Purchasers (jointly), (ii) Walleye, (iii) Mast Hill, (iv) Blue Lake and (v) Fourth Man, and, each individually an “Offeree”; provided for the avoidance of doubt that for purposes of this Section 9, the Arena Purchasers shall be considered to be a single Offeree. Within five (5) Business Days after receipt of an Offer Notice by any Offeree (the “Offer Response Period”), such Offeree shall notify the Company in writing (an “Offer Response Notice”) of such Offeree’s election to either (A) provide such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party) or (B) waive such Offeree’s right to provide such capital or financing to the Company on the same terms as such third party’s terms. If any Offeree fails to deliver an Offer Response Notice to the Borrower prior to the end of the Offer Response Period, time being of the essence, then such Offeree shall be deemed to have elected option (B) above. In the event (x) more than one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to Offer Response Notices sent by each such Offeree to the Company within the Offer Response Period, then each such Offeree shall provide a portion of such capital or financing to the Company pro rata in proportion to the respective ROFR Units (as defined below) of such Offerees, and in all other respects on the same terms as such third party’s terms, (y) only one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent by such Offeree to the Company within the Offer Response Period, then such Offeree shall provide (and none of the other Offerees shall have the right to provide) such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party), or (z) none of the Offerees elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, then the Company may obtain such capital or financing from such third party, provided the Company obtains such capital or financing from such third party upon the exact same terms and conditions set forth in the Offer Notice. If none of the Offerees elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, and the Company does not receive the capital or financing from such third party in accordance with the foregoing clause (z) within thirty (30) days after the date of the last Offer Notice, so long as any of the Arena Notes and/or the Walleye Notes remains outstanding at such time, the Company must again offer the capital or financing opportunity on the same terms as such third party’s terms by providing written notice of the offer concurrently to each of the Offerees pursuant to a further Offer Notice as described above, and the process detailed above shall be repeated. All Offer Notices required to be sent to the Arena Purchasers and Walleye under this Section 9 must be sent via electronic mail in accordance with Section 8 hereof. For purposes of allocating the opportunity to provide the capital or financing to the Borrower on the same terms as the applicable third party’s terms to the applicable Offerees under clause (x) of the fourth sentence of this Section 9, the Offerees shall be and hereby are allocated units (with respect to each Offeree, such Offeree’s “ROFR Units”) representing the Offerees’ respective rights in connection with any such allocation of the opportunity, with such ROFR Units being allocated to the Offerees in the following amounts: (i) to the Arena Purchasers (as a single Offeree), 3,900,000 ROFR Units, (ii) to Walleye, 2,149,706 ROFR Units, (iii) to Mast Hill, 367,500 ROFR Units, (iv) to Blue Lake, 262,500 ROFR Units, and (v) to Fourth Man, 156,525 ROFR Units. |
10. | Each of the Arena Purchasers and the Arena Agent on behalf of the Arena Secured Parties hereby agree and acknowledge that in the event of any conflict between any of the terms and provisions of the Arena Purchase Agreements, the Arena Security Agreement, and/or any other Arena Transaction Document, on one hand, and this Agreement, on the other hand, the terms and conditions of this Agreement shall govern and control. Walleye hereby agrees and acknowledges that in the event of any conflict between any of the terms and provisions of the Walleye Purchase Agreements, the Walleye Notes, the Walleye Revenue Pledge and Security Agreement, and/or any other Walleye Transaction Document, on one hand, and this Agreement, on the other hand, the terms and conditions of this Agreement shall govern and control. |
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11. | This Agreement shall bind any successors or assignees of the Arena Agent, each Arena Purchaser (including in its respective capacity as Arena Secured Party), and Walleye. All of the understandings, covenants, and agreements contained herein are solely for the benefit of the Arena Agent, each Arena Purchaser (including in its respective capacity as Arena Secured Party) and Walleye, and there are no other Persons, including the Company or any of its subsidiaries, or any of the other creditors, successors, or assigns of the Company and/or any of its subsidiaries, which are intended to be benefited, in any way, by this Agreement. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. All references to the Company and/or any subsidiary of the Company herein (including without limitation any Revenue Sweep Subsidiary) shall include such Person as debtor and debtor-in-possession and any receiver or trustee for any such Person (as the case may be) in any Insolvency Proceeding. |
12. | The provisions of this Agreement are, and are intended solely, for the purposes of defining the relative rights of the Arena Agent and each Arena Purchaser (including in its respective capacity as Arena Secured Party), on the one hand, and Walleye, on the other hand, as between themselves. Subject to this Agreement, (a) as between the Arena Agent and each Arena Purchaser, on one hand, and the Company and its subsidiaries on the other hand, except as specifically set forth herein nothing contained in this Agreement shall impair the obligations of the Company and its subsidiaries under the Arena Transaction Documents, which shall remain absolute and unconditional, and (b) as between Walleye, on one hand, and the Company and the Revenue Sweep Subsidiaries, on the other hand, nothing contained in this Agreement shall impair the obligations of the Company and the Revenue Sweep Subsidiaries under the Walleye Transaction Documents, which shall remain absolute and unconditional. |
13. | This Agreement shall continue in full force and effect unless and until all of the Arena Obligations and/or all of the Second Walleye Note Obligations shall be paid in full and shall automatically terminate if and when all of the Arena Obligations and/or all of the Second Walleye Note Obligations are paid in full, provided that all such Arena Obligations and/or Second Walleye Note Obligations shall have been paid in compliance with the terms and conditions of this Agreement. In furtherance of the foregoing, this Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment of any of the Arena Obligations and/or any of the Second Walleye Note Obligations, in whole or in part, are rescinded or must otherwise be restored or refunded by a holder of the Arena Obligations or the Second Walleye Note Obligations, as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made. |
14. | This Agreement may not be amended or any provision hereof waived or modified except by an instrument in writing signed by each of the parties hereto. |
15. | This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one agreement. In the event that any executed signature or counterpart of this Agreement is delivered by e-mail delivery of a ‘.pdf’ format data file, such signature or counterpart shall create a valid and binding obligation of the party executing the same (or on whose behalf such signature or counterpart is executed) with the same force and effect as if such ‘.pdf’ signature page or counterpart were an original thereof. |
16. | This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without regard to conflict of law principles. |
[Signature Pages Follow]
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Sincerely, | ||
ARENA SPECIAL OPPORTUNITIES PARTNERS I, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory | |
ARENA SPECIAL OPPORTUNITIES FUND, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory | |
ARENA INVESTORS, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory |
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Acknowledged and agreed by:
WALLEYE OPPORTUNITIES MASTER FUND LTD | ||
By: | /s/ William England | |
Name: | William England | |
Title: | Chief Executive Officer of the Manager | |
COMPANY: | ||
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
REVENUE SWEEP SUBSIDIARIES: | ||
DURAMED, INC. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
DURAMED MI, LLC | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer of CAN B̅ CORP, as Manager | |
CO BOTANICALS LLC | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer of CAN B̅ CORP , as Manager | |
Botanical Biotech LLC | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer of CAN B̅ CORP , as Manager |
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EXHIBIT A
Arena-Can B AR Assignment Agreement
[Attached]
EXHIBIT B
Arena-Can B Forbearance Agreement
[Attached]
EXHIBIT C
Form of Second Walleye Note
[Attached]
EXHIBIT D
Form of Walleye Revenue Pledge and Security Agreement
[Attached]
Exhibit 10.57
FORBEARANCE AGREEMENT
This FORBEARANCE AGREEMENT (this “Agreement”) is made as of February 27, 2023 (the “Effective Date”) by and among Can B Corp., a Florida corporation (the “Company”), Duramed, Inc., a Nevada corporation (also known as Duramed Inc.) (“Duramed NV”), Duramed MI, LLC, a Nevada limited liability company, formerly known as DuramedNJ LLC (“Duramed MI”, and together with Duramed NV, the “Duramed Subsidiaries”), CO Botanicals LLC, a Nevada limited liability company (“CO Botanicals”), TN Botanicals LLC, a Nevada limited liability Company (“TNB”), Imbibe Wellness Solutions, LLC, a Nevada limited liability company, formerly known as Radical Tactical LLC (“Imbibe”), Imbibe Wellness Solutions II, LLC, a Nevada limited liability (“Imbibe II”), Pure Health Products LLC, a New York limited liability company (“PHP”), Green Grow Farms Inc., a New York corporation (“Green Grow”), Pivt Labs, LLC, a Nevada limited liability company, formerly known as NY Hemp Depot LLC (“pivt” and together with TNB and Green Grow, the “Dormant Entities”), and Botanical Biotech LLC, a Nevada limited liability company (“Botanical Biotech” and, together with the Duramed Subsidiaries, CO Botanicals, TNB, Imbibe, Imbibe II, PHP, Green Grow and Pivt, collectively, the “Subsidiary Guarantors” and together with the Company, the “Obligors” and each an “Obligor”), Arena Special Opportunities Partners I, LP, a Delaware limited partnership (“ASOP I”), Arena Special Opportunities Fund, LP, a Delaware limited partnership (“ASOP Fund” and together with ASOP I, the “Holders” and each a “Holder”) and Arena Investors, LP, as agent for the Holders (“Arena Agent”). The Obligors, the Holders and Arena Agent may, at times, be referred to herein individually as a “Party” and collectively as the “Parties.”
W I T N E S S E T H:
WHEREAS, the Company and the Holders entered into that certain Securities Purchase Agreement and various other documents and agreements contemplated thereby, including but not limited to Original Issue Discount Senior Secured Convertible Promissory Notes with aggregate principal amounts equal to two million seven hundred thousand seven hundred seventy eight Dollars ($2,777,778) (the “2020 Notes”), a Warrant issued for the purchase of 3,426,280 (pre-split) shares of common stock of the Company at $.45 per share (the “2020 Warrant”), a Security Agreement by and among each Obligor party thereto and the Holders (the “2020 Security Agreement”), and an Intellectual Property Security Agreement by and between the Company and the Holders (the “2020 IP Security Agreement”), all dated as of December 10, 2020;
WHEREAS, the Company and the Holders entered into that certain Securities Purchase Agreement and various other documents and agreements contemplated thereby, including but not limited to Original Issue Discount Senior Secured Convertible Promissory Notes with aggregate principal amounts equal to one million five hundred thousand Dollars ($1,500,000) (the “2021 Notes” and together with the 2020 Notes, the “Notes”), a Warrant held issued as for the purchase of 393,417 (pre-split) shares of common stock of the Company at $.51 per share (the “2021 Warrant 1”), a Warrant issued for the purchase of 1,529,670 (pre-split) shares of common stock of the Company at $.51 per share (the “2021 Warrant 2” and, together with the 2021 Warrant 1, the “2021 Warrants” and, together with the 2020 Warrant, collectively, the “Warrants”), an addendum to the 2020 Security Agreement by and among each Obligor party thereto and the Holders (the “2021 Security Agreement” and together with the 2020 Security Agreement and any other amendments, joinders or other modifications, the “Security Agreement”), an addendum to the 2020 IP Security Agreement by and between the Company and the Holders (the “2021 IP Security Agreement” and together with the 2020 IP Security Agreement, the “IP Security Agreement”), all dated May 17, 2021;
WHEREAS, the Subsidiary Guarantors and the Holders entered into that certain Guaranty Agreement dated December 10, 2020 (the “2020 Guaranty”) and on May 17, 2021 entered into an Addendum to the 2020 Guaranty Agreement (the “2021 Guaranty” and together with the 2020 Guaranty and any additional amendments, joinders or other modifications, the “Guaranty”);
WHEREAS, the Company and the Holders entered into that certain Amendment to Transaction Documents dated as of April 13, 2022, pursuant to which they extended the Maturity Date of the Notes, among other things (the “Amendment”). The Security Agreement, the IP Security Agreement, the Account Control Agreements (as defined below) and the Guaranty are collectively referred to as the “Security Instruments.” The Notes, the Security Instruments, the Warrants, and such other documents, joinders, amendment, supplements and/or other instruments executed the Obligors and/or others from time to time to evidence, guaranty, secure, govern and/or modify the Notes, all as the same may have been amended and/or restated, are herein referred to as the “Transaction Documents”;
WHEREAS, the Notes matured on April 30, 2022 (the “Maturity Date”), on which date all obligations under the Notes became immediately due and payable;
WHEREAS, the Company failed to fully make its payment obligations under the Notes on the Maturity Date, which failure constitutes an Event of Default under the Transaction Documents (the “Maturity Default”);
WHEREAS, as a result of the Maturity Default, the Subsidiary Guarantors were obligated and failed to timely pay all of the outstanding obligations under the Notes upon maturity, as required, which failure constitutes an additional Event of Default under the Transaction Documents (the “Guarantor Maturity Default”), and various other related Events of Default under the Transaction Documents, in connection with the Maturity Default including, without limitation, the Company’s incurrence of additional indebtedness in breach of certain Transaction Documents (the “Other Defaults” and, together with the Guarantor Maturity Default and the Maturity Default, the “Specified Defaults”);
WHEREAS, the Obligors acknowledge (i) that they are in default under the Transaction Documents as a result of the Specified Defaults as set forth above, and (ii) that they have received (or hereby waive) any right under the Transaction Documents to notice of the Specified Defaults;
WHEREAS, notwithstanding the Specified Defaults, the Obligors have requested that the Holders forbear from exercising certain legal rights and remedies under the Transaction Documents; and
WHEREAS, notwithstanding the Specified Defaults, the Holders are willing to forbear from exercising its legal rights, subject to the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the premises and the mutual covenants and agreements of the Parties hereinafter set forth, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by each Party, the Parties agree as follows:
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AGREEMENTS
1. Recitals; Defined Terms. The Parties acknowledge that the above Recitals are true and correct and agree that the same are incorporated herein. Unless the context clearly indicates otherwise, each term used in this Agreement which is defined in the Recitals shall have the meaning given to such term in the Recitals. Each capitalized term used herein which is not otherwise defined herein shall have the meaning given to such term in the Transaction Documents. For the purposes of this Agreement, the following definitions shall apply:
1.1 “Collection Period” means the period commencing on the first (1st) day of each calendar month to and including the last day of each calendar month.
1.2 “Receivables” means those certain trade receivables owned by the Duramed Subsidiaries, as set forth in Schedule I attached hereto.
1.3 “Receivables Payment” means, for each Collection Period, the gross proceeds (whether in cash or otherwise) received by the Duramed Subsidiaries in connection with the Receivables during such Collection Period.
1.4 “Threshold Amount” means five million seven hundred thousand Dollars ($5,700,000.00).
2. Acknowledgment of Outstanding Indebtedness. The Obligors acknowledge that, as of February 27, 2023, the Obligors are obligated to the Holders in an amount, and the Holders are owed not less, than three million nine hundred thousand Dollars ($3,900,000.00), together with all additional interest, fees, costs, expenses and attorneys’ fees, all of which are accruing under the Transaction Documents, and all amounts owed under this Agreement, all of which are secured obligations under the Security Instruments (collectively, the “Current Indebtedness”). The Obligors acknowledge and agree that such amounts will continue to increase based upon accruing Reimbursable Expenses (as defined below), fees, costs and any protective advances made by the Holders (if any) and that such amounts will constitute the “Total Indebtedness”.
3. Acknowledgment of Events of Default. Each Obligor acknowledges and agrees that (i) the Specified Defaults have occurred, are continuing as of the date hereof, and constitute Events of Default under the Transaction Documents, (ii) the Specified Defaults have not been cured as of the date hereof, and (iii) except for the Specified Defaults, no other Events of Default have occurred and are continuing as of the date hereof, or are expected to occur during the Forbearance Period, as the case may be, that would result in a material adverse change (A) in the Obligors’ ability to repay the Holders pursuant to the terms hereof, or (B) to any assets of the Obligors. Prior to the Effective Date of this Agreement, the Specified Defaults permit the Holders to, among other things, (A) accelerate all or any portion of the obligations under the Transaction Documents (the “Obligations”), (B) commence any legal or other action to collect any or all of the Obligations from any Obligor and/or the Collateral (as such term is defined in the Security Agreement) and/or any other collateral securing any interest under the Notes (collectively, the “Pledged Collateral”), (C) foreclose or otherwise realize on any or all of the Collateral, and/or set-off and apply any or all of the Pledged Collateral to the payment of any or all of the Obligations, and/or (F) take any other enforcement action or otherwise exercise any or all rights and remedies provided for by any or all of the Transaction Documents or applicable law.
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4. Reaffirmation of Transaction Documents. Each Obligor acknowledges and agrees that: (1) the Transaction Documents are valid, binding and enforceable obligations against the Obligors; (2) all grants, rights and obligations in and under the Transaction Documents were properly granted and authorized; (3) all obligations under the Transaction Documents are immediately due and payable in full; (4) this Agreement constitutes any required contractual or statutory notice concerning notice of default, opportunity to cure, acceleration, and demand for payment; and (5) the Holders are presently entitled to exercise any and all remedies available to it under the Transaction Documents and applicable law without further notice to the Obligors;
5. Reaffirmation of Liens. All liens, mortgages, security interests, rights and remedies granted to the Holders in the Transaction Documents are valid, binding, and enforceable and are hereby renewed, confirmed and continued, and shall also secure the performance by the Obligors of their respective obligations hereunder. Further, nothing contained herein is intended to alter the priority of, or terminate any, lien on or security interest in the Collateral in favor of the Holders.
6. Reaffirmation of Guaranty. To further induce the Holders to enter into this Agreement, the Subsidiary Guarantors hereby represent and warrant to the Holders that the Subsidiary Guarantors currently possess no claims, defenses, offsets, counterclaims, or recoupments of any kind or nature against whether liquidated or unliquidated, direct or indirect, now or hereafter existing, matured or unmatured, against the Holders directly or indirectly related to the Guaranty and/or the any of the Transaction Documents (collectively, the “Guarantor Claims”). Nor do the Subsidiary Guarantors have any knowledge of any facts that would or might give rise to Guarantor Claims. If facts now exist which would or could give rise to Guarantor Claims against or with respect to the enforcement of any Transaction Document, the Subsidiary Guarantors hereby unconditionally, irrevocably and unequivocally waives and fully releases any and all Guarantor Claims as if the Guarantor Claims were the subject of a lawsuit, adjudicated to final judgment from which no appeal could be taken and therein dismissed with prejudice.
7. Challenge to Enforcement. The Obligors acknowledge and agree that none of them have any defense, set off, counterclaim or challenge against the payment of any sums owing under the Transaction Documents, or against the enforcement of any of the terms or conditions thereof or any of the terms of conditions of this Agreement.
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8. Forbearance by Holders and Arena Agent. During the period of time (the “Forbearance Period”) commencing with the Effective Date of this Agreement and ending on the date that is the earlier of (a) the date of the occurrence of a Forbearance Default (as hereinafter defined) or (b) December 31, 2024 (the “Forbearance Expiration Date”), the Holders and Arena Agent agree that they will forbear in the exercise of those rights and remedies under the Transaction Documents and applicable law that arise from the Specified Defaults. The Obligors acknowledge that, upon the termination of the Forbearance Period, whether upon the occurrence of a Forbearance Default or the occurrence of the Forbearance Expiration Date, the Holders and Arena Agent shall no longer be obligated to forbear from exercising any rights and remedies in connection with the Transaction Documents including, but not limited to, demanding full and immediate payment of the full amount of Total Indebtedness or otherwise proceeding with the enforcement of their rights and remedies under the Transaction Documents and applicable law. The Obligors acknowledge and agree that the Holders are not waiving or excusing the Specified Defaults or any other default of the same or different kind as the Specified Defaults under the Transaction Documents, and that the Specified Defaults and the resulting rights, enforcement, and collection remedies to which the Holders are entitled are preserved and survive the execution of this Agreement. The Holders have no obligation to extend the Forbearance Period or make any further financial accommodations to the Obligors, and the terms or conditions of this Agreement, including the Forbearance Period, shall not be altered, waived, modified or abandoned except by a written amendment to this Agreement, duly executed and delivered by the Holders and the Obligors. The Parties hereto agree that the running of all statutes of limitation and the doctrine of laches applicable to all claims or causes of action that the Holders may be entitled to take or bring in order to enforce its rights and remedies against any Obligor are, to the fullest extent permitted by law, tolled and suspended.
9. Conditions Precedent to Forbearance. The Holders shall not be obligated under this Agreement, and the terms of this Agreement shall not be binding on the Holders, unless and until:
9.1 the Obligors have duly executed and delivered to the Holders this Agreement, together with a copy of resolution of each Obligor’s managing member(s), board of directors, or similar person or entity with authority on behalf of such Obligor (where any such Obligor is a non-natural person) approving the terms and execution and delivery of this Agreement and the transactions contemplated hereby;
9.2 the Holders have duly executed and delivered to the Company this Agreement;
9.3 the Company and the Duramed Subsidiaries have duly executed and delivered to the Holders the Assignment Agreement of even date herewith (the “Assignment Agreement”);
9.4 all of the representations and warranties of the Obligors contained herein and in the other Transaction Documents to which they are a party shall be true, correct and complete in all material respects as of such date; and
9.5 no default or Event of Default, other than the Specified Defaults, shall have occurred or exist under the Transaction Documents.
10. Post-Closing Obligations.
10.1 Within thirty (30) days of the Effective Date, the Company shall and shall cause each of its subsidiaries listed in Schedule I attached hereto to deliver to Holders duly executed Account Control Agreements (as defined below) for each deposit account, securities account or commodity account set forth in Schedule I; provided that, such requirement shall be extended, a reasonable amount of time at the sole discretion of the Holders, upon Company making its best effort to deliver such Account Control Agreements and being otherwise unable to obtain the necessary credit approvals. For purposes of this Agreement, “Account Control Agreements” shall mean tri-party deposit account, securities account or commodity account control agreement by and among the applicable obligor and the applicable depository bank, securities intermediary or commodity intermediary, each in form and substance satisfactory to the Holders, and in any event providing to Holders “control” of a deposit account, securities account or commodity account, as applicable, within the meaning of Articles 8 and 9 of the Uniform Commercial Code (“UCC”), as applicable.
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11. Within 15 (fifteen) days of the Effective Date, the Holders and the Company and/or the Duramed Subsidiaries, as applicable, shall enter into a Servicing Agreement in form and substance satisfactory to the Holders, in its reasonable discretion (the “Servicing Agreement”), which Servicing Agreement shall provide that the Company, and/or the Duramed Subsidiaries, as applicable, shall continue to provide servicing and remittance services, in the same manner and standards as in effect on the Effective Date, in relation to the Receivables, at no cost, to Holders, until all collections and payment obligations in relation to such Receivables have been paid, received or otherwise terminated, provided there is no default under this Forbearance Agreement.
12. Monthly Payment Obligations.
12.1 Receivables Payment. During the Forbearance Period, by the fifth (5th) day of each calendar month (or on the next Business Day if such day is not a Business Day) (each a “Payment Date”), the Company and/or the Duramed Subsidiaries, as applicable, will have complied with all of the terms of the Servicing Agreement (as defined above) and shall have remitted the Receivables Payment for the immediately preceding Collection Period in full to the Holders (or to its designee) in accordance with the written instructions provided by the Holders to the Company and/or the Duramed Subsidiaries, as applicable, as the same may be revised from time to time.
12.2 Application of Payments. The Holders will apply, pro rata, all proceeds received in connection with each Receivables Payment in the following order: (i) to any unpaid Reimbursable Expenses existing or arising on or before the date hereof, (ii) to any Reimbursable Expenses arising after the date hereof and not paid in accordance with Section 14.3 hereof, (iii) to the outstanding principal balance of each Note, until such amount has been reduced to zero, and, (iv) all excess proceeds shall remain the exclusive property of the Holders pursuant to the terms of the Assignment Agreement.
12.3 True-Up Payment. If, upon termination of the Forbearance Period, the aggregate sum of all Receivables Payments equals an amount less than the Threshold Amount, the Obligors shall, upon of the Holders’ demand therefor, immediately make a payment to the Holders in an amount equal to the difference between the Threshold Amount and the aggregate Receivables Payments actually received by Holders, pursuant to the Assignment Agreement and Servicing Agreement.
13. Price Protection. To the extent the Warrants are fully exercised and the aggregate value (the “Aggregate Exercised Share Value”) of the shares issued to the Holders is less than $1,500,000.00 (calculated on a 20-trading day volume-weighted average price ending one day prior to the date of exercise and, to the extent the Warrants are exercised in parts, determined on the date of issuance of a given share), the Company shall, within five business days of the final exercise of the Warrants, pay to Holders an amount in cash by wire transfer of immediately-available funds equal to $1,500,000.00 minus the Aggregate Exercised Share Value.
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14. Forbearance Defaults. In addition to any other defaults described in this Agreement, each of the following shall constitute a “Forbearance Default” under this Agreement and the Transaction Documents:
14.1 Payment. Failure of the Obligors to pay any amount due to the Holders as set forth in this Agreement or under any Transaction Document; provided, for the avoidance of doubt and notwithstanding anything to the contrary set forth herein, none of the Specified Defaults shall constitute a Forbearance Default; or
14.2 Post-Closing Obligations. Failure of the Obligors to satisfy any of the Post-Closing Obligations within the applicable time period specified in Section 10 hereof; or
14.3 Reimbursable Expenses. Failure of the Obligors to fully reimburse the Holders for any Reimbursable Expenses (as defined herein) arising after the date hereof within five (5) Business Days of the Holders’ written request therefor; or
14.4 Failure to Comply with Covenants or Agreements. Failure of the Obligors to keep or observe any other covenant or agreement under this Agreement or any of the Transaction Documents; or
14.5 Representations and Warranties. Any representation or warranty of the Obligors contained in this Agreement, any Transaction Document, or any document, certificate, or statement furnished, or to be furnished, by or on behalf of any of them to the Holders in connection with this Agreement or any Transaction Document shall be false, incorrect or misleading in any material respect; or
14.6 Agreement Invalid or Disputed. The validity, binding nature of, or enforceability of any term or provision of this Agreement or any of the Transaction Documents are disputed by, on behalf of, or in the right or name of the Obligors, or any material term or provision of this Agreement or any of the Transaction Documents is found or declared to be invalid, voidable, or unenforceable by any court of competent jurisdiction; or
14.7 New Indebtedness. Any Obligor shall: (i) become a borrower or guarantor with respect to any indebtedness owed to any person or entity other than Holders prior to the Forbearance Expiration Date that has the potential to result in additional liens or encumbrances against the Pledged Collateral without Holder’s consent, or (ii) pledge any of its assets to any person or entity other than Holders that will impair or prevent Obligors from fully and timely satisfying its obligations under this Agreement or the Transaction Documents; or
14.8 Defaults on Other Indebtedness. Failure of any Obligor to make any of payment or perform any of its obligations, which failure results in an event of default and/or acceleration of such indebtedness under any existing indebtedness agreements, documents or instruments, as the case may be; or
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14.9 Deposit Account Control Agreements. Any Obligor fails to remit any payments or comply with any provision of an Account Control Agreement to which it is a party; or
14.10 Change in Ownership/Management Structure. Any change in the ownership or management structure of any of the Obligors that has not been previously approved, in writing, by the Holders in their sole and absolute discretion; or
14.11 Material Adverse Event. Except for conditions as they exist as of the Effective Date, which have been disclosed in writing by the Obligors to the Holders, no material adverse event shall occur that will have an effect on the ability of the Company or Subsidiary Guarantors to fulfill their obligations under this Agreement or the Transaction Documents; or
14.12 Bankruptcy or Insolvency of Obligors or Obligors’ Principals.
14.12.1 Any Obligor or any of their principals become insolvent, or generally fail to pay, or are generally unable to pay, or admit in writing his/her/its inability to pay his/her/its debts as they become due or apply for, consent to, or acquiesce in, the appointment of a trustee, receiver or other custodian, or a substantial part of his/her/its property, or make a general assignment for the benefit of creditors;
14.12.2 Any Obligor or any of their principals commence any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any state or federal bankruptcy or insolvency law, or any dissolution or liquidation proceeding;
14.12.3 Any bankruptcy, reorganization, debt arrangement, or other case or proceeding under any state or federal bankruptcy or insolvency law, or any dissolution or liquidation proceeding, is involuntarily commenced against or in respect of any obligations of Obligors, or any of their principals, or an order for relief is entered in any such proceeding, and any such decree or order remains in effect for a period of thirty (30) days; or
14.12.4 a trustee, receiver, or other custodian is appointed for Obligors or any of their principals’ obligations or a substantial part of his/her/its property.
15. Remedies. Upon the occurrence of a Forbearance Default, at the option of the Holders and without further notice or demand, which notice and demand is expressly waived by the Obligors, the Holders may declare all of the outstanding Obligations, including the Total Indebtedness, immediately due and payable, and exercise each and every right and remedy under this Agreement, the Transaction Documents, at law, in equity or otherwise; and/or exercise any or all of the following additional remedies:
15.1 Common Stock Company Shares. As part of the bargained for consideration of this Agreement, the Obligors agree that, upon the occurrence of a Forbearance Default, the Company shall issue to the Holders, on the fifth (5th) day of each calendar month until the Forbearance Default is cured or otherwise waived by the Holders, the number of shares of the Company common stock equal in value to one hundred thousand Dollars ($100,000.00), based on the market price or the 10-day trailing average, whichever is lower, as of the date of such Forbearance Default.
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15.2 Automatic Stay. The Company agrees that, upon the filing of any Petition for Relief by or against the Company under the United States Bankruptcy Code (whether or not a Forbearance Default has occurred and is continuing), the Holders shall be entitled to immediate and complete relief from the automatic stay with respect to the Obligations, and the Holders shall be permitted to proceed to protect and enforce its rights and remedies under state law hereunder and under the Transaction Documents. The Company hereby expressly assents to any motion filed by the Holders seeking relief from the automatic stay. The Company further hereby expressly waives the protections afforded under Section 362 of the United States Bankruptcy Code with respect to the Holders.
15.3 No Contest to Enforcement Remedies. As part of the bargained for consideration of this Agreement, Obligors agree that, upon the occurrence of a Forbearance Default or the Forbearance Expiration Date, they will cooperate in any existing or hereafter enforcement action filed by the Holders with respect to the Collateral, including by: (i) executing and delivering to the Holders, and any court in which an action for enforcement of all or any portion of the Collateral is pending, a stipulation to appointment of receiver and enforce, (ii) raising no defenses to said enforcement action or the appointment of any receiver; (iii) making no counterclaims against the Holders, and taking no actions to resist any enforcement; (iv) accepting service of any and all process, pleadings, or other papers from the Holders in any enforcement action by regular mail, e-mail, or facsimile (with service complete upon mailing, e-mailing, or facsimile transmission) to any attorney that Obligors shall so designate in writing, (v) waiving the right to receive service of any and all process, pleadings, or other papers from the Holders in any enforcement action by any means other than those set forth in this subparagraph, and (vi) taking all other actions and executing all other documents reasonably requested by the Holders in connection with any remedies, including but not limited to, all rights and remedies of a secured party under the Uniform Commercial Code of the State of New York and/or the Uniform Commercial Code of any other applicable jurisdiction, receiver appointment and disposition of the Collateral that is pending.
16. Representations and Warranties. To induce the Holders to enter into this Agreement, and as partial consideration for the terms and conditions contained herein, each Obligor makes the following representations and warranties to the Holders, each and all of which shall survive the execution and delivery of this Agreement:
16.1 Reliance. The Obligors acknowledge and agree that any financial accommodation that the Holders make on or after the Effective Date has been made by such Party in reliance upon, and is consideration for, among other things, the general releases and indemnities contained in this Agreement and the other covenants, agreements, representations and warranties of the Obligors hereunder.
16.2 Organization and Authority. The Obligors are each duly organized, and other than the Dormant Entities, such Obligors are validly existing and in good standing under the laws of the state of their organization. Each such Obligor has taken all necessary organizational action to duly authorize the execution, delivery and implementation of this Agreement and all documents, agreements and instruments executed by such entity in connection herewith.
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16.3 Other Consents. No consent, order, qualification, validation, license, approval or authorization of, or filing, recording, registration or declaration with, or other action in respect of, any governmental body, authority, bureau or agency or other person is required in connection with the execution, delivery or performance of, or the legality, validity, binding effect or enforceability of, this Agreement.
16.4 No Defaults. Except for the Specified Defaults, no Event of Default, or event that, with the passing of time, giving of notice or both, would constitute an Event of Default, exists under any provision of the Transaction Documents.
16.5 No Conflict. The execution and delivery of this Agreement and all other documents and instruments executed in connection herewith will not conflict with, or result in a breach of (i) the terms, conditions or provisions of any Obligors’ respective organizational documents or by-laws; or (ii) any mortgage, lease, agreement, or other instrument, or any applicable law, judgment, order, writ, injunction, decree, rule or regulation of any court, administrative agency or other governmental authority to which any of the Obligors is a party or by which any of the Obligors’ respective properties are bound.
16.6 Valid and Binding Agreement. This Agreement has been duly executed and delivered by the Obligors and constitutes the legal, valid and binding obligation of Obligors, enforceable against them in accordance with its terms, subject to bankruptcy, insolvency, fraudulent conveyance and similar laws and to other limitations that will not materially impair the benefits intended hereby.
16.7 Compliance with Laws. The Obligors are in compliance in all material respects with all laws, regulations and requirements applicable to their business and have not received, and have no knowledge of, any order or notice of any governmental investigation or of any violations or claims of violation of any law, regulation or any governmental requirement applicable to any of them.
16.8 No Suits. None of the Obligors are aware of any suits or proceedings, pending or threatened, in court or before any regulatory commission, board or other administrative governmental agency against or affecting the Obligors or the Collateral which will have a material adverse effect on the ability of the Obligors to fulfill their obligations under this Agreement or the other Transaction Documents.
16.9 No Untrue or Misleading Statements. Neither this Agreement nor any other document executed in connection herewith contains any untrue statement of a material fact and/or omits any material fact necessary in order to make the statement made, in light of the circumstances under which it was made, accurate.
16.10 Other Representations, Warranties, and Covenants/Schedules. Except for the Specified Defaults and any other defaults that would not result in a material adverse change in (1) the Obligors’ ability to repay the Holders pursuant to the terms hereof or (2) any assets of the Obligors, the Obligors (other than the Dormant Entities with regards to any representation, warranty, covenant or other requirement to be validly existing and in good standing in any applicable jurisdiction) reaffirm all of their respective representations, warranties, and covenants to the Holders contained in the applicable Transaction Documents and warrant that all such representations, warranties, and covenants are true and correct as of the Effective Date.
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17. Forbearance Covenants. The Obligors, jointly and severally, covenant and agree from the Effective Date, and until satisfaction of the Obligations, to do the following:
17.1 Expenses. The Obligors shall reimburse the Holders upon request for all reasonable out-of-pocket costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by the Holders in connection with the Notes, including the preparation, negotiation, execution, delivery and implementation of this Agreement (collectively, the “Reimbursable Expenses”). The obligations and liabilities of the Obligors under this Section shall survive the termination of the Forbearance Period and the exercise by the Holders of any of its rights or remedies under this Agreement or the Transaction Documents.
17.2 Execution of Other Documents. At the Holders’ request, the Obligors shall execute and deliver or cause to be delivered to the Holders and/or file with the appropriate offices, such documents, instruments, agreements, financing statements, amendments and/or other things deemed necessary by the Holders, in its reasonable discretion, in form and substance reasonably satisfactory to the Holders in order to implement the substance and intent of this Agreement.
17.3 Additional Information. The Obligors shall provide such other information or reports as requested by the Holders in its sole and absolute discretion.
18. Guaranty and Transaction Documents. Each Obligor acknowledges and agrees that (i) the Guaranty executed by each respective Subsidiary Guarantor is hereby amended to include within the guaranteed obligations thereunder, each of the obligations arising under this Agreement and each Obligor’s obligations thereunder are hereby ratified, confirmed and continued for all obligations except as modified hereby, and (ii) each and every security agreement, pledge agreement, mortgage, deed of trust or other document executed in connection with the Transaction Documents is hereby (a) amended to include within the obligations secured thereby and thereunder, all of the obligations arising under this Agreement, and (b) confirmed and continued for all obligations except as modified hereby.
19. Adequate Representation. Each of the Parties to this Agreement have had the opportunity to consult with legal counsel of their choice, understand and are fully aware of the terms contained in this Agreement and have voluntarily, without coercion or duress of any kind, entered into this Agreement and the documents executed in connection with this Agreement. The Obligors acknowledge that certain waivers and consents contained herein constitute a material inducement for the Holders to enter into this Agreement and they have been fully advised of the consequences of such provisions by their counsel. The Obligors acknowledge, understand and agree that the Holders have not provided, and is not providing, any tax, accounting or legal advice to them and/or their legal advisors and that the Holders make no representations regarding any tax obligations or consequences related to or arising from this Agreement.
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20. Release in Favor of Holders. The Obligors, for themselves, and any other person or entity who may claim an interest through them, hereby unconditionally remise, release, waive, satisfy, acquit, and forever discharge, with prejudice, the Holders, their predecessors- and successors-in-interest, and their respective parents, owners, managers, partners, joint venturers, directors, officers, affiliates, agents, administrators, loan servicers, asset managers, accountants, attorneys and employees from any and every claim, right, cause, action, cause of action, damage, liability and other matter or proceeding arising from, relating to or in connection with any acts or omissions of the Holders, their predecessors-in-interest and successors-in-interest, and their respective parents, owners, managers, partners, joint venturers, directors, officers, affiliates, agents, administrators, loan servicers, asset managers, accountants, attorneys and employees prior to the date of execution of this Agreement (the “Claims”). The foregoing release will be construed in the broadest sense possible. The Obligors warrant and represent they are the sole and lawful owner of all right, title, and interest in and to every Claim being released hereby, and they have not assigned, pledged, hypothecated, or otherwise divested or encumbered all or any part of any Claim being released hereby. The Obligors do hereby covenant and agree never to institute or cause to be instituted or continue prosecution of any suit or other form of action or proceeding of any kind or nature whatsoever against and the Holders or their subsidiaries or affiliates or any by reason of or in connection with any of the foregoing matters, claims or causes of action. The Obligors hereby specifically warrant, represent, acknowledge, and agree that: (a) none of the provisions of this general release shall be construed as or constitute an admission of any liability; (b) the provisions of this general release shall constitute an absolute bar to any Claim of any kind, whether any such Claim is based on contract, tort, warranty, mistake, or any other theory, whether legal, statutory, or equitable; and (c) any attempt to assert a Claim barred by the provisions of this general release shall subject such Obligors to the provisions of applicable law setting forth the remedies for the bringing of groundless, frivolous, or baseless claims or causes of action, and the Obligors hereby agree to pay all attorneys’ fees and costs incurred as a result of any such attempt. This provision shall survive and continue in full force and effect whether or not the Obligors shall satisfy all other provisions of the Agreement and survives termination of this Agreement.
21. No Waiver, Novation or Modification. The execution, delivery and effectiveness of this Agreement shall not, except as expressly provided in this Agreement, operate as a waiver of any right, power or remedy of the Holders. Nothing in this Agreement shall in any way impair, alter, waive, annul, vary or affect any provision, condition, covenant, right, or remedy contained in the Transaction Documents, except as expressly provided in this Agreement. Without limiting the generality of the foregoing, the Holders expressly reserve all rights and remedies with respect to the Specified Defaults and has not waived any such rights by entering into this Agreement. It is the intent of the Obligors and of the Holders that nothing contained in this Agreement shall be deemed to effect or accomplish or otherwise constitute a novation of any of the obligations owed by the Obligors to the Holders or to be a refinance, restructure of modification of any of the Transaction Documents, except as expressly set forth herein. Nothing contained herein shall be deemed to extinguish, terminate or impair any of the duties or obligations owed by the Obligors to the Holders with respect to the Transaction Documents.
22. Prior Understandings. This Agreement supersedes all prior and contemporaneous understandings and agreements, whether written or oral, among the Parties hereto relating to the matters provided for herein. In the event of any inconsistency between the provisions of this Agreement and the Transaction Documents, the provisions of this Agreement shall govern and control.
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23. Notices. In addition to, rather than in lieu of, the noticing requirements under the Transaction Documents, a copy of any notice to the Holders required under this Agreement shall be transmitted to:
Joseph J. Tuso
Reed Smith LLP
599 Lexington Avenue
New York, NY 10022
jtuso@reedsmith.com
24. Counterparts; Facsimile Signatures. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which when taken together shall constitute one and the same instrument. Facsimile or electronic signatures shall be acceptable to bind the Parties to the terms of this Agreement.
25. Waivers. In connection with any proceedings hereunder or in connection with any of the Obligations, including without limitation any action by the Holders in enforcement actions or other court process or in connection with any other action related to the Obligations or the transactions contemplated hereunder, each Obligor waives:
25.1 all errors, defects and imperfections in such proceedings;
25.2 all benefits under any present or future laws exempting any property, real or personal, or any part of any proceeds thereof from attachment, levy or sale under execution, or providing for any stay of execution to be issued on any judgment recovered in connection with the Obligations or in any replevin or foreclosure proceeding, or otherwise providing for any valuation, appraisal or exemption;
25.3 presentment for payment, demand, notice of demand, notice of non-payment, protest and notice of protest of any of the Obligations;
25.4 any requirement for bonds, security or sureties required by statute, court rule or otherwise;
25.5 any demand for possession of any Collateral prior to commencement of any suit;
25.6 any right to compel or direct the Holders to seek payment or recovery of any amounts owed from any one particular fund or source;
25.7 any requirement that the Holders protect, secure, perfect or insure any security interest or lien or any property subject thereto or exhaust any right or take any action against any Obligor or collateral; and
25.8 any other defense available to the Obligors other than repayment of the Obligations.
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26. Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose and should not be considered in interpreting any provision hereof.
27. Time of the Essence. Time is of the essence of this Agreement.
28. Inconsistencies. To the extent of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of the Transaction Documents, the terms and conditions of this Agreement shall prevail. All terms and conditions of the Transaction Documents not inconsistent herewith shall remain in full force and effect and are hereby ratified and confirmed by the Obligors.
29. Joint and Several Liability. The Obligors hereby acknowledge and confirm that all agreements, covenants, conditions and provisions of this Agreement are and shall be the joint and several obligations of each Obligor.
30. No Third-Party Beneficiaries. Notwithstanding anything contained in this Agreement that could be interpreted to the contrary, this Agreement is intended neither to inure to the benefit, nor create any obligations to, any person who has not executed this Agreement.
31. Governing Law. This Agreement shall be construed in accordance with and governed by the internal laws of the State of New York regardless of any conflicts of law rules or any other statement as to jurisdiction or applicable law.
32. Entire Agreement. The Agreement embodies the entire agreement among the Parties hereto relating to the subject matter hereof and supersedes all prior agreements, representations and understandings, if any, relating to the subject matter hereof. Neither this Agreement nor any of the provisions can be changed, waived, discharged or terminated, except by an instrument in writing signed by the parties against whom enforcement of the change, waiver, discharge or termination is sought.
33. Binding Effect. This Agreement shall be binding upon and inure to the benefit of the Holders, the Obligors and their respective successors and permitted assigns.
34. Waiver. In accordance with Section 9-624 of the Uniform Commercial Code, the Obligors hereby waive the right to (a) notification of disposition of collateral under Section 9-611 of the Uniform Commercial Code; (b) require disposition of collateral under Section 9-620(e) of the Uniform Commercial Code; and (c) redeem collateral under Section 9-623 of the Uniform Commercial Code.
35. Indemnification.
35.1 If, after receipt of any transfer with respect to or payment of all or any part of the Obligations, the Holders are compelled to surrender such transfer or payment to any person for any reason (including a determination that such transfer or payment is void or voidable as a preference or fraudulent conveyance, an impermissible setoff, or a diversion of trust funds), then (i) each such transfer or payment will be deemed never to have occurred, and the outstanding indebtedness will be adjusted accordingly; (ii) such voided payment or transfer will be a default of this Agreement; and (iii) the Obligors will be liable under this Agreement and the Transaction Documents for, and shall indemnify, defend, and hold harmless the Holders with respect to, the full amount so surrendered.
35.2 The provisions of this Section will survive the termination of this Agreement and will be and remain effective notwithstanding the payment to the Holders of any or all of the amounts due under the Transaction Documents, the cancellation of any Transaction Document, the release of any lien or security interest securing any of the Notes secured by the Collateral, or any other action which the Holders may have taken in reliance on its receipt of such payment. Any cancellation of any of the Transaction Documents, release of any lien or security interest securing any of the Total Indebtedness due under the Notes, or other such action will be deemed to have been conditioned on any payment of any or all of the indebtedness having become final, irrevocable, and indefeasible.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the Parties hereto have each caused this Forbearance Agreement to be executed as of the date first above written.
IMBIBE WELLNESS SOLUTIONS, LLC | ||
By: Can B Corp., its manager | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
IMBIBE WELLNESS SOLUTIONS II, LLC | ||
By: | Imbibe Wellness Solutions, its manager | |
By: | Can B Corp., its manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
Pure Health Products LLC | ||
By: | Can B Corp., its manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
CO Botanicals LLC | ||
By: | Can B Corp., its manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
TN Botanicals LLC | ||
By: | Can B Corp., its manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
BOTANICAL BIOTECH LLC | ||
By: | Can B Corp., its manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer |
PIVT LABS, LLC | ||
By: | Can B Corp., its manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
DURAMED MI, LLC | ||
By: | Can B Corp., its manager | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
Green Grow Farms Inc. | ||
By: | Can B Corp., its sole shareholder | |
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
DURAMED, Inc. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | President | |
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer |
[Signature Page to Forbearance Agreement]
HOLDERS | ||
Arena Special Opportunities Fund, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory | |
Arena Special Opportunities Partners I, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory | |
ARENA AGENT | ||
Arena Investors, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory |
[Signature Page to Forbearance Agreement]
SCHEDULE II
Receivables
(attached)
[Schedule II – Forbearance Agreement]
Exhibit 10.58
AMENDMENT #2 TO PROMISSORY NOTE,
AMENDMENT TO SECURITIES PURCHASE AGREEMENT,
CONSENT AND WAIVER AGREEMENT
This AMENDMENT #2 TO PROMISSORY NOTE, AMENDMENT TO SECURITIES PURCHASE AGREEMENT, CONSENT AND WAIVER AGREEMENT (this “Agreement”), is entered into as of February 27, 2023 (the “Effective Date”) by and between by and between CAN B̅ CORP., a Florida corporation (the “Company”), and Blue Lake Partners, LLC, a Delaware limited liability company (the “Holder”; and together with the Company, collectively the “Parties”).
BACKGROUND
A. The Company and the Holder are parties to that certain Securities Purchase Agreement dated as of March 22, 2022 by and between the Company and the Holder in its capacity as the buyer (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which the Company issued to the Holder, among other things, that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $250,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 8, 2023 by and between the Company and the Holder (“Amendment #1 to the Note”), pursuant to which, among other things, (i) the maturity date of the Note was extended to September 1, 2023 and (ii) the principal balance of the Note was increased by $12,500 (the “Increased Principal Portion”), and as further amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Note”).
B. The Company entered into that certain Securities Purchase Agreement dated as of August 30, 2022 by and between the Company and Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability (“Walleye”) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2022 Walleye Purchase Agreement”), pursuant to which the Company issued to Walleye (i) that certain Promissory Note in the original principal amount of $385,000 dated as of August 30, 2022 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Walleye Note”) and (ii) that certain Common Stock Purchase Warrant for the purchase of shares of the Company’s common stock (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Walleye Warrant”) (the “2022 Walleye Financing”).
C. The Company is seeking additional financing from Walleye (the “2023 Walleye Financing”) pursuant to a Securities Purchase Agreement dated on or about the date hereof by and between the Company and Walleye (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2023 Walleye Purchase Agreement”, and together with the 2022 Walleye Purchase Agreement, collectively, the “Walleye Purchase Agreements”), pursuant to which, among other things, (i) the Company plans to issue to Walleye (1) a further Promissory Note in the original principal amount of $1,823,529, on or about the date hereof (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Second Walleye Note”, and together with the First Walleye Note, collectively, the “Walleye Notes”, and each individually, a “Walleye Note”), which Second Walleye Note shall be secured pursuant to a pledge of certain collateral of the Company and certain of its subsidiaries (the “Revenue Sweep Subsidiaries”) pursuant to a Revenue Pledge and Security Agreement dated on or about the date hereof by and among the Company, certain subsidiaries of the Company and Walleye in its capacity as the secured party (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Walleye Revenue Pledge and Security Agreement”) and (2) a further Common Stock Purchase Warrant for the purchase of shares of the Company’s common stock (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Second Walleye Warrant”, and together with the First Walleye Warrant, collectively, the “Walleye Warrants”, and each individually, a “Walleye Warrant”) and (ii) the First Walleye Warrant shall be amended to modify certain provisions of the First Walleye Note concerning the exercise price of the First Walleye Warrant (the “First Walleye Warrant Amendment”).
D. Simultaneously with the 2023 Walleye Financing, the Company is entering into certain additional agreements with Arena Special Opportunities Partners I, LP, a Delaware limited partnership (“Arena Partners I”), Arena Special Opportunities Fund, LP, a Delaware limited partnership (“Arena Fund”, and together with Arena Partners I, collectively, the “Arena Purchasers”) and Arena Investors LP, a Delaware limited partnership, “Arena Investors”, and together with the Arena Purchasers, collectively, the “Arena Parties”) in connection with the Company’s obligations owing to the Arena Purchasers under (i) those certain Original Issue Discount Senior Secured Convertible Promissory Notes dated as of December 10, 2020 issued by the Company to the Arena Purchasers in the aggregate original principal amount of $2,777,778 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2020 Arena Notes”), (ii) those certain Original Issue Discount Senior Secured Convertible Promissory Notes dated as of May 17, 2021 issued by the Company to the Arena Purchasers in the aggregate original principal amount of $1,500,000 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2021 Arena Notes” and together with the 2020 Arena Note, the “Arena Notes”), (iii) that certain Letter Agreement, dated on or about the date hereof among Walleye, the Arena Parties, the Company and the Revenue Sweep Subsidiaries (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena-Walleye Intercreditor Agreement”) and (iv) that certain Forbearance Agreement dated on or about the date hereof by and among the Company, Duramed, Inc., a Nevada corporation, Duramed MI, LLC, a Nevada limited liability company (formerly known as DuramedNJ LLC), CO Botanicals LLC, a Nevada limited liability company, TN Botanicals, LLC, a Nevada limited liability company, Imbibe Wellness Solutions, LLC, a Nevada limited liability company (formerly known as Radical Tactical LLC), Imbibe Wellness Solutions II, LLC, a Nevada limited liability company , Pure Health Products LLC, a New York limited liability company, Green Grow Farms Inc., a New York corporation, PIVT Labs, LLC, a Nevada limited liability company (formerly known as NY Hemp Depot LLC), and Botanical Biotech LLC, a Nevada limited liability company and the Arena Parties (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena Forbearance Agreement”). As used herein, the term “Transaction Documents” shall mean, collectively, the Walleye Purchase Agreements, the Walleye Notes, the Walleye Warrants, the First Walleye Warrant Amendment, the Arena Notes, the Arena-Walleye Intercreditor Agreement, the Arena Forbearance Agreement and any other other documents, amendments or supplements delivered or executed by the Company or any of its affiliates or subsidiaries in connection therewith, each individually, a “Transaction Document”.
E. As a condition to the effectiveness of the Transactions (as defined below), Walleye and the Company have requested that Holder agree to certain amendments, consents and waivers with respect to certain provisions of the Note and the Purchase Agreement as described in further detail below, and the Holder has agreed to effect such amendments, consents and waivers subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements, provisions and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:
SECTION 1. Amendments to Purchase Agreement. The Purchase Agreement shall, effective as of the Effective Date, be amended in the manner provided in this Section 1.
1.1 Deletion of Section 4(d). Section 4(d) of the Purchase Agreement entitled “Right of Participation and First Refusal” shall be and it hereby is deleted in its entirety.
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1.2 Amendment and Restatement of Section 4(q). Section 4(q) of the Purchase Agreement shall be and it hereby is amended and restated to read in its entirety as follows:
“q. Subsequent Variable Rate Transactions. From the date hereof until such time as the Note is fully converted or fully repaid, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction without the prior written consent of the Buyer. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.”
SECTION 2. Amendments to Note. The Note (including for the avoidance of doubt any provisions of the Note amended pursuant to Amendment #1 to the Note) shall, effective as of the Effective Date, be amended in the manner provided in this Section 2.
2.1 Repayment of Increased Principal Portion. Notwithstanding anything to the contrary set forth in Amendment #1 to the Note, the Increased Principal Portion shall, together with the remaining outstanding principal balance of the Note, be due and payable at the Maturity Date (as extended pursuant to Amendment #1 to the Note), except as otherwise explicitly provided by any other terms or provisions of the Note (including without limitation any such other terms or provisions amended pursuant to this Agreement).
2.2 Amendment and Restatement of Section 1.10. Section 1.10 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“1.10 Repayment from Proceeds of Uplist Offering. If, at any time prior to the full repayment or full conversion of all amounts owed under this Note, the Company receives cash proceeds from the issuance of equity or debt (including but not limited to the Uplist Offering (as defined in this Note)), or the conversion of outstanding warrants of the Borrower, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of or publicly disclose such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply up to 33% of such proceeds (provided, however, that 33% shall be replaced with 100% with respect to the proceeds received by the Company pursuant to the Uplist Offering) to repay all or any portion of the outstanding Principal Amount and interest (including any Default Interest) then due under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. “Uplist Offering” shall mean an offering of Common Stock (or units consisting of Common Stock and warrants to purchase Common Stock) that will result in the immediate listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or any other national securities exchange (or any successors to any of the foregoing).”
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2.3 Amendment and Restatement of Section 2.1. Section 2.1 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“2.1 Ranking and Security. This Note shall have priority over all unsecured indebtedness of the Borrower, except that this Note shall be pari passu with respect to the March Notes. As used in this Note, the term “March Notes” shall mean, collectively, promissory note(s) issued by the Borrower in the principal amount of up to $1,250,000 in the aggregate (including this Note), so long as such promissory note(s) contain the same exact terms and conditions as contained in this Note.”
2.4 Amendment and Restatement of Section 3.15. Section 3.15 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“3.15 Variable Rate Transactions. The Borrower consummates a Variable Rate Transaction at any time on or after the Issue Date, without the prior written consent of the Holder.”
2.5 Amendment and Restatement of Section 4.16. Section 4.16 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“4.16 Right of First Refusal. If at any time while this Note is outstanding, the Company has a bona fide offer of capital or financing from any third party that the Company intends to act upon, then the Company must offer such opportunity on the same terms as such third party’s terms by providing written notice of the offer (an “Offer Notice”) concurrently to the Holder, Mast Hill Fund, L.P., a Delaware limited partnership (“Mast Hill”), Fourth Man, LLC, a Nevada limited liability company (“Fourth Man”), the Arena Entities, and Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability (“Walleye”), subject to the terms of this Section 4.16. As used in this Section 4.16, the term “Offerees” shall mean, collectively, (i) the Holder, (ii) Mast Hill, (iii) Fourth Man, (iv) the Arena Entities (jointly) and (v) Walleye, each individually an “Offeree”; provided for the avoidance of doubt that for purposes of this Section 4.16, the Arena Entities shall be considered to be a single Offeree. Within five (5) Business Days after receipt of an Offer Notice by any Offeree (the “Offer Response Period”), such Offeree shall notify the Company in writing (an “Offer Response Notice”) of such Offeree’s election to either (A) provide such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party) or (B) waive such Offeree’s right to provide such capital or financing to the Company on the same terms as such third party’s terms. If any Offeree fails to deliver an Offer Response Notice to the Company prior to the end of the Offer Response Period, time being of the essence, then such Offeree shall be deemed to have elected option (B) above. In the event (x) more than one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to Offer Response Notices sent by each such Offeree to the Company within the Offer Response Period, then each such Offeree shall provide a portion of such capital or financing to the Company pro rata in proportion to the respective ROFR Units (as defined below) of such Offerees, and in all other respects on the same terms as such third party’s terms, (y) only one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent by such Offeree to the Company within the Offer Response Period, then such Offeree shall provide (and none of the other Offerees shall have the right to provide) such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party), or (z) none of the Offerees elect to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, then the Company may obtain such capital or financing from such third party, provided the Company obtains such capital or financing from such third party upon the exact same terms and conditions set forth in the Offer Notice. If none of the Offerees elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, and the Company does not receive the capital or financing from such third party in accordance with the foregoing clause (z) within thirty (30) days after the date of the last Offer Notice, so long as this Note remains outstanding at such time, the Company must again offer the capital or financing opportunity on the same terms as such third party’s terms by providing written notice of the offer concurrently to each of the Offerees pursuant to a further Offer Notice as described above, and the process detailed above shall be repeated. All Offer Notices required to be sent to Holder under this Section 4.16 must be sent via electronic mail to craig@bluelakepartnersllc.com. For purposes of allocating the opportunity to provide the capital or financing to the Company on the same terms as the applicable third party’s terms to the applicable Offerees under clause (x) of the fourth sentence of this Section 4.16, the Offerees shall be and hereby are allocated units (with respect to each Offeree, such Offeree’s “ROFR Units”) representing the Offerees’ respective rights in connection with any such allocation of the opportunity, with such ROFR Units being allocated to the Offerees in the following amounts: (i) to the Holder, 262,500 ROFR Units, (ii) to Mast Hill, 367,500 ROFR Units, (iii) to Fourth Man, 156,525 ROFR Units, (iv) to the Arena Entities (as a single Offeree), 3,900,000 ROFR Units, and (v) to Walleye, 2,149,706 ROFR Units.”
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SECTION 3. Certain Consents and Waivers of the Holder.
3.1 Consent to Transactions; No Event of Default. Notwithstanding anything to the contrary contained in the Note or the Purchase Agreement, the Holder hereby (a) consents to (i) the incurrence by the Company of the indebtedness under the Walleye Notes and the Company’s execution and issuance of, and performance of its obligations under, the Walleye Notes, (ii) the repayment by the Company of any indebtedness owing to Walleye under the Walleye Notes in accordance with the terms of the Walleye Notes, (iii) the incurrence by each of the Revenue Sweep Subsidiaries of any indebtedness owing to Walleye pursuant to the Second Walleye Note and the Walleye Revenue Pledge and Security Agreement, (iv) the grant by each the Company and each of the Revenue Sweep Subsidiaries to Walleye of a security interest in, lien on and right of set-off against the collateral of such parties described in, and subject to the terms and conditions of, the Walleye Revenue Pledge and Security Agreement, (v) the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and performance of each of their obligations under and in connection with, the Walleye Revenue Pledge and Security Agreement, (vi) the Company’s execution and issuance of, and performance of its obligations under, the Walleye Warrants; and (v) the Company’s execution and issuance of, and performance of its obligations under, the Arena-Walleye Intercreditor Agreement and the Forbearance Agreement and/or any other Transaction Document (collectively, the “Transactions”) and (b) agrees that the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and the performance by the Company and each of the Revenue Sweep Subsidiaries of any of their respective obligations under the Walleye Notes, the Walleye Revenue Pledge and Security Agreement, the Walleye Warrants and/or any other Transaction Documents, as applicable, shall not constitute an Event of Default (under and as defined in the Note); provided, however, that the aforementioned consents are expressly conditional upon the Company disbursing, by no later than one (1) business day following the date of issuance of the Second Walleye Note, $200,000 of the purchase price being paid by Walleye for the Second Walleye Note as follows: (1) $66,666.67 to Holder (such amount being applied as a partial repayment of the Company’s obligations under the Note), (2) $40,000.00 to Fourth Man, and (3) $93,333.33 to Mast Hill (the disbursements described in the foregoing clauses (1), (2) and (3), the “Repayment Disbursements”).
3.2 Certain Waivers.
(a) The Holder waives any and all rights of the Holder under Section 4.14 of the Note entitled “Terms of Future Financings” arising from the consummation of the 2022 Walleye Financing and/or the 2023 Walleye Financing, or the issuance and/or execution of any Transaction Documents by the Company and/or any of its subsidiaries in connection with the 2022 Walleye Financing and/or the 2023 Walleye Financing.
(b) The Holder waives any and all rights of the Holder under Section 4.16 of the Note entitled “Right of First Refusal” (as amended hereby) arising from the consummation of the Transactions or the issuance and/or execution of any Transaction Documents by the Company and/or any of its subsidiaries in connection with the 2022 Walleye Financing and/or the 2023 Walleye Financing.
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SECTION 4. Certain Covenants and Agreements Regarding Cash Payments of Second Walleye Note.
4.1 In consideration for Holder’s agreement to enter into this Agreement, Walleye agrees that, for so long as any obligations of the Company under the Note remain outstanding, upon Walleye’s receipt of any cash proceeds in respect of (i) any Installment Payment (as defined in the Second Walleye Note) that may become due and payable under the Second Walleye Note or (ii) any Monthly Revenue Sweep Payment (as defined in the Second Walleye Note) that may become due and payable under the Second Walleye Note (any such cash proceeds described in the foregoing clauses (i) and (ii), “Walleye Shared Cash Proceeds”), Walleye shall be required to share such Walleye Shared Cash Proceeds with the Holder and each of Mast Hill Fund, L.P., a Delaware limited partnership (“Mast Hill”), and Fourth Man, LLC, a Nevada limited liability company (“Fourth Man”, and together with the Holder, Mast Hill and Walleye, collectively, the “Walleye Cash Proceeds Participants”, and each individually, a “Walleye Cash Proceeds Participant”), with such Walleye Shared Cash Proceeds being split pro rata amongst each Walleye Cash Proceeds Participant in proportion to its respective Outstanding Note Obligations (as defined below) as of the date immediately prior to the date Walleye received such Walleye Shared Cash Proceeds. As used herein, the term “Outstanding Note Obligations” shall mean, as of any date of determination (i) with respect to the Holder, the total outstanding obligations of the Company owing to the Holder as of such date under the Note, (ii) with respect to Mast Hill, the total outstanding obligations of the Company owing to Mast Hill as of such date under that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $350,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 5, 2023 by and between the Company and Mast Hill), (iii) with respect to Fourth Man, the total outstanding obligations of the Company owing to Fourth Man as of such date under that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $150,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 8, 2023 by and between the Company and Fourth Man) and (iv) with respect to Walleye, the total outstanding obligations of the Company owing to Walleye under the Second Walleye Note as of such date. Upon Walleye’s receipt of any Walleye Shared Cash Proceeds, Walleye shall promptly notify the Holder and the other Walleye Cash Proceeds Participants in writing (a “Walleye Shared Cash Proceeds Notice”), which Walleye Shared Cash Proceeds Notice shall disclose (A) the amount of Walleye Shared Cash Proceeds received by Walleye, (B) the date such Walleye Shared Cash Proceeds were received by Walleye and (C) Walleye’s Outstanding Note Obligations as of the date immediately prior to the date such Walleye Shared Cash Proceeds were received by Walleye. Upon receipt by the Holder of a Walleye Shared Cash Proceeds Notice, the Holder shall cooperate and provide Walleye with such information reasonably requested by Walleye in order to effect the provisions of this Section 4, including without limitation, information as to the amount of the Holder’s Outstanding Note Obligations as of the date immediately prior to the date of any receipt by Walleye of any Walleye Shared Cash Proceeds.
4.2 For the avoidance of doubt, the Holder acknowledges that (i) any obligations of Walleye under this Section 4 shall solely exist in respect of Walleye Shared Cash Proceeds actually received in cash by Walleye, (ii) the Second Walleye Note may be converted by Walleye into capital stock of the Company in Walleye’s discretion subject to and in accordance with the terms and conditions of the Second Walleye Note and (iii) nothing in this Section 4 shall be deemed to create any obligation of Walleye to the Holder to exercise or to refrain from exercising any right or remedy of Walleye under the Second Walleye Note or any other Transaction Document.
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4.3 All notices, requests, demands, and other communications provided for under this Section 4 must be in writing and delivered via e-mail addressed as follows:
If to the Holder:
Blue
Lake Partners, LLC
e-mail: craig@bluelakepartnersllc.com
If to Walleye:
Walleye Opportunities Master Fund Ltd
Attention: William England
e-mail: wengland@walleyecapital.com
or as to the Holder or Walleye, at such other address as shall be designated by such party to the other party in a written notice to the other party delivered in accordance with this Section 4.
SECTION 5. Miscellaneous.
5.1 Effect upon the Purchase Agreement and the Note. The terms and provisions set forth in this Agreement shall modify and supersede all inconsistent terms and provisions of the Purchase Agreement and the Note being amended hereby in effect prior to the Effective Date (including without limitation any such terms and provisions amended pursuant to Amendment #1 to the Note), and shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Purchase Agreement or the Note. Except as expressly modified hereby, all terms, conditions, covenants, contained in the Purchase Agreement and the Note, and all rights of the Holder and all of the obligations of the Company under the Purchase Agreement and the Note shall remain in full force and effect. Except as expressly set forth herein, the execution, delivery and effectiveness of this Agreement shall not directly or indirectly amend, modify or operate as a waiver of any provision of the Purchase Agreement or the Note or any right, power or remedy of the Holder.
5.2 Amendments.
(a) | Subject to Section 5.2(b) below, no provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and the Holder; provided, any subsequent amendments to Section 4.16 of the Note shall also require the written consent of each Offeree (as such term is defined in the Note, as amended hereby). | |
(b) | Notwithstanding anything to the contrary set forth herein, the provisions of Section 4 of this Agreement may be modified by a written instrument signed by the Holder, Mast Hill, Fourth Man and Walleye, and no other parties. |
5.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Holder. The Holder may assign any or all of its rights under this Agreement to any person to whom such Holder assigns or transfers any securities, provided that such transferee agrees in writing to be bound, with respect to the transferred securities, by the provisions of the Purchase Agreement and the Note that apply to such Holder.
5.4 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
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5.5 Governing Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
5.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which when so executed and delivered to the other party shall be deemed an original. The executed page(s) from each original may be joined together and attached to one such original and shall thereupon constitute one and the same instrument. Such counterparts may be delivered by facsimile or other electronic transmission, which shall not impair the validity thereof.
5.7 Effectiveness. Notwithstanding anything to the contrary set forth herein, the Parties agree that if the Company fails to disburse the Repayment Disbursements (as defined in Section 3.1 of this Agreement) by no later than one (1) business day following the date of issuance of the Second Walleye Note, this Agreement shall be null and void and be of no force or effect whatsoever.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above.
COMPANY: | ||
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
HOLDER: | ||
BLUE LAKE PARTNERS, LLC | ||
By: | /s/ Craig Kesselman | |
Name: | Craig Kesselman | |
Title: | Member |
Acknowledged and agreed by:
WALLEYE OPPORTUNITIES MASTER FUND LTD | ||
By: | /s/ William England | |
Name: | William England | |
Title: | Chief Executive Officer of the Manager | |
ARENA SPECIAL OPPORTUNITIES PARTNERS I, LP ARENA SPECIAL OPPORTUNITIES FUND, LP ARENA INVESTORS, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory | |
MAST HILL FUND, L.P. | ||
By: | /s/ Patrick Hassani | |
Name: | Patrick Hassani | |
Title: | Chief Investment Officer | |
FOURTH MAN, LLC | ||
By: | /s/ Ken Hall | |
Name: | Ken Hall | |
Title: | Manager |
[Signature Page to Amendment #2 to Promissory Note, Amendment to Securities Purchase Agreement, Consent and Waiver Agreement]
Exhibit 10.59
AMENDMENT #2 TO PROMISSORY NOTE,
AMENDMENT TO SECURITIES PURCHASE AGREEMENT,
CONSENT AND WAIVER AGREEMENT
This AMENDMENT #2 TO PROMISSORY NOTE, AMENDMENT TO SECURITIES PURCHASE AGREEMENT, CONSENT AND WAIVER AGREEMENT (this “Agreement”), is entered into as of February 27, 2023 (the “Effective Date”) by and between by and between CAN B̅ CORP., a Florida corporation (the “Company”), and Mast Hill Fund, L.P., a Delaware limited partnership (the “Holder”; and together with the Company, collectively the “Parties”).
BACKGROUND
A. The Company and the Holder are parties to that certain Securities Purchase Agreement dated as of March 22, 2022 by and between the Company and the Holder in its capacity as the buyer (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which the Company issued to the Holder, among other things, that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $350,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 5, 2023 by and between the Company and the Holder (“Amendment #1 to the Note”), pursuant to which, among other things, (i) the maturity date of the Note was extended to September 1, 2023 and (ii) the principal balance of the Note was increased by $17,500 (the “Increased Principal Portion”), and as further amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Note”).
B. The Company entered into that certain Securities Purchase Agreement dated as of August 30, 2022 by and between the Company and Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability (“Walleye”) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2022 Walleye Purchase Agreement”), pursuant to which the Company issued to Walleye (i) that certain Promissory Note in the original principal amount of $385,000 dated as of August 30, 2022 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Walleye Note”) and (ii) that certain Common Stock Purchase Warrant for the purchase of shares of the Company’s common stock (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Walleye Warrant”) (the “2022 Walleye Financing”).
C. The Company is seeking additional financing from Walleye (the “2023 Walleye Financing”) pursuant to a Securities Purchase Agreement dated on or about the date hereof by and between the Company and Walleye (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2023 Walleye Purchase Agreement”, and together with the 2022 Walleye Purchase Agreement, collectively, the “Walleye Purchase Agreements”), pursuant to which, among other things, (i) the Company plans to issue to Walleye (1) a further Promissory Note in the original principal amount of $1,823,529, on or about the date hereof (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Second Walleye Note”, and together with the First Walleye Note, collectively, the “Walleye Notes”, and each individually, a “Walleye Note”), which Second Walleye Note shall be secured pursuant to a pledge of certain collateral of the Company and certain of its subsidiaries (the “Revenue Sweep Subsidiaries”) pursuant to a Revenue Pledge and Security Agreement dated on or about the date hereof by and among the Company, certain subsidiaries of the Company and Walleye in its capacity as the secured party (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Walleye Revenue Pledge and Security Agreement”) and (2) a further Common Stock Purchase Warrant for the purchase of shares of the Company’s common stock (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Second Walleye Warrant”, and together with the First Walleye Warrant, collectively, the “Walleye Warrants”, and each individually, a “Walleye Warrant”) and (ii) the First Walleye Warrant shall be amended to modify certain provisions of the First Walleye Note concerning the exercise price of the First Walleye Warrant (the “First Walleye Warrant Amendment”).
D. Simultaneously with the 2023 Walleye Financing, the Company is entering into certain additional agreements with Arena Special Opportunities Partners I, LP, a Delaware limited partnership (“Arena Partners I”), Arena Special Opportunities Fund, LP, a Delaware limited partnership (“Arena Fund”, and together with Arena Partners I, collectively, the “Arena Purchasers”) and Arena Investors LP, a Delaware limited partnership, “Arena Investors”, and together with the Arena Purchasers, collectively, the “Arena Parties”) in connection with the Company’s obligations owing to the Arena Purchasers under (i) those certain Original Issue Discount Senior Secured Convertible Promissory Notes dated as of December 10, 2020 issued by the Company to the Arena Purchasers in the aggregate original principal amount of $2,777,778 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2020 Arena Notes”), (ii) those certain Original Issue Discount Senior Secured Convertible Promissory Notes dated as of May 17, 2021 issued by the Company to the Arena Purchasers in the aggregate original principal amount of $1,500,000 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2021 Arena Notes” and together with the 2020 Arena Note, the “Arena Notes”), (iii) that certain Letter Agreement, dated on or about the date hereof among Walleye, the Arena Parties, the Company and the Revenue Sweep Subsidiaries (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena-Walleye Intercreditor Agreement”) and (iv) that certain Forbearance Agreement dated on or about the date hereof by and among the Company, Duramed, Inc., a Nevada corporation, Duramed MI, LLC, a Nevada limited liability company (formerly known as DuramedNJ LLC), CO Botanicals LLC, a Nevada limited liability company, TN Botanicals, LLC, a Nevada limited liability company, Imbibe Wellness Solutions, LLC, a Nevada limited liability company (formerly known as Radical Tactical LLC), Imbibe Wellness Solutions II, LLC, a Nevada limited liability company , Pure Health Products LLC, a New York limited liability company, Green Grow Farms Inc., a New York corporation, PIVT Labs, LLC, a Nevada limited liability company (formerly known as NY Hemp Depot LLC), and Botanical Biotech LLC, a Nevada limited liability company and the Arena Parties (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena Forbearance Agreement”). As used herein, the term “Transaction Documents” shall mean, collectively, the Walleye Purchase Agreements, the Walleye Notes, the Walleye Warrants, the First Walleye Warrant Amendment, the Arena Notes, the Arena-Walleye Intercreditor Agreement, the Arena Forbearance Agreement and any other other documents, amendments or supplements delivered or executed by the Company or any of its affiliates or subsidiaries in connection therewith, each individually, a “Transaction Document”.
E. As a condition to the effectiveness of the Transactions (as defined below), Walleye and the Company have requested that Holder agree to certain amendments, consents and waivers with respect to certain provisions of the Note and the Purchase Agreement as described in further detail below, and the Holder has agreed to effect such amendments, consents and waivers subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements, provisions and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:
SECTION 1. Amendments to Purchase Agreement. The Purchase Agreement shall, effective as of the Effective Date, be amended in the manner provided in this Section 1.
1.1 Deletion of Section 4(d). Section 4(d) of the Purchase Agreement entitled “Right of Participation and First Refusal” shall be and it hereby is deleted in its entirety.
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1.2 Amendment and Restatement of Section 4(q). Section 4(q) of the Purchase Agreement shall be and it hereby is amended and restated to read in its entirety as follows:
“q. Subsequent Variable Rate Transactions. From the date hereof until such time as the Note is fully converted or fully repaid, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction without the prior written consent of the Buyer. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.”
SECTION 2. Amendments to Note. The Note (including for the avoidance of doubt any provisions of the Note amended pursuant to Amendment #1 to the Note) shall, effective as of the Effective Date, be amended in the manner provided in this Section 2.
2.1 Repayment of Increased Principal Portion. Notwithstanding anything to the contrary set forth in Amendment #1 to the Note, the Increased Principal Portion shall, together with the remaining outstanding principal balance of the Note, be due and payable at the Maturity Date (as extended pursuant to Amendment #1 to the Note), except as otherwise explicitly provided by any other terms or provisions of the Note (including without limitation any such other terms or provisions amended pursuant to this Agreement).
2.2 Amendment and Restatement of Section 1.10. Section 1.10 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“1.10 Repayment from Proceeds of Uplist Offering. If, at any time prior to the full repayment or full conversion of all amounts owed under this Note, the Company receives cash proceeds from the issuance of equity or debt (including but not limited to the Uplist Offering (as defined in this Note)), or the conversion of outstanding warrants of the Borrower, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of or publicly disclose such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply up to 33% of such proceeds (provided, however, that 33% shall be replaced with 100% with respect to the proceeds received by the Company pursuant to the Uplist Offering) to repay all or any portion of the outstanding Principal Amount and interest (including any Default Interest) then due under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. “Uplist Offering” shall mean an offering of Common Stock (or units consisting of Common Stock and warrants to purchase Common Stock) that will result in the immediate listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or any other national securities exchange (or any successors to any of the foregoing).”
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2.3 Amendment and Restatement of Section 2.1. Section 2.1 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“2.1 Ranking and Security. This Note shall have priority over all unsecured indebtedness of the Borrower, except that this Note shall be pari passu with respect to the March Notes. As used in this Note, the term “March Notes” shall mean, collectively, promissory note(s) issued by the Borrower in the principal amount of up to $1,250,000 in the aggregate (including this Note), so long as such promissory note(s) contain the same exact terms and conditions as contained in this Note.”
2.4 Amendment and Restatement of Section 3.15. Section 3.15 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“3.15 Variable Rate Transactions. The Borrower consummates a Variable Rate Transaction at any time on or after the Issue Date, without the prior written consent of the Holder.”
2.5 Amendment and Restatement of Section 4.16. Section 4.16 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“4.16 Right of First Refusal. If at any time while this Note is outstanding, the Company has a bona fide offer of capital or financing from any third party that the Company intends to act upon, then the Company must offer such opportunity on the same terms as such third party’s terms by providing written notice of the offer (an “Offer Notice”) concurrently to the Holder, Blue Lake Partners, LLC, a Delaware limited liability company (“Blue Lake”), Fourth Man, LLC, a Nevada limited liability company (“Fourth Man”), the Arena Entities, and Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability (“Walleye”), subject to the terms of this Section 4.16. As used in this Section 4.16, the term “Offerees” shall mean, collectively, (i) the Holder, (ii) Blue Lake, (iii) Fourth Man, (iv) the Arena Entities (jointly) and (v) Walleye, each individually an “Offeree”; provided for the avoidance of doubt that for purposes of this Section 4.16, the Arena Entities shall be considered to be a single Offeree. Within five (5) Business Days after receipt of an Offer Notice by any Offeree (the “Offer Response Period”), such Offeree shall notify the Company in writing (an “Offer Response Notice”) of such Offeree’s election to either (A) provide such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party) or (B) waive such Offeree’s right to provide such capital or financing to the Company on the same terms as such third party’s terms. If any Offeree fails to deliver an Offer Response Notice to the Company prior to the end of the Offer Response Period, time being of the essence, then such Offeree shall be deemed to have elected option (B) above. In the event (x) more than one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to Offer Response Notices sent by each such Offeree to the Company within the Offer Response Period, then each such Offeree shall provide a portion of such capital or financing to the Company pro rata in proportion to the respective ROFR Units (as defined below) of such Offerees, and in all other respects on the same terms as such third party’s terms, (y) only one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent by such Offeree to the Company within the Offer Response Period, then such Offeree shall provide (and none of the other Offerees shall have the right to provide) such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party), or (z) none of the Offerees elect to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, then the Company may obtain such capital or financing from such third party, provided the Company obtains such capital or financing from such third party upon the exact same terms and conditions set forth in the Offer Notice. If none of the Offerees elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, and the Company does not receive the capital or financing from such third party in accordance with the foregoing clause (z) within thirty (30) days after the date of the last Offer Notice, so long as this Note remains outstanding at such time, the Company must again offer the capital or financing opportunity on the same terms as such third party’s terms by providing written notice of the offer concurrently to each of the Offerees pursuant to a further Offer Notice as described above, and the process detailed above shall be repeated. All Offer Notices required to be sent to Holder under this Section 4.16 must be sent via electronic mail to patrick@masthillfund.com. For purposes of allocating the opportunity to provide the capital or financing to the Company on the same terms as the applicable third party’s terms to the applicable Offerees under clause (x) of the fourth sentence of this Section 4.16, the Offerees shall be and hereby are allocated units (with respect to each Offeree, such Offeree’s “ROFR Units”) representing the Offerees’ respective rights in connection with any such allocation of the opportunity, with such ROFR Units being allocated to the Offerees in the following amounts: (i) to the Holder, 367,500 ROFR Units, (ii) to Blue Lake, 262,500 ROFR Units, (iii) to Fourth Man, 156,525 ROFR Units, (iv) to the Arena Entities (as a single Offeree), 3,900,000 ROFR Units, and (v) to Walleye, 2,149,706 ROFR Units.”
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SECTION 3. Certain Consents and Waivers of the Holder.
3.1 Consent to Transactions; No Event of Default. Notwithstanding anything to the contrary contained in the Note or the Purchase Agreement, the Holder hereby (a) consents to (i) the incurrence by the Company of the indebtedness under the Walleye Notes and the Company’s execution and issuance of, and performance of its obligations under, the Walleye Notes, (ii) the repayment by the Company of any indebtedness owing to Walleye under the Walleye Notes in accordance with the terms of the Walleye Notes, (iii) the incurrence by each of the Revenue Sweep Subsidiaries of any indebtedness owing to Walleye pursuant to the Second Walleye Note and the Walleye Revenue Pledge and Security Agreement, (iv) the grant by each the Company and each of the Revenue Sweep Subsidiaries to Walleye of a security interest in, lien on and right of set-off against the collateral of such parties described in, and subject to the terms and conditions of, the Walleye Revenue Pledge and Security Agreement, (v) the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and performance of each of their obligations under and in connection with, the Walleye Revenue Pledge and Security Agreement, (vi) the Company’s execution and issuance of, and performance of its obligations under, the Walleye Warrants; and (v) the Company’s execution and issuance of, and performance of its obligations under, the Arena-Walleye Intercreditor Agreement and the Forbearance Agreement and/or any other Transaction Document (collectively, the “Transactions”) and (b) agrees that the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and the performance by the Company and each of the Revenue Sweep Subsidiaries of any of their respective obligations under the Walleye Notes, the Walleye Revenue Pledge and Security Agreement, the Walleye Warrants and/or any other Transaction Documents, as applicable, shall not constitute an Event of Default (under and as defined in the Note); provided, however, that the aforementioned consents are expressly conditional upon the Company disbursing, by no later than one (1) business day following the date of issuance of the Second Walleye Note, $200,000 of the purchase price being paid by Walleye for the Second Walleye Note as follows: (i) $93,333.33 to Holder (such amount being applied as a partial repayment of the Company’s obligations under the Note), (ii) $66,666.67 to Blue Lake, and (iii) $40,000.00 to Fourth Man (collectively, the “Repayment Disbursements”).
3.2 Certain Waivers.
(a) The Holder waives any and all rights of the Holder under Section 4.14 of the Note entitled “Terms of Future Financings” arising from the consummation of the 2022 Walleye Financing and/or the 2023 Walleye Financing, or the issuance and/or execution of any Transaction Documents by the Company and/or any of its subsidiaries in connection with the 2022 Walleye Financing and/or the 2023 Walleye Financing.
(b) The Holder waives any and all rights of the Holder under Section 4.16 of the Note entitled “Right of First Refusal” (as amended hereby) arising from the consummation of the Transactions or the issuance and/or execution of any Transaction Documents by the Company and/or any of its subsidiaries in connection with the 2022 Walleye Financing and/or the 2023 Walleye Financing.
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SECTION 4. Certain Covenants and Agreements Regarding Cash Payments of Second Walleye Note.
4.1 In consideration for Holder’s agreement to enter into this Agreement, Walleye agrees that, for so long as any obligations of the Company under the Note remain outstanding, upon Walleye’s receipt of any cash proceeds in respect of (i) any Installment Payment (as defined in the Second Walleye Note) that may become due and payable under the Second Walleye Note or (ii) any Monthly Revenue Sweep Payment (as defined in the Second Walleye Note) that may become due and payable under the Second Walleye Note (any such cash proceeds described in the foregoing clauses (i) and (ii), “Walleye Shared Cash Proceeds”), Walleye shall be required to share such Walleye Shared Cash Proceeds with the Holder and each of Blue Lake Partners, LLC, a Delaware limited liability company (“Blue Lake”), and Fourth Man, LLC, a Nevada limited liability company (“Fourth Man”, and together with the Holder, Blue Lake and Walleye, collectively, the “Walleye Cash Proceeds Participants”, and each individually, a “Walleye Cash Proceeds Participant”), with such Walleye Shared Cash Proceeds being split pro rata amongst each Walleye Cash Proceeds Participant in proportion to its respective Outstanding Note Obligations (as defined below) as of the date immediately prior to the date Walleye received such Walleye Shared Cash Proceeds. As used herein, the term “Outstanding Note Obligations” shall mean, as of any date of determination (i) with respect to the Holder, the total outstanding obligations of the Company owing to the Holder as of such date under the Note, (ii) with respect to Blue Lake, the total outstanding obligations of the Company owing to Blue Lake as of such date under that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $250,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 8, 2023 by and between the Company and Blue Lake), (iii) with respect to Fourth Man, the total outstanding obligations of the Company owing to Fourth Man as of such date under that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $150,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 8, 2023 by and between the Company and Fourth Man) and (iv) with respect to Walleye, the total outstanding obligations of the Company owing to Walleye under the Second Walleye Note as of such date. Upon Walleye’s receipt of any Walleye Shared Cash Proceeds, Walleye shall promptly notify the Holder and the other Walleye Cash Proceeds Participants in writing (a “Walleye Shared Cash Proceeds Notice”), which Walleye Shared Cash Proceeds Notice shall disclose (A) the amount of Walleye Shared Cash Proceeds received by Walleye, (B) the date such Walleye Shared Cash Proceeds were received by Walleye and (C) Walleye’s Outstanding Note Obligations as of the date immediately prior to the date such Walleye Shared Cash Proceeds were received by Walleye. Upon receipt by the Holder of a Walleye Shared Cash Proceeds Notice, the Holder shall cooperate and provide Walleye with such information reasonably requested by Walleye in order to effect the provisions of this Section 4, including without limitation, information as to the amount of the Holder’s Outstanding Note Obligations as of the date immediately prior to the date of any receipt by Walleye of any Walleye Shared Cash Proceeds.
4.2 For the avoidance of doubt, the Holder acknowledges that (i) any obligations of Walleye under this Section 4 shall solely exist in respect of Walleye Shared Cash Proceeds actually received in cash by Walleye, (ii) the Second Walleye Note may be converted by Walleye into capital stock of the Company in Walleye’s discretion subject to and in accordance with the terms and conditions of the Second Walleye Note and (iii) nothing in this Section 4 shall be deemed to create any obligation of Walleye to the Holder to exercise or to refrain from exercising any right or remedy of Walleye under the Second Walleye Note or any other Transaction Document.
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4.3 All notices, requests, demands, and other communications provided for under this Section 4 must be in writing and delivered via e-mail addressed as follows:
If to the Holder:
Mast Hill Fund, L.P.
e-mail: patrick@masthillfund.com
If to Walleye:
Walleye Opportunities Master Fund Ltd
Attention: William England
e-mail: wengland@walleyecapital.com
or as to the Holder or Walleye, at such other address as shall be designated by such party to the other party in a written notice to the other party delivered in accordance with this Section 4.
SECTION 5. Miscellaneous.
5.1 Effect upon the Purchase Agreement and the Note. The terms and provisions set forth in this Agreement shall modify and supersede all inconsistent terms and provisions of the Purchase Agreement and the Note being amended hereby in effect prior to the Effective Date (including without limitation any such terms and provisions amended pursuant to Amendment #1 to the Note), and shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Purchase Agreement or the Note. Except as expressly modified hereby, all terms, conditions, covenants, contained in the Purchase Agreement and the Note, and all rights of the Holder and all of the obligations of the Company under the Purchase Agreement and the Note shall remain in full force and effect. Except as expressly set forth herein, the execution, delivery and effectiveness of this Agreement shall not directly or indirectly amend, modify or operate as a waiver of any provision of the Purchase Agreement or the Note or any right, power or remedy of the Holder.
5.2 Amendments.
(a) | Subject to Section 5.2(b) below, no provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and the Holder; provided, any subsequent amendments to Section 4.16 of the Note shall also require the written consent of each Offeree (as such term is defined in the Note, as amended hereby). | |
(b) | Notwithstanding anything to the contrary set forth herein, the provisions of Section 4 of this Agreement may be modified by a written instrument signed by the Holder, Blue Lake, Fourth Man and Walleye, and no other parties. |
5.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Holder. The Holder may assign any or all of its rights under this Agreement to any person to whom such Holder assigns or transfers any securities, provided that such transferee agrees in writing to be bound, with respect to the transferred securities, by the provisions of the Purchase Agreement and the Note that apply to such Holder.
5.4 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
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5.5 Governing Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
5.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which when so executed and delivered to the other party shall be deemed an original. The executed page(s) from each original may be joined together and attached to one such original and shall thereupon constitute one and the same instrument. Such counterparts may be delivered by facsimile or other electronic transmission, which shall not impair the validity thereof.
5.7 Effectiveness. Notwithstanding anything to the contrary set forth herein, the Parties agree that if the Company fails to disburse the Repayment Disbursements (as defined in Section 3.1 of this Agreement) by no later than one (1) business day following the date of issuance of the Second Walleye Note, this Agreement shall be null and void and be of no force or effect whatsoever.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above.
COMPANY: | ||
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
HOLDER: | ||
MAST HILL FUND, L.P. | ||
By: | /s/ Patrick Hassani | |
Name: | Patrick Hassani | |
Title: | Chief Investment Officer |
Acknowledged and agreed by: | ||
WALLEYE OPPORTUNITIES MASTER FUND LTD | ||
By: | /s/ William England | |
Name: | William England | |
Title : | Chief Executive Officer of the Manager |
ARENA SPECIAL OPPORTUNITIES PARTNERS I, LP | ||
ARENA SPECIAL OPPORTUNITIES FUND, LP | ||
ARENA INVESTORS, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory | |
BLUE LAKE PARTNERS, LLC | ||
By: | /s/ Craig Kesselman | |
Name: | Craig Kesselman | |
Title: | Member | |
FOURTH MAN, LLC | ||
By: | /s/ Ken Hall | |
Name: | Ken Hall | |
Title: | Manager |
[Signature Page to Amendment #2 to Promissory Note, Amendment to Securities Purchase Agreement, Consent and Waiver Agreement]
Exhibit 10.60
AMENDMENT #2 TO PROMISSORY NOTE,
AMENDMENT TO SECURITIES PURCHASE AGREEMENT,
CONSENT AND WAIVER AGREEMENT
This AMENDMENT #2 TO PROMISSORY NOTE, AMENDMENT TO SECURITIES PURCHASE AGREEMENT, CONSENT AND WAIVER AGREEMENT (this “Agreement”), is entered into as of February 27, 2023 (the “Effective Date”) by and between by and between CAN B̅ CORP., a Florida corporation (the “Company”), and Fourth Man, LLC, a Nevada limited liability company (the “Holder”; and together with the Company, collectively the “Parties”).
BACKGROUND
A. The Company and the Holder are parties to that certain Securities Purchase Agreement dated as of March 22, 2022 by and between the Company and the Holder in its capacity as the buyer (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”), pursuant to which the Company issued to the Holder, among other things, that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $150,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 8, 2023 by and between the Company and the Holder (“Amendment #1 to the Note”), pursuant to which, among other things, (i) the maturity date of the Note was extended to September 1, 2023 and (ii) the principal balance of the Note was increased by $6,525 (the “Increased Principal Portion”), and as further amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Note”).
B. The Company entered into that certain Securities Purchase Agreement dated as of August 30, 2022 by and between the Company and Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability (“Walleye”) (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2022 Walleye Purchase Agreement”), pursuant to which the Company issued to Walleye (i) that certain Promissory Note in the original principal amount of $385,000 dated as of August 30, 2022 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Walleye Note”) and (ii) that certain Common Stock Purchase Warrant for the purchase of shares of the Company’s common stock (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “First Walleye Warrant”) (the “2022 Walleye Financing”).
C. The Company is seeking additional financing from Walleye (the “2023 Walleye Financing”) pursuant to a Securities Purchase Agreement dated on or about the date hereof by and between the Company and Walleye (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2023 Walleye Purchase Agreement”, and together with the 2022 Walleye Purchase Agreement, collectively, the “Walleye Purchase Agreements”), pursuant to which, among other things, (i) the Company plans to issue to Walleye (1) a further Promissory Note in the original principal amount of $1,823,529 on or about the date hereof (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Second Walleye Note”, and together with the First Walleye Note, collectively, the “Walleye Notes”, and each individually, a “Walleye Note”), which Second Walleye Note shall be secured pursuant to a pledge of certain collateral of the Company and certain of its subsidiaries (the “Revenue Sweep Subsidiaries”) pursuant to a Revenue Pledge and Security Agreement dated on or about the date hereof by and among the Company, certain subsidiaries of the Company and Walleye in its capacity as the secured party (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Walleye Revenue Pledge and Security Agreement”) and (2) a further Common Stock Purchase Warrant for the purchase of shares of the Company’s common stock (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Second Walleye Warrant”, and together with the First Walleye Warrant, collectively, the “Walleye Warrants”, and each individually, a “Walleye Warrant”) and (ii) the First Walleye Warrant shall be amended to modify certain provisions of the First Walleye Note concerning the exercise price of the First Walleye Warrant (the “First Walleye Warrant Amendment”).
D. Simultaneously with the 2023 Walleye Financing, the Company is entering into certain additional agreements with Arena Special Opportunities Partners I, LP, a Delaware limited partnership (“Arena Partners I”), Arena Special Opportunities Fund, LP, a Delaware limited partnership (“Arena Fund”, and together with Arena Partners I, collectively, the “Arena Purchasers”) and Arena Investors LP, a Delaware limited partnership, “Arena Investors”, and together with the Arena Purchasers, collectively, the “Arena Parties”) in connection with the Company’s obligations owing to the Arena Purchasers under (i) those certain Original Issue Discount Senior Secured Convertible Promissory Notes dated as of December 10, 2020 issued by the Company to the Arena Purchasers in the aggregate original principal amount of $2,777,778 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2020 Arena Notes”), (ii) those certain Original Issue Discount Senior Secured Convertible Promissory Notes dated as of May 17, 2021 issued by the Company to the Arena Purchasers in the aggregate original principal amount of $1,500,000 (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “2021 Arena Notes” and together with the 2020 Arena Note, the “Arena Notes”), (iii) that certain Letter Agreement, dated on or about the date hereof among Walleye, the Arena Parties, the Company and the Revenue Sweep Subsidiaries (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena-Walleye Intercreditor Agreement”) and (iv) that certain Forbearance Agreement dated on or about the date hereof by and among the Company, Duramed, Inc., a Nevada corporation, Duramed MI, LLC, a Nevada limited liability company (formerly known as DuramedNJ LLC), CO Botanicals LLC, a Nevada limited liability company, TN Botanicals, LLC, a Nevada limited liability company, Imbibe Wellness Solutions, LLC, a Nevada limited liability company (formerly known as Radical Tactical LLC), Imbibe Wellness Solutions II, LLC, a Nevada limited liability company , Pure Health Products LLC, a New York limited liability company, Green Grow Farms Inc., a New York corporation, PIVT Labs, LLC, a Nevada limited liability company (formerly known as NY Hemp Depot LLC), and Botanical Biotech LLC, a Nevada limited liability company and the Arena Parties (as amended, restated, amended and restated, supplemented or otherwise modified from time to time, the “Arena Forbearance Agreement”). As used herein, the term “Transaction Documents” shall mean, collectively, the Walleye Purchase Agreements, the Walleye Notes, the Walleye Warrants, the First Walleye Warrant Amendment, the Arena Notes, the Arena-Walleye Intercreditor Agreement, the Arena Forbearance Agreement and any other other documents, amendments or supplements delivered or executed by the Company or any of its affiliates or subsidiaries in connection therewith, each individually, a “Transaction Document”.
E. As a condition to the effectiveness of the Transactions (as defined below), Walleye and the Company have requested that Holder agree to certain amendments, consents and waivers with respect to certain provisions of the Note and the Purchase Agreement as described in further detail below, and the Holder has agreed to effect such amendments, consents and waivers subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual agreements, provisions and covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound, the Parties agree as follows:
SECTION 1. Amendments to Purchase Agreement. The Purchase Agreement shall, effective as of the Effective Date, be amended in the manner provided in this Section 1.
1.1 Deletion of Section 4(d). Section 4(d) of the Purchase Agreement entitled “Right of Participation and First Refusal” shall be and it hereby is deleted in its entirety.
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1.2 Amendment and Restatement of Section 4(q). Section 4(q) of the Purchase Agreement shall be and it hereby is amended and restated to read in its entirety as follows:
“q. Subsequent Variable Rate Transactions. From the date hereof until such time as the Note is fully converted or fully repaid, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction without the prior written consent of the Buyer. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. The Buyer shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.”
SECTION 2. Amendments to Note. The Note (including for the avoidance of doubt any provisions of the Note amended pursuant to Amendment #1 to the Note) shall, effective as of the Effective Date, be amended in the manner provided in this Section 2.
2.1 Repayment of Increased Principal Portion. Notwithstanding anything to the contrary set forth in Amendment #1 to the Note, the Increased Principal Portion shall, together with the remaining outstanding principal balance of the Note, be due and payable at the Maturity Date (as extended pursuant to Amendment #1 to the Note), except as otherwise explicitly provided by any other terms or provisions of the Note (including without limitation any such other terms or provisions amended pursuant to this Agreement).
2.2 Amendment and Restatement of Section 1.10. Section 1.10 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“1.10 Repayment from Proceeds of Uplist Offering. If, at any time prior to the full repayment or full conversion of all amounts owed under this Note, the Company receives cash proceeds from the issuance of equity or debt (including but not limited to the Uplist Offering (as defined in this Note)), or the conversion of outstanding warrants of the Borrower, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of or publicly disclose such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply up to 33% of such proceeds (provided, however, that 33% shall be replaced with 100% with respect to the proceeds received by the Company pursuant to the Uplist Offering) to repay all or any portion of the outstanding Principal Amount and interest (including any Default Interest) then due under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. “Uplist Offering” shall mean an offering of Common Stock (or units consisting of Common Stock and warrants to purchase Common Stock) that will result in the immediate listing for trading of the Common Stock on the NYSE American, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange, or any other national securities exchange (or any successors to any of the foregoing).”
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2.3 Amendment and Restatement of Section 2.1. Section 2.1 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“2.1 Ranking and Security. This Note shall have priority over all unsecured indebtedness of the Borrower, except that this Note shall be pari passu with respect to the March Notes. As used in this Note, the term “March Notes” shall mean, collectively, promissory note(s) issued by the Borrower in the principal amount of up to $1,250,000 in the aggregate (including this Note), so long as such promissory note(s) contain the same exact terms and conditions as contained in this Note.”
2.4 Amendment and Restatement of Section 3.15. Section 3.15 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“3.15 Variable Rate Transactions. The Borrower consummates a Variable Rate Transaction at any time on or after the Issue Date, without the prior written consent of the Holder.”
2.5 Amendment and Restatement of Section 4.16. Section 4.16 of the Note shall be and it hereby is amended and restated to read in its entirety as follows:
“4.16 Right of First Refusal. If at any time while this Note is outstanding, the Company has a bona fide offer of capital or financing from any third party that the Company intends to act upon, then the Company must offer such opportunity on the same terms as such third party’s terms by providing written notice of the offer (an “Offer Notice”) concurrently to the Holder, Mast Hill Fund, L.P., a Delaware limited partnership (“Mast Hill”), Blue Lake Partners, LLC a Delaware limited liability company (“Blue Lake”), the Arena Entities, and Walleye Opportunities Master Fund Ltd, a Cayman Islands exempted company with limited liability (“Walleye”), subject to the terms of this Section 4.16. As used in this Section 4.16, the term “Offerees” shall mean, collectively, (i) the Holder, (ii) Mast Hill, (iii) Blue Lake, (iv) the Arena Entities (jointly) and (v) Walleye, each individually an “Offeree”; provided for the avoidance of doubt that for purposes of this Section 4.16, the Arena Entities shall be considered to be a single Offeree. Within five (5) Business Days after receipt of an Offer Notice by any Offeree (the “Offer Response Period”), such Offeree shall notify the Company in writing (an “Offer Response Notice”) of such Offeree’s election to either (A) provide such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party) or (B) waive such Offeree’s right to provide such capital or financing to the Company on the same terms as such third party’s terms. If any Offeree fails to deliver an Offer Response Notice to the Company prior to the end of the Offer Response Period, time being of the essence, then such Offeree shall be deemed to have elected option (B) above. In the event (x) more than one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to Offer Response Notices sent by each such Offeree to the Company within the Offer Response Period, then each such Offeree shall provide a portion of such capital or financing to the Company pro rata in proportion to the respective ROFR Units (as defined below) of such Offerees, and in all other respects on the same terms as such third party’s terms, (y) only one Offeree elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent by such Offeree to the Company within the Offer Response Period, then such Offeree shall provide (and none of the other Offerees shall have the right to provide) such capital or financing to the Company on the same terms as such third party’s terms (including without limitation matching the aggregate principal amount of such capital or financing proposed to be provided to the Company by such third party), or (z) none of the Offerees elect to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, then the Company may obtain such capital or financing from such third party, provided the Company obtains such capital or financing from such third party upon the exact same terms and conditions set forth in the Offer Notice. If none of the Offerees elects to provide such capital or financing to the Company on the same terms as such third party’s terms pursuant to an Offer Response Notice sent to the Company within the Offer Response Period, and the Company does not receive the capital or financing from such third party in accordance with the foregoing clause (z) within thirty (30) days after the date of the last Offer Notice, so long as this Note remains outstanding at such time, the Company must again offer the capital or financing opportunity on the same terms as such third party’s terms by providing written notice of the offer concurrently to each of the Offerees pursuant to a further Offer Notice as described above, and the process detailed above shall be repeated. All Offer Notices required to be sent to Holder under this Section 4.16 must be sent via electronic mail to ed@fourth-man.com. For purposes of allocating the opportunity to provide the capital or financing to the Company on the same terms as the applicable third party’s terms to the applicable Offerees under clause (x) of the fourth sentence of this Section 4.16, the Offerees shall be and hereby are allocated units (with respect to each Offeree, such Offeree’s “ROFR Units”) representing the Offerees’ respective rights in connection with any such allocation of the opportunity, with such ROFR Units being allocated to the Offerees in the following amounts: (i) to the Holder, 156,525 ROFR Units, (ii) to Mast Hill, 367,500 ROFR Units, (iii) to Blue Lake, 262,500 ROFR Units, (iv) to the Arena Entities (as a single Offeree), 3,900,000 ROFR Units, and (v) to Walleye, 2,149,706 ROFR Units.”
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SECTION 3. Certain Consents and Waivers of the Holder.
3.1 Consent to Transactions; No Event of Default. Notwithstanding anything to the contrary contained in the Note or the Purchase Agreement, the Holder hereby (a) consents to (i) the incurrence by the Company of the indebtedness under the Walleye Notes and the Company’s execution and issuance of, and performance of its obligations under, the Walleye Notes, (ii) the repayment by the Company of any indebtedness owing to Walleye under the Walleye Notes in accordance with the terms of the Walleye Notes, (iii) the incurrence by each of the Revenue Sweep Subsidiaries of any indebtedness owing to Walleye pursuant to the Second Walleye Note and the Walleye Revenue Pledge and Security Agreement, (iv) the grant by each the Company and each of the Revenue Sweep Subsidiaries to Walleye of a security interest in, lien on and right of set-off against the collateral of such parties described in, and subject to the terms and conditions of, the Walleye Revenue Pledge and Security Agreement, (v) the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and performance of each of their obligations under and in connection with, the Walleye Revenue Pledge and Security Agreement, (vi) the Company’s execution and issuance of, and performance of its obligations under, the Walleye Warrants; and (v) the Company’s execution and issuance of, and performance of its obligations under, the Arena-Walleye Intercreditor Agreement and the Forbearance Agreement and/or any other Transaction Document (collectively, the “Transactions”) and (b) agrees that the Company’s and each of the Revenue Sweep Subsidiaries’ execution and issuance of, and the performance by the Company and each of the Revenue Sweep Subsidiaries of any of their respective obligations under the Walleye Notes, the Walleye Revenue Pledge and Security Agreement, the Walleye Warrants and/or any other Transaction Documents, as applicable, shall not constitute an Event of Default (under and as defined in the Note), provided, however, that the aforementioned consents are expressly conditional upon the Company disbursing, by no later than one (1) business day following the date of issuance of the Second Walleye Note, $200,000 of the purchase price being paid by Walleye for the Second Walleye Note as follows: (i) $40,000.00 to Holder (such amount being applied as a partial repayment of the Company’s obligations under the Note), (ii) $66,666.67 to Blue Lake, and (iii) $93,333.33 to Mast Hill. (the disbursements described in the foregoing clauses (1), (2) and (3), the “Repayment Disbursements”).
3.2 Certain Waivers.
(a) The Holder waives any and all rights of the Holder under Section 4.14 of the Note entitled “Terms of Future Financings” arising from the consummation of the 2022 Walleye Financing and/or the 2023 Walleye Financing, or the issuance and/or execution of any Transaction Documents by the Company and/or any of its subsidiaries in connection with the 2022 Walleye Financing and/or the 2023 Walleye Financing.
(b) The Holder waives any and all rights of the Holder under Section 4.16 of the Note entitled “Right of First Refusal” (as amended hereby) arising from the consummation of the Transactions or the issuance and/or execution of any Transaction Documents by the Company and/or any of its subsidiaries in connection with the 2022 Walleye Financing and/or the 2023 Walleye Financing.
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SECTION 4. Certain Covenants and Agreements Regarding Cash Payments of Second Walleye Note.
4.1 In consideration for Holder’s agreement to enter into this Agreement, Walleye agrees that, for so long as any obligations of the Company under the Note remain outstanding, upon Walleye’s receipt of any cash proceeds in respect of (i) any Installment Payment (as defined in the Second Walleye Note) that may become due and payable under the Second Walleye Note or (ii) any Monthly Revenue Sweep Payment (as defined in the Second Walleye Note) that may become due and payable under the Second Walleye Note (any such cash proceeds described in the foregoing clauses (i) and (ii), “Walleye Shared Cash Proceeds”), Walleye shall be required to share such Walleye Shared Cash Proceeds with the Holder and each of Mast Hill Fund, L.P., a Delaware limited partnership (“Mast Hill”), and Blue Lake Partners, LLC, a Delaware limited liability company (“Blue Lake”, and together with the Holder, Mast Hill and Walleye, collectively, the “Walleye Cash Proceeds Participants”, and each individually, a “Walleye Cash Proceeds Participant”), with such Walleye Shared Cash Proceeds being split pro rata amongst each Walleye Cash Proceeds Participant in proportion to its respective Outstanding Note Obligations (as defined below) as of the date immediately prior to the date Walleye received such Walleye Shared Cash Proceeds. As used herein, the term “Outstanding Note Obligations” shall mean, as of any date of determination (i) with respect to the Holder, the total outstanding obligations of the Company owing to the Holder as of such date under the Note, (ii) with respect to Mast Hill, the total outstanding obligations of the Company owing to Mast Hill as of such date under that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $350,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 5, 2023 by and between the Company and Mast Hill), (iii) with respect to Blue Lake, the total outstanding obligations of the Company owing to Blue Lake as of such date under that certain Promissory Note dated as of March 22, 2022 in the original principal amount of $250,000 (as amended by that certain Amendment #1 to the Promissory Note Issued on March 22, 2022, dated as of February 8, 2023 by and between the Company and Blue Lake) and (iv) with respect to Walleye, the total outstanding obligations of the Company owing to Walleye under the Second Walleye Note as of such date. Upon Walleye’s receipt of any Walleye Shared Cash Proceeds, Walleye shall promptly notify the Holder and the other Walleye Cash Proceeds Participants in writing (a “Walleye Shared Cash Proceeds Notice”), which Walleye Shared Cash Proceeds Notice shall disclose (A) the amount of Walleye Shared Cash Proceeds received by Walleye, (B) the date such Walleye Shared Cash Proceeds were received by Walleye and (C) Walleye’s Outstanding Note Obligations as of the date immediately prior to the date such Walleye Shared Cash Proceeds were received by Walleye. Upon receipt by the Holder of a Walleye Shared Cash Proceeds Notice, the Holder shall cooperate and provide Walleye with such information reasonably requested by Walleye in order to effect the provisions of this Section 4, including without limitation, information as to the amount of the Holder’s Outstanding Note Obligations as of the date immediately prior to the date of any receipt by Walleye of any Walleye Shared Cash Proceeds.
4.2 For the avoidance of doubt, the Holder acknowledges that (i) any obligations of Walleye under this Section 4 shall solely exist in respect of Walleye Shared Cash Proceeds actually received in cash by Walleye, (ii) the Second Walleye Note may be converted by Walleye into capital stock of the Company in Walleye’s discretion subject to and in accordance with the terms and conditions of the Second Walleye Note and (iii) nothing in this Section 4 shall be deemed to create any obligation of Walleye to the Holder to exercise or to refrain from exercising any right or remedy of Walleye under the Second Walleye Note or any other Transaction Document.
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4.3 All notices, requests, demands, and other communications provided for under this Section 4 must be in writing and delivered via e-mail addressed as follows:
If to the Holder:
Fourth Man, LLC
e-mail: ed@fourth-man.com
If to Walleye:
Walleye Opportunities Master Fund Ltd
Attention: William England
e-mail: wengland@walleyecapital.com
or as to the Holder or Walleye, at such other address as shall be designated by such party to the other party in a written notice to the other party delivered in accordance with this Section 4.
SECTION 5. Miscellaneous.
5.1 Effect upon the Purchase Agreement and the Note. The terms and provisions set forth in this Agreement shall modify and supersede all inconsistent terms and provisions of the Purchase Agreement and the Note being amended hereby in effect prior to the Effective Date (including without limitation any such terms and provisions amended pursuant to Amendment #1 to the Note), and shall not be deemed to be a consent to the modification or waiver of any other term or condition of the Purchase Agreement or the Note. Except as expressly modified hereby, all terms, conditions, covenants, contained in the Purchase Agreement and the Note, and all rights of the Holder and all of the obligations of the Company under the Purchase Agreement and the Note shall remain in full force and effect. Except as expressly set forth herein, the execution, delivery and effectiveness of this Agreement shall not directly or indirectly amend, modify or operate as a waiver of any provision of the Purchase Agreement or the Note or any right, power or remedy of the Holder.
5.2 Amendments.
(a) | Subject to Section 5.2(b) below, no provision of this Agreement may be waived, modified, supplemented or amended except in a written instrument signed by the Company and the Holder; provided, any subsequent amendments to Section 4.16 of the Note shall also require the written consent of each Offeree (as such term is defined in the Note, as amended hereby). | |
(b) | Notwithstanding anything to the contrary set forth herein, the provisions of Section 4 of this Agreement may be modified by a written instrument signed by the Holder, Mast Hill, Blue Lake and Walleye, and no other parties. |
5.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Holder. The Holder may assign any or all of its rights under this Agreement to any person to whom such Holder assigns or transfers any securities, provided that such transferee agrees in writing to be bound, with respect to the transferred securities, by the provisions of the Purchase Agreement and the Note that apply to such Holder.
5.4 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
7 |
5.5 Governing Law; Venue. This Agreement will be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to that body of laws pertaining to conflict of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the Court of Chancery of the State of Delaware or, to the extent such court does not have subject matter jurisdiction, the United States District Court for the District of Delaware or, to the extent that neither of the foregoing courts has jurisdiction, the Superior Court of the State of Delaware. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
5.6 Counterparts. This Agreement may be executed in two or more counterparts, each of which when so executed and delivered to the other party shall be deemed an original. The executed page(s) from each original may be joined together and attached to one such original and shall thereupon constitute one and the same instrument. Such counterparts may be delivered by facsimile or other electronic transmission, which shall not impair the validity thereof.
5.7 Effectiveness. Notwithstanding anything to the contrary set forth herein, the Parties agree that if the Company fails to disburse the Repayment Disbursements (as defined in Section 3.1 of this Agreement) by no later than one (1) business day following the date of issuance of the Second Walleye Note, this Agreement shall be null and void and be of no force or effect whatsoever.
[Signature Pages Follow]
8 |
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed as of the date first written above.
COMPANY: | ||
CAN B̅ CORP. | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Title: | Chief Executive Officer | |
HOLDER: | ||
FOURTH MAN, LLC | ||
By: | /s/ Ken Hall | |
Name: | Ken Hall | |
Title: | Manager |
Acknowledged and agreed by: | ||
WALLEYE OPPORTUNITIES MASTER FUND LTD | ||
By: | /s/ William England | |
Name: | William England | |
Title: | Chief Executive Officer of the Manager |
ARENA SPECIAL OPPORTUNITIES PARTNERS I, LP | ||
ARENA SPECIAL OPPORTUNITIES FUND, LP | ||
ARENA INVESTORS, LP | ||
By: | /s/ Lawrence Cutler | |
Name: | Lawrence Cutler | |
Title: | Authorized Signatory |
MAST HILL FUND, L.P. | ||
By: | /s/ Patrick Hassani | |
Name: | Patrick Hassani | |
Title: | Chief Investment Officer |
BLUE LAKE PARTNERS, LLC | ||
By: | /s/ Craig Kesselman | |
Name: | Craig Kesselman | |
Title: | Member |
EXHIBIT 31.1
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION
I, Marco Alfonsi, certify that:
1. I have reviewed this Annual Report on Form 10-K of Can B Corp. for the year ended December 31, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 17, 2023 | ||
By: | /s/ Marco Alfonsi | |
Name: | Marco Alfonsi | |
Its: | Chief Executive Officer (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATIONS PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002 CERTIFICATION
I, Stanley Teeple, certify that:
1. I have reviewed this Annual Report on Form 10-K of Can B Corp. for the year ended December 31, 2022;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: April 17, 2023 | ||
By: | /s/ Stanley Teeple | |
Name: | Stanley Teeple | |
Its: | Chief Financial Officer (Principal Financial Officer) |
EXHIBIT 32.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Can B Corp. (the “Company”), does hereby certify, to such officer’s knowledge, that:
The Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: April 17, 2023 | /s/ Marco Alfonsi |
Chief Executive Officer | |
Dated: April 17, 2023 | /s/ Stanley Teeple |
Chief Financial Officer |
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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