Item 5.02 Departure of Directors or Certain Officers; Election
of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
The descriptions of the Acquisition, the
Purchase Agreement and the Voting Agreement set forth in Item 2.01 above are incorporated by reference into this Item 5.02.
Effective as of the Closing of the Acquisition
on May 31, 2019, Richard Segerblom and Richard Groberg resigned from the Board of Directors of the Company (the “
Board
”)
and the Board appointed Carlos Frias and Ngoc Quang (Daniel) Nguyen to serve as directors on the Board to fill the vacancies created
by the resignations of Mr. Segerblom and Mr. Groberg. As of May 31, 2019, after the Closing of the Acquisition, the Board consists
of six persons: Clifford J. Perry, Raymond Medeiros, David Goldburg, David Vautrin, Carlos Frias and Daniel Nguyen.
Additionally, effective as of the Closing
of the Acquisition on May 31, 2019, Clifford J. Perry resigned as Chief Executive Officer of the Company. Mr. Perry will continue
to be employed at the Company in the position of Director of Corporate Development. Additionally, effective as of the Closing of
the Acquisition on May 31, 2019, the Board appointed Carlos Frias to serve as the Chief Executive Officer of the Company and Daniel
Nguyen to serve as the Chief Scientific Officer of the Company.
Mr. Frias, age 38, joined the Company in
May 2019 effective as of the Closing of the Acquisition. A Marine Corps veteran, Mr. Frias co-founded and served as the CEO of
Green Lotus™, a premium hemp oil brand that manufactures and distributes hemp-derived products both nationally and internationally.
Mr. Frias has been a leader in the cannabis industry for 16 years, particularly in the medical cannabis market -- founding an investment
fund and a non-profit in Texas and California, respectively.
Mr. Nguyen, age 40, joined the Company
in May 2019 effective as of the Closing of the Acquisition, bringing with him a combined 19 years of experience in pharmaceuticals,
nutraceuticals, and cosmetics. In October 2017, Mr. Nguyen was appointed CSO of Green Lotus™, where he oversaw compounding
and production for the international premium hemp oil brand. Mr. Nguyen has also worked as a research chemist and chemical compounder,
including positions at Access Pharmaceuticals and Fruit of the Earth.
In connection with Mr. Frias’ appointment
as Chief Executive Officer and a director of the Company, the Board approved an Employment Agreement, effective as of the Closing
of the Acquisition, by and between the Company and Carlos Frias. Under the terms of the agreement, the Company agreed to pay Mr.
Frias an annual base salary of $130,000 for a term of two years. Subject to Mr. Frias’ continued provision of services to
the Company, the agreement also provides for cash incentives of $2,400,000 and equity incentives of $10,738,750 of the Company’s
restricted common stock, at a share price equal to the VWAP of the Company’s common stock for the 30 trading days prior to
its award. The agreement also contains provisions for further cash and equity incentive awards to be determined based upon the
net operating income (as defined in the employment agreement) received by the Company in the twelve months after the Closing Date
pursuant to a Master Manufacturing Agreement, dated as of November 13, 2017, by and between ECS and CBD LIFE SA DE CV (as amended,
restated, modified or supplemented from time to time, the “
Master Agreement
”). Subject to Mr. Frias’ continued
provision of services to the Company, Mr. Frias will receive a cash incentive award equal to 15 percent of such net operating income
and an equity incentive award of the Company’s common stock equal to 25 percent of such net operating income, at a share
price based on the VWAP of the Company’s common stock for the thirty trading days prior to its award. The agreement is terminable
for cause, death or disability.
In connection with Mr. Nguyen’s appointment
as Chief Scientific Officer and as a director of the Company, the Board approved an Employment Agreement, effective as of the Closing
of the Acquisition, by and between the Company and Mr. Nguyen. Under the terms of the agreement, the Company agreed to pay Mr.
Nguyen an annual base salary of $100,000 for a term of two years. Subject to Mr. Nguyen’s continued provision of services
to the Company, the agreement also provides for cash incentives of $2,000,000 and equity incentives of $8,938,750 of the Company’s
restricted common stock, at a share price equal to the VWAP of the Company’s common stock for the 30 trading days prior to
its award. The agreement also contains provisions for further cash and equity incentive awards to be determined based upon the
net operating income (as defined in the employment agreement) received by the Company in the twelve months after the Closing Date
pursuant to the Master Agreement. Subject to Mr. Nguyen’s continued provision of services to the Company, Mr. Nguyen will
receive a cash incentive award equal to 12.49875 percent of such net operating income and an equity incentive award of the Company’s
common stock equal to 20.83125 percent of such net operating income, at a share price based on the VWAP of the Company’s
common stock for the thirty trading days prior to its award. The agreement is terminable for cause, death or disability.
In connection with Clifford J. Perry’s
engagement as Director of Corporate Development, the Board approved an Employment Agreement, dated May 31, 2019, by and between
the Company and Clifford J. Perry. Under the terms of the agreement, the Company agreed to pay Clifford J. Perry and annual base
salary of $115,000 for a term of two years. The agreement is terminable for cause, death or disability.
In connection with Raymond Medeiros’
engagement as Director of Business Development, the Board approved an Employment Agreement, dated May 31, 2019, by and between
the Company and Raymond Medeiros. Under the terms of this agreement, the Company agreed to pay Raymond Medeiros and annual base
salary of $100,000 for a term of two years. The agreement is terminable for cause, death or disability.
In connection with Alex Frias’ engagement
as an employee of the Company, the Board approved an Employment Agreement, effective as of the Closing of the Acquisition, by and
between the Company and Alex Frias. Under the terms of the agreement, the Company agreed to pay Alex Frias an annual base salary
of $100,000 for a term of two years. Subject to Alex Frias’ continued provision of services to the Company, the agreement
also provides for cash incentives of $1,600,000 and equity incentives of $7,138,750 of the Company’s restricted common stock,
at a share price equal to the VWAP of the Company’s common stock for the 30 days prior to its award. The agreement also contains
provisions for further cash and equity incentive awards to be determined based upon the net operating income (as defined in the
employment agreement) received by the Company in the twelve months after the Closing Date pursuant to the Master Agreement. Subject
to Mr. Frias’ continued provision of services to the Company, Mr. Frias will receive a cash incentive award equal to 10.00125
percent of such net operating income and an equity incentive award consisting of the Company’s common stock equal to 16.66875
percent of such net operating income, at a share price based on the VWAP of the Company’s common stock for the thirty trading
days prior to its award. The agreement is terminable for cause, death or disability.
Effective as of the Closing of the Acquisition
on May 31, 2019, Laurence Ruhe resigned as the Chief Financial Officer of the Company. Mr. Ruhe’s responsibilities will be
assumed on an interim basis by John Kalkanian, who has spent the past two years with Origin House as a Divisional Controller and
Director of Finance. Mr. Kalkanian has been a CFO and Controller for both public and private companies over the past 25 years and
received his MBA from the University of California, Irvine and his BA in Economics from the University of Michigan. After the Closing
of the Acquisition, the Company’s CFO and finance team will be transitioned to Dallas, and the Company has begun the process
of actively recruiting a Dallas-based CFO.
The foregoing descriptions of each of the
employment agreements is qualified in its entirety by reference to the applicable voting agreements, which are attached as Exhibits
10.3, 10.4, 10.5, 10.6 and 10.7.