MASTER JOINT VENTURE AGREEMENT

 

MASTER JOINT VENTURE AGREEMENT (this “Agreement”), dated as of February 20,
2017, by and between DIGIPATH, INC., a Nevada corporation (“Digi”), and OC
TESTING, LLC, a Delaware limited liability company (“OC”).

 

R  E  C  I  T  A  L  S:

 

Digi is engaged in the cannabis lab testing business (the “Testing Business”) in
the state of Nevada, and has developed substantial know-how and expertise in the
Testing Business, including, without limitation, with respect to applicable
standard operating procedures, testing protocols, proprietary genetic data,
licensing requirements, and the design and initial setup of cannabis testing
laboratories (collectively, together with the “Digipath” name, the “Digipath
IP”).

 

Digi and OC desire to enter into a joint venture, as provided for in this
Agreement, under which the parties would together engage in the Testing Business
and establish cannabis testing laboratories (“Testing Labs”) in additional
jurisdictions in the United States utilizing the Digipath IP and OC’s financial
resources.

 

NOW, THEREFORE, the parties hereto agree as follows:

 

1.Establishment of Joint Venture Companies.

 

(a) From time to time during the Term (as defined below), except as set forth
below, OC and Digi will enter into limited liability company agreements
substantially in the form of Exhibit A hereto (“Operating Agreements”) for each
jurisdiction in which they intend to jointly engage in the Testing Business.
Pursuant to each such Operating Agreement, among other things, (i) Digi and OC
will establish a limited liability company (an “LLC”) to engage in the Testing
Business in such jurisdiction, (ii) Digi and OC will own 20% and 80%,
respectively, of the membership interests of the LLC, (iii) Digi will license
the Digipath IP to the LLC on a royalty-free basis; (iv) Digi will advise the
LLC on the development and construction of the Testing Lab to be operated by the
LLC, including the equipment to be installed in the applicable Testing Lab and
the technical personnel to be employed by the LLC, and (v) OC will provide the
LLC with sufficient financing to construct and open the Testing Lab.

 

(b) The parties anticipate that they will initially form LLCs to engage in the
Testing Business in the States of Florida, California and Colorado.

 

(c) In the event the parties decide to enter into the Testing Business in a
particular State through the purchase of an existing Testing Lab, the terms of
the Operating Agreement with respect to such jurisdiction shall be as provided
in Section 1(a) above, except that OC will be responsible for financing the
purchase price of such Testing Lab instead of the construction thereof.

 

 

 

 

(d) In the event the parties desire to engage in the Testing Business in the
State of Colorado or any other State in which Digi is legally precluded from
owning equity in an entity engaging in the Testing Business in such State, OC,
directly or through a subsidiary, will operate a Testing Lab in such State
pursuant to a licensing and management agreement with Digi (a “Licensing
Agreement”) under which Digi will license the Digipath IP to such Testing Lab
and provide the same services to such Testing Lab as Digi otherwise provides to
Testing Labs under the Operating Agreements, in exchange for aggregate licensing
and management fees equal to 9% of the gross revenues of such Testing Lab,
payable monthly in perpetuity.

 

2. Term. The term of this Agreement (the “Term”) shall commence on the date
hereof and continue for the initial period (the “Initial Term”) of five (5)
years from such date, and thereafter shall be automatically extended for
additional periods of one year (each, a “Renewal Term”) unless either party
provides notice to the other in writing not less than 90 days prior to the
expiration of the Initial Term or the Renewal Term then in effect that it does
not wish to so renew the Term.

 

3. Favored Pricing. In the event that Digi provides testing services to any
Testing Lab established by the parties under this Agreement, the price charged
by Digi for such testing services shall be no greater than the lowest price
charged by Digi to any of its other customers at such time for the same or
comparable services.

 

4. Issuance of Securities.

 

In connection with entering into this Agreement, concurrently herewith Digi and
OC or one of its affiliates shall enter into a subscription agreement in the
form attached hereto as Exhibit B pursuant to which OC or such affiliate shall
purchase Digi common stock and warrants for an aggregate purchase price of
$250,000.

 

5. Representations and Warranties. Each party hereby represents and warrants to
the other party that: (a) it is a corporation or limited liability company, duly
organized and validly existing under the laws of the State of its organization,
(b) it has all necessary corporate power and authority to enter into this
Agreement and to perform its obligations hereunder, (c) the person(s) signing
below on its behalf are its duly authorized representatives and that this
Agreement when executed and delivered will constitute its legal, valid and
binding obligation enforceable against it in accordance with its terms, and (d)
it is not bound by any agreement or other obligation that conflicts with its
obligations hereunder, and it shall not enter into or otherwise become bound by
any such agreement or obligation during the Term.

 

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6. Confidentiality; Non-Compete.

 

(a) Except as necessary in the course of performing its obligations hereunder,
neither party shall, at any time during the Term or thereafter, use, divulge,
furnish, disclose or make accessible to any person any confidential information
or knowledge of the other party (other than information generally known to the
public or the industry), including, without limitation, any information relating
directly or indirectly to the Testing Business or to any other business of the
other party.

 

(b) OC covenants and agrees that during the Term and for a period of five (5)
years after the termination thereof (the “Restricted Period”), except as
expressly provided by this Agreement or any Operating Agreement or Licensing
Agreement entered into hereunder, neither it nor any of its affiliates shall,
directly or indirectly, without the consent of Digi (i) be, or become interested
in, associated with or represent, or otherwise manage, operate, control or
engage in the Testing Business; provided that, the foregoing shall not restrict
OC from the ownership, solely as a passive investment, of 2% or less of any
class of publicly-traded securities of a company engaged in the Testing
Business; (ii) induce or seek to influence any employee of Digi to terminate his
or her employment; or (iii) take any action for the purpose of interfering with
any business relationship that Digi has with any other person. The Restricted
Period shall be extended by the length of time during which OC or any of its
affiliates is in breach of the provisions of this Section 6(b).

 

(c) Digi covenants and agrees that during the Restricted Period, neither it nor
any of its affiliates shall, directly or indirectly, without the consent of OC,
(i) be, or become interested in, associated with or represent, or otherwise
manage, operate, control or engage in the business of cannabis cultivation;
provided that, the foregoing shall not restrict Digi from the ownership, solely
as a passive investment, of 2% or less of any class of publicly-traded
securities of a company engaged in such business; (ii) induce or seek to
influence any employee of OC to terminate his or her employment; or (iii) take
any action for the purpose of interfering with any business relationship that OC
has with any other person. The Restricted Period shall be extended by the length
of time during which Digi or any of its affiliates is in breach of the
provisions of this Section 6(c).

 

(d) Each party acknowledges that the Restricted Period is reasonable under the
circumstances. Moreover, it is the desire and intent of the parties that the
provisions of Section 6 be enforceable to the fullest extent permissible under
the laws and public policies applied in each jurisdiction in which enforcement
is sought. Accordingly, the parties agree that if a court determines
subsequently that the terms of Section 6 are unenforceable, the Parties will
request that such court reform the terms by specifying the greatest time period
and/or geographic area that would not render the terms unenforceable.

 

(e) Without prejudice to the rights and remedies otherwise available to either
party, a party shall be entitled to equitable relief by way of injunction if the
other party breaches or threatens to breach any of the provisions of this
Section 6, without the necessity of proving irreparable harm or posting a bond
or other security.

 

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7. Notices.

 

(a) All notices, requests or instructions required or permitted to be given
pursuant to this Agreement shall be in writing and sufficiently given if
delivered in person or if sent by courier, email or by registered or certified
airmail, return receipt requested, postage prepaid, as follows:

 

If to Digi, at:

 

Digipath, Inc.

6450 Cameron Street, Suite 113

Las Vegas, Nevada 89118

Attention: Joseph J. Bianco

 

with a copy to:

 

Fox Rothschild LLP

101 Park Avenue, 17th Floor

New York, New York 10178

Attention: Zev M. Bomrind, Esq.

 

If to OC, at:

 

99 Warren Street, 5E

New York, NY 10007

Attention: Andrew Kantarzhai

 

(b) Such notices, requests or instructions shall be deemed received when given
if delivered in person, within 48 hours if sent by email or courier, and within
five business days if sent by registered or certified airmail. Any of the above
addresses may be changed to such other addresses as shall be designated by such
party hereto by notice given as provided above to the other party hereto;
provided, however, that any such notice of change of address shall be effective
only upon receipt.

 

8. Modification. This Agreement may be changed, amended, terminated, modified,
extended or superseded, or compliance with any term or condition hereof may be
waived, only if agreed to in writing by the parties hereto, or in the case of a
waiver, by the party waiving compliance. No waiver by either party hereto of any
provision of this Agreement shall be deemed a waiver of any other provision
hereof or a waiver of the same provision at any prior or subsequent time.

 

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9. Assignment. No party may assign any of its rights or delegate any of its
duties hereunder without the prior written consent of the other party, except
that a party may assign its rights under this Agreement and any agreements
related hereto to an affiliate as long as such affiliate agrees to be bound by
the terms of this Agreement. “Affiliate” shall mean with respect to any person,
any person that directly or indirectly through one or more intermediaries
controls, is controlled by or is under common control with such person.

 

10. Severability. If any provision hereof shall be determined to be invalid or
unenforceable in any respect, that provision shall be deemed deleted and the
remaining provisions of this Agreement shall remain in full force and effect to
the fullest extent possible.

 

11. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of New York, without regard to the
conflicts of law principles thereof. EACH PARTY AGREES THAT ANY ACTION, SUIT OR
PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS AGREEMENT SHALL BE INITIATED AND
PROSECUTED IN THE COURTS HAVING PROPER SUBJECT-MATTER JURISDICTION LOCATED IN
NEW YORK, NEW YORK. EACH PARTY CONSENTS TO AND SUBMITS TO THE EXERCISE OF
JURISDICTION OVER ITS PERSON BY ANY SUCH COURT HAVING JURISDICTION OVER THE
SUBJECT MATTER.

 

12. Counterparts; Facsimile Signatures. This Agreement may be executed in two
counterparts, both of which shall be deemed an original, but both of which taken
together shall constitute one and the same instrument. Signed copies of this
Agreement transmitted by facsimile will be accepted by the parties, and the
parties shall be entitled to rely upon such copies as though they bear original
signatures.

 

13. Further Assurances. Each party hereto, upon the request of the other party,
agrees to perform all further acts and assurances and execute, acknowledge and
deliver all documents and instruments which may be reasonably necessary,
appropriate or desirable to carry out the provisions and intent of this
Agreement.

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement or
caused the same to be duly executed on the date first above written.

 

  DIGIPATH, INC.         By: /s/ Joseph J. Bianco   Name: Joseph J. Bianco  
Title: Chief Executive Officer         OC TESTING, LLC         By: /s/ Andrew
Kantarzhi   Name: Andrew Kantarzhi   Title: Managing Partner

 

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EXHIBIT A

FORM OF OPERATING AGREEMENT

 

 

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EXHIBIT B

SUBSCRIPTION AGREEMENT

 

 

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