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Item 5.02
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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(c)
Effective on November 16, 2020, the Board appointed Mr. Johnson as the Chief Operating Officer of the Company. Mr. Gill was appointed on November 16, 2020, as the Chief Isolate Laboratory Technician of the Company (a non-executive position).
(d)
On November 16, 2020, as a required condition to the Purchase Agreement, the Board of Directors (the “Board”) of the Company, pursuant to the power provided to the Board by the Bylaws of the Company, increased the number of members of the Board of Directors of the Company from two (2) to three (3), and immediately thereafter, on the same date, appointed Mr. Ryan Johnson as a member of the Board to fill such newly created vacancy.
The Purchase Agreement requires that the Board of Directors continue to nominate Mr. Johnson as a member of the Board of Directors until the earlier of (a) Mr. Johnson’s death; (b) the date Mr. Johnson resigns as a member of the Board of Directors, and/or as an employee of the Company; (c) the date Mr. Johnson’s employment is terminated for cause; (d) the date that Mr. Johnson is disqualified as a member of the Board of Directors of the Company due to any applicable rule of a stock exchange or NASDAQ; or (e) the date that the Board of Directors (or nominating committee) of the Company, acting in good faith, determines that the nomination of Mr. Johnson as a member of the Company’s Board of Directors would violate the fiduciary duties of such members of the Board of Directors (or such nominating committee).
As the Board of Directors does not currently have any committees, Mr. Johnson was not appointed to any committees of the Board.
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There are no family relationships between any director or executive officer of the Company, including, but not limited to Mr. Johnson.
Mr. Johnson is not party of any material plan, contract or arrangement (whether or not written) with the Company, other than the Purchase Agreement and related agreements (each discussed above), the Preferred Trading Agreement and his Employment Agreement, discussed below.
Mr. Johnson is not a participant in any related party transaction required to be reported pursuant to Item 404(a) of Regulation S-K, except for the Purchase Agreement (and related agreements) and Preferred Trading Agreements, discussed above.
Biographical information for Mr. Johnson is provided below:
Mr. Ryan C. Johnson, Age 46
Mr. Johnson, is the co-founder and President of Razor Jacket, LLC, a company that he and the other founder formed in the State of Oregon in August 2019, to research techniques for the extraction of isolates from raw hemp using their proprietary know-how. Since June 2017, Mr. Johnson has also been the co-founder and Managing Partner of A-Vant Garden, an Oregon company which successfully converted a roadside motel into the world’s first pharmaceutical grade cannabis cultivation facility. Prior to that time, he was an independent cannabis industry consultant working in the State of Colorado from 2014 to June 2017. His previous experience includes serving as a civilian employee in the U.S. Department of Defense responsible for initiating government and private sector application protocols for the mitigation and decontamination of chemical and biological warfare and threats to the homeland. Mr. Johnson received a degree in Advertising and Public Relations from the University of Arkansas in 1997.
(e)
In connection with the Razor Jacket Closing, the Company entered into Employment Agreements with Mr. Johnson and Mr. Gill.
Johnson Employment Agreement
Mr. Johnson’s Employment Agreement provides for:
i. An effective date of December 1, 2020;
ii. Mr. Johnson to serve as Chief Operating Officer of the Company;
iii. Mr. Johnson to be employed until December 1, 2021, subject to automatic yearly renewals in the event the agreement is not terminated no less than 60 days prior to any applicable renewal date;
iv. Mr. Johnson to be paid $175,000 per year, which may be increased by management from time to time, and for Mr. Johnson to be eligible to be granted by the management of the Company or the Board of Directors, stock option or cash bonuses in the discretion of the Board and/or management;
v. Mr. Johnson to receive additional compensation of 3% of all net sales generated directly from his actions, to the extent the Company makes a cash basis profit (non-cash expenses shall not be included in this calculation), wherein such net sales shall be calculated as gross revenue less cost of goods, less any chargebacks, refunds, returns, recalls or similar transactions from prior periods, which such additional compensation shall be paid quarterly after the close of the Company’s quarterly or annual report;
vi. Standard assignment of inventions, confidentiality requirements, non-solicitation requirements, and representations and warranties of the parties;
vii. Three weeks of paid vacation per year (of which one week may carry forward from year-to-year);
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viii. A non-compete, in consideration for, among other things, an additional $1,000 per year of compensation, restricting him from competing against the Company or owning any percentage of any entity which is in the hemp or aerosol business, for a period until the later of (x) two years after the termination of the agreement, and (y) December 1, 2023, subject to certain exceptions;
ix. That the Company may terminate the agreement at any time for any reason (subject to the requirement to pay severance fee, as discussed below, where applicable); and
x. That in the event that Mr. Johnson’s employment with the Company is terminated by the Company other than due to his death, disability, the non-renewal of the agreement pursuant to its terms, or with cause (defined as his failure to substantially perform his duties, failure to comply with any written or oral direction of the Chief Executive Officer which relates to the performance of his duties, subject to certain exceptions, the commission of any criminal act which constitutes a felony or involves fraud, dishonesty, or moral turpitude, the failure to render services under the agreement due to alcohol or drug abuse, or a willful material violation of any employment policies of the Company or any material breach of any term of the employment agreement, subject where applicable under the agreement, the right to cure such breaches), or in the event Mr. Johnson terminates the agreement for good reason (as defined in the agreement as the Company’s failure to pay any compensation due to Mr. Johnson, a reduction in his compensation without his consent, the failure of the Company to provide adequate resources to Mr. Johnson (subject to certain exceptions), or any action by the Company, except as required by law or government regulation, which would adversely affect Mr. Johnson’s ability to perform his duties under the agreement or participate in any bonus or incentive plan), the Company is required to pay Mr. Johnson 12 months of severance (based on his then base salary), payable equally in 12 monthly installments. Upon termination of the agreement for any other reason he is due only accrued and unpaid compensation (and accrued vacation days) through the date of termination.
Gill Employment Agreement
Mr. Gill’s Employment Agreement provides for:
i. An effective date of December 1, 2020;
ii. Mr. Gill to serve as Chief Isolate Laboratory Technician of the Company;
iii. Mr. Gill to be employed until December 1, 2021, subject to automatic yearly renewals in the event the agreement is not terminated no less than 60 days prior to any applicable renewal date;
iv. Mr. Gill to be paid $175,000 per year, which may be increased by management from time to time, and for Mr. Gill to be eligible to be granted by the management of the Company or the Board of Directors, stock option or cash bonuses in the discretion of the Board and/or management;
v. Standard assignment of inventions, confidentiality requirements, non-solicitation requirements, and representations and warranties of the parties;
vi. Three weeks of paid vacation per year (of which one week may carry forward from year-to-year);
vii. A non-compete, in consideration for, among other things, an additional $1,000 per year of compensation, restricting him from competing against the Company or owning any percentage of any entity which is in the hemp or aerosol business, for a period to the later of (x) two years after the termination of the agreement and (y) December 1, 2023, subject to certain exceptions;
viii. That the Company may terminate the agreement at any time for any reason (subject to the requirement to pay severance fee, as discussed below, where applicable); and
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ix. That in the event that Mr. Gill’s employment with the Company is terminated by the Company other than due to his death, disability, the non-renewal of the agreement pursuant to its terms, or with cause (defined as failure of Mr. Gill to substantially perform his duties, failure to comply with any written or oral direction of the Chief Executive Officer which relates to the performance of his duties, subject to certain exceptions, the commission of any criminal act which constitutes a felony or involves fraud, dishonesty, or moral turpitude, the failure to render services under the agreement due to alcohol or drug abuse, or a willful material violation of any employment policies of the Company or any material breach of any term of the employment agreement, subject where applicable under the agreement, the right to cure such breaches), or in the event Mr. Gill terminates the agreement for good reason (as defined in the agreement as the Company’s failure to pay any compensation due to Mr. Gill, a reduction in his compensation without his consent, the failure of the Company to provide adequate resources to Mr. Gill (subject to certain exceptions), or any action by the Company, except as required by law or government regulation, which would adversely affect Mr. Gill’s ability to perform his duties under the agreement or participate in any bonus or incentive plan), the Company is required to pay Mr. Gill 12 months of severance (based on his then base salary), payable equally in 12 monthly installments. Upon termination of the agreement for any other reason, he is due only accrued and unpaid compensation (and accrued vacation days) through the date of termination.
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The foregoing descriptions of the Gill Employment Agreement and Johnson Employment Agreement, are not complete and are qualified in their entirety by the Employment Agreements with Gill and Johnson, copies of which are attached as Exhibits 10.1 and 10.2 hereto, respectively, and incorporated in this Item 5.02 by reference in their entirety.
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Item 5.03.
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Amendments to Articles of Incorporation or Bylaws; Change in Fiscal Year.
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In connection with the Purchase Agreement, the Company designated a new series of preferred stock, Series A Convertible Preferred Stock (the “Series A Preferred Stock” and the certificate of designation setting forth the rights thereof, the “Series A Designation”) of the Company. The Series A Preferred Stock and Series A Designation are described in greater detail below.
Series A Convertible Preferred Stock
The Series A Designation, which was approved by the Board of Directors of the Company on November 10, 2020, and filed by the Company with the Secretary of State of Nevada on November 12, 2020 (and effective the same date), designated 16,500,000 shares of Series A Preferred Stock, $0.001 par value per share. The Series A Preferred Stock has the following rights:
Dividend Rights. The Series A Preferred Stock does not accrue any dividends, provided that the holders of Series A Preferred Stock are entitled to such dividends paid and distributions made to the holders of common stock in cash, to the same extent as if such holders had converted the Series A Preferred Stock into common stock at the Conversion Rate (described below under “Conversion Rights”)(without regard to any limitations on conversion herein or elsewhere) and had held such shares of common stock on the record date for such dividends and distributions.
Liquidation Preference. The Series A Designation provides that the Series A Preferred Stock has a liquidation preference which is (a) pari passu with respect to the Company’s common stock; and (b) junior to all current and future senior indebtedness of the Company. If the Company determines to liquidate, dissolve or wind-up its business and affairs, the Company will prior to or concurrently with the closing, effectuation or occurrence of any such action, pay the holders of the Series A Preferred Stock, pari passu with the holders of the Series C Preferred Stock and common stock, an amount equal to the Liquidation Preference per share of Series A Preferred Stock. The “Liquidation Preference” per share of the Series A Preferred Stock is equal to $0.80 per share, or $13,200,000 in aggregate.
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Conversion Rights. Each share of Series A Preferred Stock is convertible into common stock of the Company on a one-for-one basis (subject to customary adjustments for stock splits, stock dividends and recapitalizations affecting the Company’s common stock and Series A Preferred Stock)(the “Conversion Rate”), at the option of the holder thereof, at any time following the second anniversary of the Razor Jacket Closing.
Voting Rights. The Series A Preferred Stock have no voting rights on general matters to come before the shareholders of the Company; however, the Company is prohibited from undertaking any of the following actions without the approval of holders holding a majority of the then aggregate shares of Series A Preferred Stock:
(a) Increasing or decreasing (other than by redemption or conversion) the total number of authorized shares of Series A Preferred Stock;
(b) Re-issuing any shares of Series A Preferred Stock converted pursuant to the terms of the Series A Designation;
(c) Issuing any shares of Series A Preferred Stock other than pursuant to the Purchase Agreement;
(d) Altering or changing the rights, preferences or privileges of the shares of Series A Preferred Stock so as to affect adversely the shares of such series; or
(e) Amending or waiving any provision of the Company’s Articles of Incorporation or Bylaws relative to the Series A Preferred Stock so as to affect adversely the shares of Series A Preferred Stock in any material respect as compared to holders of other series of shares.
Redemption Rights. The Series A Preferred Stock does not have any redemption rights.
As discussed above, no shares of Series A Preferred Stock were issued at the Razor Jacket Closing and instead such shares of Series A Preferred Stock will be earned over time, pursuant to the terms of the Purchase Agreement, if at all.
The foregoing descriptions of the Series A Designation do not purport to be complete and are qualified in its entirety by reference to the Series A Designation, a copy of which is incorporated by reference as Exhibit 3.1 to this Current Report on Form 8-K and incorporated in this Item 5.03 in its entirety by reference.