Document:

ex10-1ricky.htm

 

THE OPTIONS REPRESENTED BY THIS AGREEMENT ARE NOT TRANSFERABLE. NEITHER THE OPTIONS NOR THE OPTIONED SHARES THAT MAY BE ISSUED UPON EXERCISE OF THE OPTIONS HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE AND HAVE BEEN OR WILL BE ISSUED IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 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.

STOCK OPTION AGREEMENT

 

(U.S. Persons)

 

 

This AGREEMENT is entered into as of the 29th day of January, 2016 (the “Date of Grant”).

 

BETWEEN:

 

THE ALKALINE WATER COMPANY INC., a company incorporated pursuant to the laws of the State of Nevada, with an office at 7730 E. Greenway Road, Suite 203, Scottsdale, Arizona, 85260

 

(the “Company”)

 

AND:

 

Richard A. Wright, a businessman with an address at 7730 E. Greenway Road, Suite 203, Scottsdale 85260

 

(the “Optionee”)

 

WHEREAS:

 

A. The Company’s board of directors (the “Board”) has approved and adopted a 2013 Equity Incentive Plan (the “Plan”), whereby the Board is authorized to grant stock options to purchase shares of common stock of the Company to the directors, officers, employees, and consultants of the Company or any Parent or Subsidiary of the Company (as defined herein);

 

B. The Optionee is a director, officer, employee or consultant of the Company, Parent or Subsidiary; and

 

C. The Company wishes to grant stock options to purchase a total of 1,500,000 Optioned Shares (as defined herein) to the Optionee, as follows:

 

	  	
Incentive Stock Options (as defined herein)

	
X

	
Non-Qualified Stock Options (as defined herein)

 

NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

	
1.  

	
DEFINITIONS

 

1.1 In this Agreement, the following terms shall have the following meanings:

 

	
(a)  

	
“1933 Act” means the Securities Act of 1933, as amended;

 

 

  

  

  

 

	
(b)  

	
“Accredited Investor Questionnaire” means a questionnaire substantially in the form of the Accredited Investor Questionnaire attached to this Agreement as Schedule “B”;

 

	
(c)  

	
“Code” means the Internal Revenue Code of 1986;

 

	
(d)  

	
“Common Stock” means the shares of common stock of the Company;

 

	
(e)  

	
“Company Information” has the meaning ascribed thereto in Section 5.1(c) of this Agreement;

 

	
(f)  

	
“Exercise Price” means $0.52 per share;

 

	
(g)  

	
“Expiry Date” means October 7, 2023;

 

	
(h)  

	
“Incentive Stock Options” means any Options that meet all the requirements under section 422 of the Code.

 

	
(i)  

	
“Non-Qualified Stock Options” means any Options that do not qualify as Incentive Stock Options and, thus, do not meet the requirements under section 422 of the Code.

 

	
(j)  

	
“Notice of Exercise” means a notice in writing addressed to the Company at its address first recited hereto (or such other address of which the Company may from time to time notify the Optionee in writing), substantially in the form attached as Schedule “D” hereto, which notice shall specify therein the number of Optioned Shares in respect of which the Options are being exercised and, if an exemption from the registration requirements imposed by the 1933 Act is necessary for the exercise of the Options, which notice shall be accompanied by an executed copy of (i) an Accredited Investor Questionnaire if the Optionee is at the time of exercise an accredited investor or, (ii) a Prospective Investor Suitability Questionnaire if the Optionee is not an accredited investor at the time of exercise;

 

	
(k)  

	
“Options” means the right and option to purchase, from time to time, all, or any part of the Optioned Shares granted to the Optionee by the Company pursuant to Section 2.1 of this Agreement;

 

	
(l)  

	
“Optioned Shares” means the shares of Common Stock that are issued pursuant to the exercise of the Options;

 

	
(m)  

	
“Parent” means a company or other entity that owns at least fifty percent (50%) of the outstanding voting stock or voting power of the Company;

 

	
(n)  

	
“Plan” has the meaning ascribed thereto in Recital A of this Agreement;

 

	
(o)  

	
 “Prospective Investor Suitability Questionnaire” means a questionnaire substantially in the form of the Prospective Investor Suitability Questionnaire attached to this Agreement as Schedule “C”;

 

	
(p)  

	
“SEC” means the United States Securities and Exchange Commission;

 

	
(q)  

	
“Securities” means, collectively, the Options and the Optioned Shares;

 

	
(r)  

	
“Shareholders” means holders of record of the shares of Common Stock;

 

	
(s)  

	
“Subsidiary” means a company or other entity, at least fifty percent (50%) of the outstanding voting stock or voting power of which is beneficially owned, directly or indirectly, by the Company;

 

	
(t)  

	
“U.S. Person” shall have the meaning ascribed thereto in Regulation S under the 1933 Act, and for the purpose of the Agreement includes any person in the United States; and

 

	
(u)  

	
“Vested Options” means the Options that have vested in accordance with Section 2.2 of this Agreement.

 

1.2 Capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Plan.

 

 

  

2

  

 

	
2.  

	
THE OPTIONS

 

2.1 The Company hereby grants to the Optionee, on the terms and conditions set out in this Agreement and in the Plan, Options to purchase a total of 1,500,000 Optioned Shares at the Exercise Price.

 

2.2 The Options will vest in accordance with Schedule “A” to this Agreement.  The Options may be exercised immediately after vesting.

 

2.3 The Options shall, at 5:00 p.m. (Mountain time) on the Expiry Date, expire and be of no further force or effect whatsoever.

 

2.4 The Company shall not be obligated to cause the issuance, transfer or delivery of a certificate or certificates representing Optioned Shares to the Optionee, until provision has been made by the Optionee, to the satisfaction of the Company, for the payment of the aggregate Exercise Price for all Optioned Shares for which the Options shall have been exercised, and for satisfaction of any tax withholding obligations associated with such exercise.

 

2.5 The Optionee shall have no rights whatsoever as a shareholder in respect of any of the Optioned Shares (including any right to receive dividends or other distribution therefrom or thereon) except in respect of which the Options have been properly exercised in accordance with the terms of this Agreement.

 

2.6 The Options will terminate in accordance with the provisions of the Plan; provided, however, Section 6.7 (Termination of Continuous Service), Section 6.9 (Disability of Optionholder) and Section 6.10 (Death of Optionholder) of the Plan will not apply to the Options.

 

2.7 Subject to the provisions of this Agreement and the Plan and subject to compliance with any applicable securities laws, the Options shall be exercisable, in full or in part, at any time after vesting, until termination.  If less than all of the shares included in the vested portion of any Options are purchased, the remainder may be purchased at any subsequent time prior to the Expiry Date.  Only whole shares may be issued pursuant to the exercise of any Options, and to the extent that any Option covers less than one (1) share, it is not exercisable.

 

2.8 Each exercise of the Options shall be by means of delivery of a Notice of Exercise (which may be in the form attached hereto as Schedule “D”) to the President of the Company at its principal executive office, specifying the number of Optioned Shares to be purchased and accompanied by (i) payment in cash or by certified check or cashier’s check in the amount of the full Exercise Price for the Common Stock to be purchased, and, if an exemption from the registration requirements imposed by the 1933 Act is necessary for the exercise of the Options, (ii)(A) if the Optionee is at the time of exercise an accredited investor, an executed copy of an Accredited Investor Questionnaire dated the same date as the Notice of Exercise or, (B) if the Optionee is not an accredited investor at the time of exercise, a Prospective Investor Suitability Questionnaire dated the same date as the Notice of Exercise showing that at the time of exercise the Optionee has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment in the Optioned Shares. In addition to payment in cash or by certified check or cashier’s check and if agreed to in advance by the Company, the Optionee or transferee of the Options may pay for all or any portion of the aggregate Exercise Price by complying with one or more of the following alternatives:

 

	
(a)  

	
by delivering to the Company shares of Common Stock previously held by the Optionee, or by the Company withholding shares of Common Stock otherwise deliverable pursuant to the exercise of the Options, which shares of Common Stock received or withheld shall have a fair market value at the date of exercise (as determined by the Board) equal to the aggregate exercise price to be paid by the Optionee upon such exercise; or

 

	
(b)  

	
by complying with any other payment mechanism approved by the Board at the time of exercise.

 

2.9 It is a condition precedent to the exercise of any Options and the issuance of any Optioned Shares that the Optionee execute and/or deliver to the Company all documents and withholding taxes required in accordance with applicable laws, as determined by the Company in its sole discretion.

 

2.10 Nothing in this Agreement shall obligate the Optionee to purchase any Optioned Shares except those Optioned Shares in respect of which the Optionee shall have exercised the Options in the manner provided in this Agreement or the Plan.

 

 

  

3

  

 

2.11 Reference is made to the Plan for particulars of the rights and obligations of the Optionee and the Company in respect of:

 

	
(a)  

	
the terms and conditions on which the Options are granted except to the extent set forth herein; and,

 

	
(b)  

	
a consolidation or subdivision of the Company’s share capital or a corporate reorganization;

 

all to the same effect as if the provisions of the Plan were set out in this Agreement and to all of which the Optionee assents. A copy of the Plan is available to the Optionee at no charge, at the Company’s principal executive office.  Any provision of this Agreement that is inconsistent with the Plan shall be considered void and replaced with the applicable provision of the Plan.  The Company may modify, extend or renew this Agreement or the Options represented hereby or accept the surrender thereof (to the extent not previously exercised) and authorize the granting of a new option in substitution therefore (to the extent not previously exercised), subject at all times to the Plan, the applicable rules of any applicable regulatory authority or stock exchange, and any applicable laws.  Notwithstanding the foregoing provisions of this Section 2.11, the Company shall not have the right to make any modification which would materially alter the terms of the Options to the Optionee’s detriment or materially impair any rights of the Optionee hereunder without the consent of the Optionee.

 

2.12 By accepting the Options, the Optionee represents and agrees that none of the Optioned Shares purchased upon exercise of the Options will be distributed in violation of applicable federal and state laws and regulations.  The Optionee further represents and agrees to provide the Company with any other document reasonably requested by the Company or the Company’s Counsel.

 

	
3.  

	
DOCUMENTS REQUIRED FROM OPTIONEE

 

3.1 The Optionee must complete, sign and return to the Company:

 

	
(a)  

	
an executed copy of this Agreement; and

 

	
(b)  

	
if an exemption from the registration requirements imposed by the 1933 Act is necessary for entry into this Agreement, one of the two questionnaires in the forms attached hereto as Schedule “B” and Schedule “C”, whichever applies.

 

3.2 The Optionee shall complete, sign and return to the Company as soon as possible, on request by the Company, any documents, questionnaires, notices and undertakings as may be required by regulatory authorities, and applicable law.

 

	
4.  

	
SUBJECT TO PLAN

 

The terms of the Options will be subject to the Plan, as may from time to time be amended, and any inconsistencies between this Agreement and the Plan, as the same may be from time to time amended, shall be governed by the provisions of the Plan.  A copy of the Plan will be delivered to the Optionee, and will be available for inspection at the principal offices of the Company.

 

	
5.  

	
ACKNOWLEDGEMENTS OF THE OPTIONEE

 

5.1 The Optionee acknowledges and agrees that:

 

	
(a)  

	
except for the registration statements on Form S-8 filed by the Company in respect of the Plan, the Securities have not been registered under the 1933 Act or under any state securities or “blue sky” laws of any state of the United States, and are being offered only in a transaction not involving any public offering within the meaning of the 1933 Act, and, unless so registered, may not be offered or sold in the United States or to U.S. Persons, except pursuant to an effective registration statement under the 1933 Act, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act, and in each case only in accordance with applicable state securities laws;

 

 

  

4

  

 

	
(b)  

	
the Company will refuse to register any transfer of the Securities not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act;

 

	
(c)  

	
the decision to execute this Agreement and acquire the Securities hereunder has not been based upon any oral or written representation as to fact or otherwise made by or on behalf of the Company and such decision is based solely upon a review of publicly available information regarding the Company that is available on the website of the SEC at www.sec.gov (the “Company Information”);

 

	
(d)  

	
there are risks associated with an investment in the Securities;

 

	
(e)  

	
the Optionee and the Optionee’s advisor(s) (if applicable) have had a reasonable opportunity to ask questions of and receive answers from the Company in connection with the distribution of the Securities hereunder, and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the accuracy of the information about the Company;

 

	
(f)  

	
the books and records of the Company were available upon reasonable notice for inspection, subject to certain confidentiality restrictions, by the Optionee during reasonable business hours at its principal place of business, and all documents, records and books in connection with the distribution of the Securities hereunder have been made available for inspection by the Optionee, the Optionee’s attorney and/or advisor(s) (if applicable);

 

	
(g)  

	
the Company, its officers, directors, counsel and agents are entitled to rely upon the truth and accuracy of the acknowledgements, representations, warranties, statements, answers, covenants and agreements contained in this Agreement and agrees that if any of such acknowledgements, representations, warranties, statements, answers, covenants, and agreements should become, by the passage of time after the date of this Agreement, no longer accurate or should be breached, the Optionee shall promptly notify the Company, and the Optionee will hold harmless the Company from any loss or damage it may suffer as a result of the Optionee’s failure to correctly complete or comply with the terms of this Agreement;

 

	
(h)  

	
the Optionee has been advised to consult its own legal, tax and other advisors with respect to the merits and risks regarding the exercise of the Options and the issuance of the Optioned Shares and with respect to applicable resale restrictions and it is solely responsible (and the Company is in not any way responsible) for compliance with applicable resale restrictions;

 

	
(i)  

	
the Optionee acknowledges that if the Options qualify as Incentive Stock Options, there may be no regular federal income tax liability upon the exercise of the Options, although the excess, if any, of the fair market value of such Optioned Shares on the date of exercise over the Exercise Price may be treated as a tax preference item for federal alternative minimum tax purposes and may subject the Optionee to the alternative minimum tax in the year of exercise;

 

	
(j)  

	
the Optionee will indemnify and hold harmless the Company and, where applicable, its directors, officers, employees, agents, advisors and shareholders, from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation or warranty of the Optionee contained herein or in any document furnished by the Optionee to the Company in connection herewith being untrue in any material respect or any breach or failure by the Optionee to comply with any covenant or agreement made by the Optionee to the Company in connection therewith;

 

	
(k)  

	
the Securities are not listed on any stock exchange or automated dealer quotation system and no representation has been made to the Optionee that any of the Securities will become listed on any stock exchange or automated dealer quotation system, except that currently certain market makers make market in the shares of the Company’s common stock on the OTCQB;

 

	
(l)  

	
neither the SEC nor any other securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities;

 

 

  

5

  

 

	
(m)  

	
no documents in connection with this Agreement have been reviewed by the SEC or any state securities administrators;

 

	
(n)  

	
there is no government or other insurance covering any of the Securities; and

 

	
(o)  

	
this Agreement is not enforceable by the Optionee unless it has been accepted by the Company.

 

	
6.  

	
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE OPTIONEE

 

The Optionee hereby represents and warrants to and covenants with the Company (which representations, warranties and covenants shall survive the closing) that:

 

	
(a)  

	
the Optionee is a bona fide director, officer, employee, independent contractor or consultant of the Company, Parent or Subsidiary;

 

	
(b)  

	
the Optionee is a U.S. Person;

 

	
(c)  

	
the Optionee has received and carefully read this Agreement and the Company Information;

 

	
(d)  

	
the Optionee has received a brief description of the Securities and the Optionee understands that the proceeds from the exercise of the Options will be used by the Company as working capital for general corporate purposes;

 

	
(e)  

	
the Optionee has duly executed and delivered this Agreement and it constitutes a valid and binding agreement of the Optionee enforceable against the Optionee in accordance with its terms;

 

	
(f)  

	
if applicable, the Optionee has concurrently executed and delivered the questionnaire in the form attached as Schedule “B” or Schedule “C” and the representations and warranties contained in such questionnaire are true and correct;

 

	
(g)  

	
the Optionee has the legal capacity and competence to enter into and execute this Agreement and to take all actions required pursuant hereto and, if the Optionee is a corporation, it is duly incorporated and validly subsisting under the laws of its jurisdiction of incorporation and all necessary approvals by its directors, shareholders and others have been obtained to authorize execution and performance of this Agreement on behalf of the Optionee;

 

	
(h)  

	
the Optionee:

 

	
(i)  

	
has adequate net worth and means of providing for its current financial needs and possible personal contingencies,

 

	
(ii)  

	
has no need for liquidity in this investment, and

 

	
(iii)  

	
is able to bear the economic risks of an investment in the Securities for an indefinite period of time, and can afford the complete loss of such investment;

 

	
(i)  

	
the Optionee has the requisite knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Securities and the Company, and the Optionee is providing evidence of such knowledge and experience in these matters through the information requested in this Agreement;

 

	
(j)  

	
the Optionee is aware that an investment in the Company is speculative and involves certain risks, including the possible loss of the investment, and the Optionee has carefully read and considered the matters set forth under the caption “Risk Factors” appearing in the Company’s various disclosure documents, filed with the SEC;

 

 

  

6

  

 

	
(k)  

	
the entering into of this Agreement and the transactions contemplated hereby do not result in the violation of any of the terms and provisions of any law applicable to, or, if applicable, the constating documents of, the Optionee, or of any agreement, written or oral, to which the Optionee may be a party or by which the Optionee is or may be bound;

 

	
(l)  

	
the Optionee is purchasing the Securities for its own account for investment purposes only and not for the account of any other person and not for distribution, assignment or resale to others, and no other person has a direct or indirect beneficial interest is such Securities, and the Optionee has not subdivided his interest in the Securities with any other person;

 

	
(m)  

	
the Optionee is not an underwriter of, or dealer in, the shares of the Company’s common stock, nor is the Optionee participating, pursuant to a contractual agreement or otherwise, in the distribution of the Securities;

 

	
(n)  

	
the Optionee understands and agrees that the Company and others will rely upon the truth and accuracy of the acknowledgements, representations, statements, answers and agreements contained in this Agreement, and agrees that if any of such acknowledgements, representations, statements, answers and agreements are no longer accurate or have been breached, the Optionee shall promptly notify the Company;

 

	
(o)  

	
the Optionee has made an independent examination and investigation of an investment in the Securities and the Company and has depended on the advice of its legal and financial advisors and agrees that the Company will not be responsible in anyway whatsoever for the Optionee’s decision to acquire the Securities;

 

	
(p)  

	
the Optionee is not aware of any advertisement of any of the Securities and is not acquiring the Securities as a result of any form of general solicitation or general advertising including advertisements, articles, notices or other communications published in any newspaper, magazine or similar media or broadcast over radio or television, or any seminar or meeting whose attendees have been invited by general solicitation or general advertising; and,

 

	
(q)  

	
no person has made to the Optionee any written or oral representations:

 

	
(i)  

	
that any person will resell or repurchase any of the Securities,

 

	
(ii)  

	
that any person will refund the purchase price of any of the Securities,

 

	
(iii)  

	
as to the future price or value of any of the Securities, or

 

	
(iv)  

	
that any of the Securities will be listed and posted for trading on any stock exchange or automated dealer quotation system or that application has been made to list and post any of the Securities of the Company on any stock exchange or automated dealer quotation system, except that currently certain market makers make market in the shares of the Company’s common stock on the OTCQB.

 

	
7.  

	
ACKNOWLEDGEMENT AND WAIVER

 

The Optionee hereby waives, to the fullest extent permitted by law, any rights of withdrawal, rescission or compensation for damages to which the Optionee might be entitled in connection with the distribution of any of the Securities.

 

	
8.  

	
PROFESSIONAL ADVICE

 

The acceptance of the Options and the sale of Common Stock issued pursuant to the exercise of Options may have consequences under federal and state tax and securities laws which may vary depending upon the individual circumstances of the Optionee.  Accordingly, the Optionee acknowledges that he or she has been advised to consult his or her personal legal and tax advisor in connection with this Agreement and his or her dealings with respect to Options.  Without limiting other matters to be considered with the assistance of the Optionee’s professional advisors, the Optionee should consider: (a) whether upon the exercise of Options, the Optionee will file an election with the Internal Revenue Service pursuant to Section 83(b) of the Code and the implications of alternative minimum tax pursuant to the Code; (b) the merits and risks of an investment in the underlying Optioned Shares; and (c) any resale restrictions that might apply under applicable securities laws.

 

 

  

7

  

 

	
9.  

	
LEGENDING OF SUBJECT SECURITIES

 

9.1 The Optionee hereby acknowledges that that upon the issuance thereof, and until such time as the same is no longer required under the applicable securities laws and regulations, the certificates representing any of the Optioned Shares may bear a legend in substantially the following form:

 

NONE OF THE SECURITIES REPRESENTED HEREBY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR ANY U.S. STATE SECURITIES LAWS, AND, UNLESS SO REGISTERED, MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES (AS DEFINED HEREIN) OR TO U.S. PERSONS EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF REGULATION S UNDER THE 1933 ACT, PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE 1933 ACT AND IN EACH CASE ONLY IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.  “UNITED STATES” AND “U.S. PERSON” ARE AS DEFINED BY REGULATION S UNDER THE 1933 ACT.

 

9.2 The Optionee hereby acknowledges and agrees to the Company making a notation on its records or giving instructions to the registrar and transfer agent of the Company in order to implement the restrictions on transfer set forth and described in this Agreement.

 

	
10.  

	
RESALE RESTRICTIONS

 

This Agreement and the Options represented hereby are not transferable.  Optioned Shares received upon exercise of any Options will be subject to resale restrictions contained in the securities legislation applicable to the Company and the Optionee.  The Optionee acknowledges and agrees that the Optionee is solely responsible (and the Company is not in any way responsible) for compliance with applicable resale restrictions.

 

	
11.  

	
NO EMPLOYMENT RELATIONSHIP

 

The grant of an Option shall in no way constitute any form of agreement or understanding binding on the Company or any related company, express or implied, that the Company or any related company will employ or contract with an Optionee, for any length of time, nor shall it interfere in any way with the Company’s or, where applicable, a related company’s right to terminate Optionee’s employment at any time, which right is hereby reserved.

 

	
12.  

	
GOVERNING LAW

 

This Agreement is governed by the laws of the State of Nevada and the federal laws of the United States of America as applicable therein.   The Optionee irrevocably attorns to the jurisdiction of the courts of the State of Arizona.

 

	
13.  

	
COSTS

 

The Optionee acknowledges and agrees that all costs and expenses incurred by the Optionee (including any fees and disbursements of any special counsel retained by the Optionee) relating to the acquisition of the Securities shall be borne by the Optionee.

 

	
14.  

	
SURVIVAL

 

This Agreement, including without limitation the representations, warranties and covenants contained herein, shall survive and continue in full force and effect and be binding upon the parties hereto notwithstanding the completion of the purchase of the shares underlying the Options by the Optionee pursuant hereto.

 

	
15.  

	
ASSIGNMENT

 

This Agreement is not transferable or assignable.

 

 

  

8

  

 

	
16.  

	
CURRENCY

 

Unless explicitly stated otherwise, all funds in this Agreement are stated in United States dollars.

 

	
17.  

	
SEVERABILITY

 

The invalidity or unenforceability of any particular provision of this Agreement shall not affect or limit the validity or enforceability of the remaining provisions of this Agreement.

 

	
18.  

	
COUNTERPARTS AND ELECTRONIC MEANS

 

This Agreement may be executed in several counterparts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument.  Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the date first above written.

 

	
19.  

	
ENTIRE AGREEMENT

 

This Agreement is the only agreement between the Optionee and the Company with respect to the Options, and this Agreement and the Plan, once approved, supersede all prior and contemporaneous oral and written statements and representations and contain the entire agreement between the parties with respect to the Options.

 

IN WITNESS WHEREOF the parties hereto have duly executed this Agreement as of the date first above written.

 

THE ALKALINE WATER COMPANY INC.

 

 

 

Per:           /s/ Steven P. Nickolas

                 Authorized Signatory

	
WITNESSED BY:

                                                                                    

                                                                                    

_____________________________________

Name

                                                                                    

_____________________________________

Address

                                                                                    

_____________________________________

 

                                                                                    

_____________________________________

Occupation

	
)

)

)

)

)

)

)

)

)

)

)

)

)

)

	
/s/ Richard A. Wright

RICHARD A WRIGHT

  

9

  

 

SCHEDULE “A”

 

VESTING SCHEDULE

 

Non Qualified Stock Options

	
Date

	
Number of Options to Vest

	
January 29, 2016

	
1,500,000

	  	  
	  	  
	  	  

 

  

10

  

 

SCHEDULE “B”

 

ACCREDITED INVESTOR QUESTIONNAIRE

 

All capitalized terms herein, unless otherwise defined, have the meanings ascribed thereto in the Stock Option Agreement.

 

The Optionee covenants, represents and warrants to the Company that he or she satisfies one or more of the categories of “Accredited Investors”, as defined by Regulation D promulgated under the Securities Act of 1933 (the “Securities Act”), as indicated below:  (Please initial in the space provide those categories, if any, of an “Accredited Investor” which the Optionee satisfies)

 

	
  

	
            Category 1

	
An organization described in Section 501(c)(3) of the United States Internal Revenue Code, a corporation, a Massachusetts or similar business trust or partnership, not formed for the specific purpose of acquiring the Securities, with total assets in excess of $5,000,000;

 

	
  

	
            Category 2

	
A natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1,000,000. For purposes of this Category 2, "net worth" means the excess of total assets at fair market value (including personal and real property, but excluding the estimated fair market value of a person's primary home) over total liabilities. Total liabilities excludes any mortgage on the primary home in an amount of up to the home's estimated fair market value as long as the mortgage was incurred more than 60 days before the Securities are acquired, but includes (i) any mortgage amount in excess of the home's fair market value and (ii) any mortgage amount that was borrowed during the 60-day period before the date of the acquisition of Securities for the purpose of investing in the Securities;

 

	
  

	
            Category 3

	
A natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

 

	
  

	
            Category 4

	
A “bank” as defined under Section (3)(a)(2) of the Securities Act or savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act acting in its individual or fiduciary capacity; a broker dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934 (United States); an insurance company as defined in Section 2(13) of the Securities Act; an investment company registered under the Investment Company Act of 1940 (United States) or a business development company as defined in Section 2(a)(48) of such Act; a Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958 (United States); a plan with total assets in excess of $5,000,000 established and maintained by a state, a political subdivision thereof, or an agency or instrumentality of a state or a political subdivision thereof, for the benefit of its employees; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 (United States) whose investment decisions are made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000, or, if a self-directed plan, whose investment decisions are made solely by persons that are accredited investors;

 

	
  

	
            Category 5

	
A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940 (United States);

 

	
  

	
            Category 6

	
A director or executive officer of the Company;

 

	
  

	
            Category 7

	
A trust with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) under the Securities Act;

 

	
  

	
            Category 8

	
An entity in which all of the equity owners satisfy the requirements of one or more of the foregoing categories;

 

Note that the Optionee claiming to satisfy one of the above categories of Accredited Investor may be required to supply the Company with a balance sheet, prior years’ federal income tax returns or other appropriate documentation to verify and substantiate the Optionee’s status as an Accredited Investor.

 

If the Optionee is an entity which initialled the last category in reliance upon the Accredited Investor categories above, state the name, address, total personal income from all sources for the previous calendar year, and the net worth (exclusive of home, home furnishings and personal automobiles) for each equity owner of the said entity:

 

                                                                                                                      

 

All information contained in this Questionnaire will be treated as confidential.  However, by signing and returning this Questionnaire, the Optionee agrees that, if necessary, this Questionnaire may be presented to such parties as the Company deems appropriate to establish the availability, under the Securities Act or applicable state securities law, of exemption from registration in connection with the issuance of the Securities hereunder.

 

The Optionee hereby certifies that the information contained in this Questionnaire is complete and accurate and the Optionee will notify the Company promptly of any change in any such information.

 

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire as of the           day of                    , 20__.

 

 

X                                                                                   

Signature

 

                                                                                     

Print or Type Name

 

                                                                                     

Social Security/Tax I.D. No.

 

  

11

  

 

SCHEDULE “C”

 

PROSPECTIVE INVESTOR SUITABILITY QUESTIONNAIRE

 

All capitalized terms herein, unless otherwise defined, have the meanings ascribed thereto in the Stock Option Agreement.

 

The purpose of this Questionnaire is to assure the Company that the Optionee will meet the standards imposed by the Securities Act of 1933 (the “Securities Act”) and the appropriate exemptions of applicable state securities laws.  The Company will rely on the information contained in this Questionnaire for the purposes of such determination.  The Option and the Optioned Shares (together, the “Securities”) will not be registered under the Securities Act and has been issued in reliance upon the exemption from registration afforded by Section 3(b) and/or Section 4(a)(2) of the Securities Act and/or  Regulation D promulgated thereunder.  This Questionnaire is not an offer of any securities of the Company in any state other than those specifically authorized by the Company.

 

Please attach additional pages if necessary to answer any question fully.

 

REPRESENTATIONS OF OPTIONEE

 

This item is presented in alternative form.  Please initial in the space provided the applicable alternative.

 

	
      

	
ALTERNATIVE ONE:  The Optionee covenants, represents and warrants to the Company that he or she has such knowledge and experience in financial and business matters that he or she is capable of evaluating the relative merits and risks of an investment in the Securities and Company and is not utilizing a purchaser representative in connection with evaluating such merits and risks.  The Optionee is providing evidence of its knowledge and experience in these matters through the information requested below in this Questionnaire.

 

	
      

	
ALTERNATIVE TWO:  The Optionee covenants, represents and warrants to the Company that he or she has chosen to use the services of a purchaser representative acceptable to the Optionee in connection with the Optionee’s acquisition of the Securities. The Optionee hereby acknowledges that the person named below is his or her purchaser representative who will assist and advise the Optionee in evaluating the merits and risks of an investment in the Securities and the Company and affirms that such purchaser representative has previously disclosed in writing any material relationship that exists between the purchaser representative (or its affiliates) and the Company (or its affiliates) that is mutually understood to be contemplated, or that has existed at any time during the previous two years, and any compensation received or to be received as a result of such relationship.

 

                                                                                                           

(name of Purchaser Representative)

 

                                                                                                           

(address of Purchaser Representative)

 

If the Optionee utilizes a purchaser representative, this Questionnaire must be accompanied by a completed and signed purchaser representative Questionnaire, a copy of which can be obtained from the Company upon request.

  

12

  

 

FOR INDIVIDUAL INVESTORS

 

	
1.

	
Name:                                                                                                                                                                  

 

	
2.

	
Residential Address & Telephone Number:                                                                                                      

 

                                                                                                                                                                           

 

                                                                                                                                                                           

 

	
3.

	
Length of Residence in State of Residence:                                                                                                      

 

	
4.

	
U.S. Citizen:

	
         

	
Yes

	
         

	
No

 

	
5.

	
Social Security Number:                                                                                                                                   

 

	
6.

	
Business Address & Telephone Number:                                                                                                         

 

                                                                                                                                                                           

 

                                                                                                                                                                           

 

	
7.

	
Preferred Mailing Address:

	
       

	
Residence

	
       

	
Business

 

	
8.

	
Date of Birth:                                                                                                                                                     

 

	
9.

	
Employer and Position:                                                                                                                                     

 

	
10.

	
Name of Business:                                                                                                                                           

 

	
11.

	
Business or Professional Education and Degrees:

 

School                                Degree                                                      Year Received

 

                                                                                                                                                                           

 

                                                                                                                                                                           

 

	
12.

	
Prior Employment (last 5 years):

 

Employer                                Nature of Duties                                                                Dates of Employment

 

                                                                                                                                                                           

 

                                                                                                                                                                           

 

                                                                                                                                                                           

 

                                                                                                                                                                           

  

13

  

 

	
13.

	
Relationship to the Company, if any:         

 

	
14.

	
Is the Optionee an officer of director of a publicly-held company?

 

                  Yes                                        No

 

If yes, specify company:                                                                                                                                     

 

	
15.

	
Does the Optionee beneficially own 10% or more of the voting securities of a publicly-held company?

 

                  Yes                                        No

 

If yes, specify company:                                                                                                                                     

 

	
16.

	
Within the last 5 years, has the Optionee personally invested in investments sold by means of private placements in reliance on exemptions from registration under the Securities Act and state securities laws?

 

                  Yes                                        No

 

	
17.

	
Prior investments by the Optionee which were purchased in reliance on exemptions from registration under the Securities Act and State securities laws (initial the highest number applicable):

 

	
  

	
Amount (Cumulative)

 

	
Real Estate:

	
Up to

	
$50,000

	
Over

	  	
None:         

	
$50,000            

	
$250,000            

	
$250,000            

	  	  	  	  
	
Securities:

	
Up to

	
$50,000

	
Over

	  	
None:         

	
$50,000            

	
$250,000            

	
$250,000            

	  	  	  	  
	
Other:

	
Up to

	
$50,000

	
Over

	  	
None:         

	
$50,000            

	
$250,000            

	
$250,000            

 

	
18.

	
Does the Optionee consider itself to be an experienced and sophisticated investor?

 

                  Yes                                        No

 

If so, please provide evidence of investment sophistication and/or experience:

 

                                                                                                                                                                            

 

                                                                                                                                                                            

 

	
19.

	
Does the Optionee, or any person authorized to execute this Questionnaire, consider itself to have such knowledge of the Company and its business and such experience in financial and business matters to enable it to evaluate the merits and risks of an investment in the Securities and the Company, should the Optionee be given an opportunity to so invest?

 

                  Yes                                        No

  

14

  

 

	
20.

	
If the Optionee is an individual, please indicate the Optionee’s and his/her spouse’s combined gross income during the preceding two years (initial the highest number applicable):

 

	
2015

	
2014

 

                  Less than $75,000                                                                        Less than $75,000

 

                  $75,001 to $100,000                                                                    $75,001 to $100,000

 

                  $100,001 to $200,000                                                                   $100,001 to $200,000

 

                  $200,001 to $300,000                                                                    $200,001 to $300,000

 

                  $Over $300,000                                                                             $Over $300,000

 

	
21.

	
If the Optionee is an individual, please indicate the Optionee’s and his/her spouse’s combined estimated net worth (exclusive of home, home furnishings and personal automobiles) (initial the highest number applicable):

 

                  Less than $100,000                                                                        $300,0001 to $500,000

 

                  $100,001 to $200,000                                                                     $500,001 to $1,000,000

 

                  $200,001 to $300,000                                                                     Over $1,000,000

 

	
22.

	
Regardless of the amount of the proposed investment:

 

	
(a)

	
Will the Optionee’s proposed investment exceed 10% of its individual net worth, or the Optionee’s joint net worth with its spouse as determined in paragraph 21 above?

 

                  Yes                                        No

 

	
(b)

	
Will the Optionee be able to bear the economic risk of its investment in this transaction?

 

                   Yes                                        No

 

	
23.

	
Please provide answers to the following questions.

 

	
(a)

	
State total assets of the Optionee, including cash, stocks and bonds, automobiles, real estate, and any other assets:

 

$                                                                                                                                 

 

	
(b)

	
State total liabilities of the Optionee including real estate indebtedness, accounts payable, taxes payable and any other liabilities:

 

$                                                                                                                                 

 

	
(c)

	
State annual income of the Optionee including salary, securities income, rental income and any other income:

 

$                                                                                                                                 

 

	
(d)

	
State annual expenses of the Optionee, excluding ordinary living expenses, including real estate payments, rent, property taxes and other expenses:

 

$                                                                                                                                 

 

	
(e)

	
Does the Optionee expect the amount of its assets, liabilities, income and expenses, as stated above, to be subject to significant change in the future:

 

                  Yes                                        No

 

If yes, explain:

 

                                                                                                                                 

 

                                                                                                                                 

 

All information contained in this Questionnaire will be treated as confidential.  However, by signing and returning this Questionnaire, the Optionee agrees that, if necessary, this Questionnaire may be presented to such parties as the Company deems appropriate to establish the availability, under the Securities Act or applicable state securities law, of exemption from registration in connection with the issuance of the Securities hereunder.

 

The Optionee hereby certifies that the information contained in this Questionnaire is complete and accurate and the Optionee will notify the Company promptly of any change in any such information.

 

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire as of the ____ day of _____________________, 20__.

	  	  	  
	  	  	  
	  	  	
X

	  	  	
Signature

	  	  	  
	  	  	
Print or Type Name

	  	  	  
	  	  	
Social Security/Tax I.D. No.

  

15

  

 

SCHEDULE “D”

 

NOTICE OF EXERCISE

 

TO:           The Alkaline Water Company Inc.

7730 E. Greenway Road, Suite 203

Scottsdale, Arizona  85260

 

This Notice of Exercise shall constitute a proper Notice of Exercise pursuant to section 2.8 of the Stock Option Agreement dated January 29, 2016 (the “Agreement”), between The Alkaline Water Company Inc. (the “Company”) and the undersigned.  The undersigned hereby elects to exercise the Optionee’s options to purchase ____________________ shares of the common stock of the Company at a price of $0.52 per share, for aggregate consideration of $____________, on the terms and conditions set forth in the Agreement.  Such aggregate consideration, in the form specified in section 2.8 of the Agreement, accompanies this notice.

 

The Optionee hereby represents and warrants to the Company that all representations and warranties set out in the Agreement are true as of the date of the exercise of the options under the Agreement.

 

The Optionee hereby further represents and warrants to the Company that the shares are being purchased only for investment and without intention to sell or distribute such shares.

 

The Optionee hereby directs the Company to issue, register and deliver the certificates representing the shares as follows:

	
Registration Information:

	  	
Delivery Instructions:

	  	  	  
	
Name to appear on certificates

	  	
Name

	  	  	  
	
Address

	  	
Address

	  	  	  
	
City, State, and Zip Code

	  	  
	  	  	  
	  	  	
Telephone Number

 

DATED at _____________________________, the _______ day of______________, _______.

	
X

	
Signature

	  
	
(Name and, if applicable, Office)

	  
	
(Address)

	  
	
(City, State, and Zip Code)

	  
	
Fax Number or E-mail Address

	  
	
Social Security/Tax I.D. No.

  

16Exhibit 10.9

 

EQUITY PURCHASE AGREEMENT

 

THIS EQUITY PURCHASE AGREEMENT entered into as of the 30th day of January, 2016 (this "AGREEMENT"), by and between KODIAK CAPITAL GROUP, LLC, a Delaware limited liability company ("INVESTOR"), and INDOOR HARVEST CORP., a Texas corporation (the "COMPANY").

 

WHEREAS, the parties desire that, upon the terms and subject to the conditions contained herein, the Company shall issue and sell to Investor, from time to time as provided herein, and Investor shall purchase up to Two Million Dollars ($2,000,000) of the Company’s Common Stock (as defined below).

 

NOW, THEREFORE, the parties hereto agree as follows:

 

ARTICLE I

CERTAIN DEFINITIONS

 

Section 1.1                          DEFINED TERMS as used in this Agreement, the following terms shall have the following meanings specified or indicated (such meanings to be equally applicable to both the singular and plural forms of the terms defined)

 

"AGREEMENT" shall have the meaning specified in the preamble hereof.

 

"BY-LAWS" shall have the meaning specified in Section 4.7.

 

"CLAIM NOTICE" shall have the meaning specified in Section 9.3(a).

 

“CLEARING DATE” shall be the date in which the Put Shares have been deposited into the Investor’s brokerage account.

 

"CLOSING" shall mean one of the closings of a purchase and sale of shares of Common Stock pursuant to Section 2.3.

 

"CLOSING CERTIFICATE" shall mean the closing certificate of the Company in the form of Exhibit B hereto.

 

"CLOSING PRICE" shall mean the closing bid price for the Company’s common stock on the Principal Market on a Trading Day as reported by Bloomberg Finance L.P.

"COMMITMENT PERIOD" shall mean the period commencing on the Execution Date, and ending on the earlier of (i) the date on which Investor shall have purchased Put Shares pursuant to this Agreement for an aggregate Purchase Price of the Maximum Commitment Amount or (ii) the one-year anniversary of the Execution Date.

 

"COMMON STOCK" shall mean the Company's common stock, $0.001 par value per share, and any shares of any other class of common stock whether now or hereafter authorized, having the right to participate in the distribution of dividends (as and when declared) and assets (upon liquidation of the Company).

  

"COMPANY" shall have the meaning specified in the preamble to this Agreement.

 

"DAMAGES" shall mean any loss, claim, damage, liability, cost and expense (including, without limitation, reasonable attorneys' fees and disbursements and costs and expenses of expert witnesses and investigation).

  

"DISPUTE PERIOD" shall have the meaning specified in Section 9.3(a).

"DTC" shall have the meaning specified in Section 2.3.

1

"DWAC" shall have the meaning specified in Section 2.3.

"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"EXECUTION DATE" shall mean the date on which this Agreement is executed and delivered by the Company and Investor.

 

"FINRA" shall mean the Financial Industry Regulatory Authority, Inc.

"FLOOR PRICE" shall have the meaning specified in Section 2.2(c).

"INVESTMENT AMOUNT" shall mean the Put Shares referenced in the Put Notice multiplied by the Purchase Price.

 

"INDEMNIFIED PARTY" shall have the meaning specified in Section 9.3(a).

 

"INDEMNIFYING PARTY" shall have the meaning specified in Section 9.3(a).

 

"INDEMNITY NOTICE" shall have the meaning specified in Section 9.3(b).

 

"INVESTOR" shall have the meaning specified in the preamble to this Agreement.

 

"MARKET PRICE" shall mean the lowest closing bid price on the Principal Market for any Trading Day during the Valuation Period, as reported by Bloomberg Finance L.P.

 

"MATERIAL ADVERSE EFFECT" shall mean any effect on the business, operations, properties, or financial condition of the Company that is material and adverse to the Company and/or any condition, circumstance, or situation that would prohibit or otherwise materially interfere with the ability of the Company to enter into and perform its obligations under any of this Agreement.

 

"MAXIMUM COMMITMENT AMOUNT" shall mean Two Million Dollars ($2,000,000).

 

"PERSON" shall mean an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

  

"PRINCIPAL MARKET" shall mean any of the national exchanges (i.e. NYSE, NYSE AMEX, Nasdaq), or principal quotation systems (i.e. OTCQX, OTCQB, OTCPink), or other principal exchange or recognized quotation system which is at the time the principal trading platform or market for the Common Stock.

 

"PURCHASE PRICE" shall mean 80% of the Market Price on such date on which the Purchase Price is calculated in accordance with the terms and conditions of this Agreement.

 

"PUT" shall mean the right of the Company to require the Investor to purchase shares of Common Stock, subject to the terms and conditions of this Agreement.

 

"PUT DATE" shall mean any Trading Day during the Commitment Period that a Put Notice is deemed delivered pursuant to Section 2.2(b).

 

"PUT NOTICE" shall mean a written notice, substantially in the form of Exhibit A hereto, to Investor setting forth the Put Shares with respect to which the Company intends to require Investor to purchase pursuant to the terms of this Agreement.

"PUT SHARES" shall mean all shares of Common Stock issued, or that the Company shall be entitled to issue, per any applicable Put Notice in accordance with the terms and conditions of this Agreement.

2

 

"REGISTERED SECURITIES" shall mean the (a) Put Shares and (b) any securities issued or issuable with respect to any of the foregoing by way of exchange, stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or other reorganization or otherwise. As to any particular Registered Securities, once issued such securities shall cease to be Registered Securities when (i) a Registration Statement has been declared effective by the SEC and such Registered Securities have been disposed of pursuant to a Registration Statement, (ii) such Registered Securities have been sold under circumstances under which all of the applicable conditions of Rule 144 are met, (iii) such time as such Registered Securities have been otherwise transferred to holders who may trade such shares without restriction under the Securities Act or (iv) in the opinion of counsel to the Company, which counsel shall be reasonably acceptable to Investor (for which purposes it is agreed that the Company’s counsel as of the Execution Date shall be deemed acceptable), such Registered Securities may be sold without registration under the Securities Act or the need for an exemption from any such registration requirements and without any time, volume or manner limitations pursuant to Rule 144(b)(i) (or any similar provision then in effect) under the Securities Act.

 

"REGISTRATION STATEMENT" shall mean the Company’s effective registration statement on file with the SEC registering the resale of the Registered Securities, and any follow up registration statement or amendment thereto.         

 

"REGULATION D" shall mean Regulation D promulgated under the Securities Act.

 

"RULE 144" shall mean Rule 144 promulgated under the Securities Act or any similar provision then in force under the Securities Act.

 

"SEC" shall mean the United States Securities and Exchange Commission.

 

"SECURITIES ACT" shall have the meaning specified in the recitals of this Agreement.

 

"SEC DOCUMENTS" shall mean, as of a particular date, all reports and other documents filed by the Company pursuant to Section 13(a) or 15(d) of the Exchange Act since the end of the Company's then most recently completed and reported fiscal year as of the time in question (provided that if the date in question is within ninety days of the beginning of the Company's fiscal year, the term shall include all documents filed since the beginning of the preceding fiscal year).

 

“SHORT SALES” shall mean all “short sales” as defined in Rule 200 of Regulation SHO under the Exchange Act.

  

"THIRD PARTY CLAIM" shall have the meaning specified in Section 9.3(a).

 

“TRADING DAY” shall mean a day on which the Principal Market shall be open for business.

 

“TRANSACTION DOCUMENTS” shall mean this Agreement and the Registration Rights Agreement.

  

"VALUATION PERIOD" shall mean the period of five (5) Trading Days immediately following the Clearing Date associated with the applicable Put Notice during which the Purchase Price of the Common Stock is valued. Investor shall notify the Company in writing of the occurrence of the Clearing Date associated with a Put Notice. The Valuation Period shall begin the first Trading Day following such written notice from Investor.

ARTICLE II

PURCHASE AND SALE OF COMMON STOCK

 

Section 2.1           INVESTMENTS.

3

 

(a)          PUTS. Upon the terms and conditions set forth herein (including, without limitation, the provisions of Article VII), on any Put Date the Company may exercise a Put by the delivery of a Put Notice.

 

Section 2.2           MECHANICS.

 

(a)             PUT NOTICE. At any time and from time to time during the Commitment Period, the Company may deliver a Put Notice to Investor, subject to the conditions set forth in Section 7.2. On the Put Date the Company shall deliver to Investor’s brokerage account the Put Shares referenced in the Put Notice.

 

(b)                 DATE OF DELIVERY OF PUT NOTICE. A Put Notice shall be deemed delivered on (i) the Trading Day it is received by email by Investor if such notice is received on or prior to 09:00 New York time, or (ii) the immediately succeeding Trading Day if it is received by email after 09:00 New York time on a Trading Day or at any time on a day which is not a Trading Day.  The Valuation Period will commence on the Clearing Date.

(c)                 FLOOR PRICE. If during the Valuation Period, the Purchase Price falls below $0.50, the Investor may elect to purchase all, or any portion thereof, of the Put Shares for $0.50.

Section 2.3           CLOSINGS. At the end of the Valuation Period the Purchase Price shall be established; if the value of the Put Shares initially delivered to Investor is greater than the Maximum Commitment Amount then immediately after the Valuation Period the Investor shall deliver to Company the Put Shares surplus associated with such Put. The Closing of a Put shall occur upon the first Trading Day following the completion of the Valuation Period, whereby Investor shall deliver the Investment Amount, by wire transfer of immediately available funds to an account designated by the Company. In addition, on or prior to such Closing Date, each of the Company and Investor shall deliver to each other all documents, instruments and writings required to be delivered or reasonably requested by either of them pursuant to this Agreement in order to implement and effect the transactions contemplated herein.

  

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF INVESTOR

 

Investor represents and warrants to the Company that:

 

Section 3.1           INTENT. Investor is entering into this Agreement for its own account and Investor has no present arrangement (whether or not legally binding) at any time to sell the Registered Securities to or through any person or entity; provided, however, that Investor reserves the right to dispose of the Registered Securities at any time in accordance with federal and state securities laws applicable to such disposition.

 

Section 3.2           NO LEGAL ADVICE FROM THE COMPANY. The Investor acknowledges that it has had the opportunity to review this Agreement and the transactions contemplated by this Agreement with its own legal counsel and investment and tax advisors. The Investor is relying solely on such counsel and advisors and not on any statements or representations of the Company or any of its representatives or agents for legal, tax or investment advice with respect to this investment, the transactions contemplated by this Agreement or the securities laws of any jurisdiction.

 

Section 3.3           SOPHISTICATED INVESTOR. Investor is a sophisticated investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor (as defined in Rule 501 of Regulation D), and Investor has such experience in business and financial matters that it is capable of evaluating the merits and risks of an investment in the Registered Securities. Investor acknowledges that an investment in the Registered Securities is speculative and involves a high degree of risk.

 

Section 3.4           AUTHORITY. (a) Investor has the requisite power and authority to enter into and perform its obligations under this Agreement and the transactions contemplated hereby in accordance with its terms; (b) the execution and delivery of this Agreement and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action and no further consent or authorization of Investor or its partners is required; and (c) this Agreement has been duly authorized and validly executed and delivered by Investor and constitutes a valid and binding obligation of Investor enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

4

  

Section 3.5           NOT AN AFFILIATE. Investor is not an officer, director or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of the Company.

 

Section 3.6          ORGANIZATION AND STANDING. Investor is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. Investor is duly qualified and in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a material adverse effect on Investor.

 

Section 3.7           ABSENCE OF CONFLICTS. The execution and delivery of this Agreement and any other document or instrument contemplated hereby, and the consummation of the transactions contemplated hereby and thereby, and compliance with the requirements hereof and thereof, will not (a) violate any law, rule, regulation, order, writ, judgment, injunction, decree or award binding on Investor, (b) violate any provision of any indenture, instrument or agreement to which Investor is a party or is subject, or by which Investor or any of its assets is bound, or conflict with or constitute a material default thereunder, (c) result in the creation or imposition of any lien pursuant to the terms of any such indenture, instrument or agreement, or constitute a breach of any fiduciary duty owed by Investor to any third party, or (d) require the approval of any third-party (that has not been obtained) pursuant to any material contract, instrument, agreement, relationship or legal obligation to which Investor is subject or to which any of its assets, operations or management may be subject.

 

Section 3.8           DISCLOSURE; ACCESS TO INFORMATION. Investor had an opportunity to review copies of the SEC Documents filed on behalf of the Company and has had access to all publicly available information with respect to the Company.

 

Section 3.9           MANNER OF SALE. At no time was Investor presented with or solicited by or through any leaflet, public promotional meeting, television advertisement or any other form of general solicitation or advertising.

Section 3.10           ESTIMATES; FORWARD-LOOKING STATEMENTS. The Investor acknowledges that any and all estimates or forward-looking statements or projections with which it may have been provided (collectively, the “Information”) were prepared by the Company in good faith, but that the attainment of any such projections, estimates or forward-looking statements cannot be guaranteed, will not be updated by the Company and should not be relied upon.  The Investor further acknowledges that any and all Information regarding the historical performance of the Company is not necessarily indicative of future performance.

Section 3.11           TRADING ACTIVITIES; NO SHORT SALES.   Neither the Investor nor any of its affiliates currently has an open short position in the Common Stock.  Since the earlier of (a) such time when such Investor was first contacted by the Company or any other person acting on behalf of the Company regarding the transactions contemplated hereby or (b) thirty (30) days prior to the date hereof, neither such Investor nor any affiliate of such Investor which (x) had knowledge of the transactions contemplated hereby, (y) has or shares discretion relating to such Investor’s investments or trading or information concerning such Investor’s investments, including in respect of the Registered Securities, or (z) is subject to such Investor’s review or input concerning such affiliate’s investments or trading (collectively, “Trading Affiliates”) has, directly or indirectly, effected or agreed to effect any Short Sale, whether or not against the box, established any “put equivalent position” (as defined in Rule 16a-1(h) under the Exchange Act) with respect to the Common Stock, granted any other right (including, without limitation, any put or call option) with respect to the Common Stock or with respect to any security that includes, relates to or derived any significant part of its value from the Common Stock or otherwise sought to hedge its position in the Registered Securities.

 

5

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Investor that, except as disclosed in the SEC Documents:

 

Section 4.1           ORGANIZATION OF THE COMPANY. The Company is a corporation duly organized and validly existing and in good standing under the laws of the State of Texas and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, other than those in which the failure so to qualify would not have a Material Adverse Effect.

 

Section 4.2           AUTHORITY. (a) The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agreement and to issue the Put Shares; (b) the execution and delivery of this Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action and no further consent or authorization of the Company or its Board of Directors or stockholders is required; and (c) this Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, or similar laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

Section 4.3                          CAPITALIZATION. As of the date hereof, the authorized capital stock of the Company consists of 50,000,000 shares of Common Stock, $0.001 par value per share, of which 11,030,858 shares were issued and outstanding as of November 30, 2015 and no shares of preferred stock, par value $0.001 per share, of which no shares were issued and outstanding as of November 20, 2015.  Except as set forth on Schedule 4.3, there are no outstanding securities which are convertible into shares of Common Stock, whether such conversion is currently exercisable or exercisable only upon some future date or the occurrence of some event in the future.  All of the outstanding shares of Common Stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable.

 

Section 4.4           COMMON STOCK. To the best of its knowledge, the Company is in full compliance with all reporting requirements of the Exchange Act, and the Company has maintained all requirements for the continued listing or quotation of the Common Stock, and such Common Stock is currently listed or quoted on the Principal Market which is presently the OTCQB.

 

Section 4.5           SEC DOCUMENTS. The Company may make available to Investor true and complete copies of the SEC Documents (including, without limitation, proxy information and solicitation materials). To the Company’s knowledge, the Company has not provided to Investor any information that, according to applicable law, rule or regulation, should have been disclosed publicly prior to the date hereof by the Company, but which has not been so disclosed. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act, and other federal laws, rules and regulations applicable to such SEC Documents, and none of the SEC Documents 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. The financial statements of the Company included in the SEC Documents comply as to form and substance in all material respects with applicable accounting requirements and the published rules and regulations of the SEC or other applicable rules and regulations with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto or (b) in the case of unaudited interim statements, to the extent they may not include footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments).

 

Section 4.6           VALID ISSUANCES. When issued and paid for as herein provided, the Put Shares shall be duly and validly issued, fully paid, and non-assessable. The sales of the Put Shares pursuant to this Agreement, and the Company's performance of its obligations hereunder, shall not (a) result in the creation or imposition of any liens, charges, claims or other encumbrances upon the Put Shares, or any of the assets of the Company, or (b) entitle the holders of outstanding shares of Common Stock to preemptive or other rights to subscribe to or acquire the Common Stock or other securities of the Company. The Put Shares shall not subject Investor to personal liability, in excess of the subscription price by reason of the ownership thereof.

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Section 4.7           NO CONFLICTS. The execution, delivery and performance of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including without limitation the issuance of the Put Shares, do not and will not (a) result in a violation of the Company’s Certificate of Incorporation or By-Laws or (b) conflict with, or constitute a material default (or an event that with notice or lapse of time or both would become a material default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, indenture, instrument or any "lock-up" or similar provision of any underwriting or similar agreement to which the Company is a party, or (c) result in a violation of any federal, state or local law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations) applicable to the Company or by which any property or asset of the Company 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) nor is the Company otherwise materially in violation of, conflict with or in default under any of the foregoing. The business of the Company is not being conducted in violation of any law, ordinance or regulation of any governmental entity, except for possible violations that either singly or in the aggregate do not and will not have a Material Adverse Effect. The Company is not required under federal, state or local law, rule or regulation to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency in order for it to execute, deliver or perform any of its obligations under this Agreement or issue and sell the Common Stock in accordance with the terms hereof (other than any SEC, FINRA or state securities filings that may be required to be made by the Company subsequent to any Closing, or any registration statement that may be filed pursuant hereto); provided that, for purposes of the representation made in this sentence, the Company is assuming and relying upon the accuracy of the relevant representations and agreements of Investor herein.

 

Section 4.8           NO MATERIAL ADVERSE CHANGE. Since December 31, 2015 no event has occurred that would have a Material Adverse Effect on the Company.

 

Section 4.9           LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the Company’s SEC filings, there are no lawsuits or proceedings pending or to the knowledge of the Company threatened, against the Company, nor has the Company received any written or oral notice of any such action, suit, proceeding or investigation, which would have a Material Adverse Effect. No judgment, order, writ, injunction or decree or award has been issued by or, so far as is known by the Company, requested of any court, arbitrator or governmental agency which would have a Material Adverse Effect.

 

Section 4.10         DILUTION. The number of shares of Common Stock issuable as Put Shares may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines during the period between the Execution Date and the end of the Commitment Period. The Company’s executive officers and directors have studied and fully understand the nature of the transactions contemplated by this Agreement and recognize that they have a potential dilutive effect. The board of directors of the Company has concluded in its good faith business judgment that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the Put Shares is binding upon the Company and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Company.

 

ARTICLE V

COVENANTS OF INVESTOR

 

Section 5.1           COMPLIANCE WITH LAW; TRADING IN SECURITIES. Investor's trading activities with respect to shares of the Common Stock will be in compliance with all applicable state and federal securities laws, rules and regulations and the rules and regulations of FINRA and the Principal Market on which the Common Stock is listed or quoted.

 

Section 5.2           SHORT SALES AND CONFIDENTIALITY. Neither Investor nor any trading affiliate will execute any Short Sales during the period from the date hereof to the end of the Commitment Period. For the purposes hereof, and in accordance with Regulation SHO, the sale after delivery of a Put Notice of such number of shares of Common Stock reasonably expected to be purchased under a Put Notice shall not be deemed a Short Sale.

 

Other than to other Persons party to this Agreement, Investor has maintained the confidentiality of all disclosures made to it in connection with this transaction (including the existence and terms of this transaction).

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ARTICLE VI

COVENANTS OF THE COMPANY

Section 6.1           RESERVATION OF COMMON STOCK. The Company will, from time to time as needed in advance of a Closing Date, reserve and keep available until the consummation of such Closing, free of preemptive rights sufficient shares of Common Stock for the purpose of enabling the Company to satisfy its obligation to issue the Put Shares to be issued in connection therewith. The number of shares so reserved from time to time, as theretofore increased or reduced as hereinafter provided, may be reduced by the number of shares actually delivered hereunder.

 

Section 6.2           LISTING OF COMMON STOCK. If the Company applies to have the Common Stock traded on any other Principal Market, it shall include in such application the Put Shares, and shall take such other action as is necessary or desirable in the reasonable opinion of Investor to cause the Common Stock to be listed on such other Principal Market as promptly as possible. The Company shall use its commercially reasonable efforts to continue the listing and trading of the Common Stock on the Principal Market (including, without limitation, maintaining sufficient net tangible assets) and will comply in all respects with the Company's reporting, filing and other obligations under the bylaws or rules of the FINRA and the Principal Market.

 

Section 6.3           CERTAIN AGREEMENTS. So long as this Agreement remains in effect, the Company covenants and agrees that it will not, without the prior written consent of the Investor, enter into any other equity line of credit agreement with a third party during the Commitment Period having terms and conditions substantially comparable to this Agreement. For the avoidance of doubt, nothing contained in the Transaction Documents shall restrict, or require the Investor's consent for, any agreement providing for the issuance or distribution of (or the issuance or distribution of) any equity securities pursuant to any agreement or arrangement that is not commonly understood to be an "equity line of credit."

 

ARTICLE VII

CONDITIONS TO DELIVERY OF

PUT NOTICES AND CONDITIONS TO CLOSING

 

Section 7.1           CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO ISSUE AND SELL COMMON STOCK. The obligation hereunder of the Company to issue and sell the Put Shares to Investor is subject to the satisfaction of each of the conditions set forth below.

 

(a)   ACCURACY OF INVESTOR'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of Investor shall be true and correct in all material respects as of the date of this Agreement and as of the date of each such Closing as though made at each such time.

 

(b)          PERFORMANCE BY INVESTOR. Investor shall have performed, satisfied and complied in all respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by Investor at or prior to such Closing.

  

Section 7.2           CONDITIONS PRECEDENT TO THE RIGHT OF THE COMPANY TO DELIVER A PUT NOTICE AND THE OBLIGATION OF INVESTOR TO PURCHASE PUT SHARES. The right of the Company to deliver a Put Notice and the obligation of Investor hereunder to acquire and pay for the Put Shares is subject to the satisfaction of each of the following conditions:

 

(a)          EFFECTIVE REGISTRATION STATEMENT. The Registration Statement, and any amendment or supplement thereto, shall remain effective for the sale by Investor of the Registered Securities subject to such Put Notice, and (i) neither the Company nor Investor shall have received notice that the SEC has issued or intends to issue a stop order with respect to such Registration Statement or that the SEC otherwise has suspended or withdrawn the effectiveness of such Registration Statement, either temporarily or permanently, or intends or has threatened to do so and (ii) no other suspension of the use or withdrawal of the effectiveness of such Registration Statement or related prospectus shall exist. 

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(b)          ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company shall be true and correct in all material respects (except for representations and warranties specifically made as of a particular date), except for any conditions which have temporarily caused any representations or warranties herein to be incorrect and which have been corrected with no continuing impairment to the Company or Investor.

 

(c)          PERFORMANCE BY THE COMPANY. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company.

 

(d)          NO INJUNCTION. No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or governmental authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the transactions contemplated by this Agreement, and no proceeding shall have been commenced that may have the effect of prohibiting or materially adversely affecting any of the transactions contemplated by this Agreement.

 

(e)          ADVERSE CHANGES. Since the date of filing of the Company's most recent SEC Document, no event that had or is reasonably likely to have a Material Adverse Effect has occurred.

 

(f)          NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON STOCK. The trading of the Common Stock shall not have been suspended by the SEC, the Principal Market or the FINRA and the Common Stock shall have been approved for listing or quotation on and shall not have been delisted from the Principal Market.

 

(g)          TEN PERCENT LIMITATION. On each Closing Date, the number of Put Shares then to be purchased by Investor shall not exceed the number of such shares that, when aggregated with all other shares of Common Stock then owned by Investor beneficially or deemed beneficially owned by Investor, would result in Investor owning more than 9.99% of all of such Common Stock as would be outstanding on such Closing Date, as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder. For purposes of this Section, in the event that the amount of Common Stock outstanding as determined in accordance with Section 16 of the Exchange Act and the regulations promulgated thereunder is greater on a Closing Date than on the date upon which the Put Notice associated with such Closing Date is given, the amount of Common Stock outstanding on such Closing Date shall govern for purposes of determining whether Investor, when aggregating all purchases of Common Stock made pursuant to this Agreement, would own more than 9.99% of the Common Stock following such Closing Date.

 

(h)          NO KNOWLEDGE. The Company shall have no knowledge of any event more likely than not to have the effect of causing such Registration Statement to be suspended or otherwise ineffective (which event is more likely than not to occur within the fifteen (15) Trading Days following the Trading Day on which such Put Notice is deemed delivered).

 

(i)          OTHER. On the date of delivery of each Put Notice, Investor shall have received a certificate in substantially the form and substance of Exhibit B hereto, executed by an executive officer of the Company and to the effect that all the conditions to such Closing shall have been satisfied as at the date of each such certificate.

ARTICLE VIII

LEGENDS

 

Section 8.1         PUT SHARES. No legend shall be placed on the share certificates representing the Put Shares.

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Section 8.2         INVESTOR'S COMPLIANCE. Nothing in this Article VIII shall affect in any way Investor's obligations under any agreement to comply with all applicable securities laws upon the sale of the Common Stock.

 

ARTICLE IX

NOTICES; INDEMNIFICATION

 

Section 9.1          NOTICES. Any and all notices or other communications or deliveries to be provided by the Investor hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth below, or such other facsimile number, email address, or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 9.1.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, by email attachment, or sent by a nationally recognized overnight courier service addressed to the Investor at the facsimile number or email address or address of the Investor set forth below.  Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number or email attachment to the email address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given. The addresses for such communications shall be:

If to the Company:

Indoor Harvest Corp.

5300 East Freeway

Suite A

Houston, Texas 77020

If to the Investor:

Kodiak Capital Group, LLC

260 Newport Center Drive

Newport Beach, CA 92660

info@kodiakfunds.com

 

Either party hereto may from time to time change its address or email for notices under this Section 9.1 by giving at least ten (10) days' prior written notice of such changed address to the other party hereto.

 

Section 9.2           INDEMNIFICATION. Each party (an “Indemnifying Party”) agrees to indemnify and hold harmless the other party along with its officers, directors, employees, and authorized agents, and each Person or entity, if any, who controls such party within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (an “Indemnified Party”) from and against any Damages, joint or several, and any action in respect thereof to which the Indemnified Party becomes subject to, resulting from, arising out of or relating to (i) any misrepresentation, breach of warranty or nonfulfillment of or failure to perform any covenant or agreement on the part of Indemnifying Party contained in this Agreement, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or supplement thereto, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, (iii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus or 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 the light of the circumstances under which the statements therein were made, not misleading, or (iv) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation under the Securities Act, the Exchange Act or any state securities law, as such Damages are incurred, except to the extent such Damages result primarily from Indemnified Party's failure to perform any covenant or agreement contained in this Agreement or Indemnified Party's negligence, recklessness or bad faith in performing its obligations under this Agreement; provided, however, that the foregoing indemnity agreement shall not apply to any Damages of an Indemnified Party to the extent, but only to the extent, arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission made by an Indemnifying Party in reliance upon and in conformity with written information furnished to the Indemnifying Party by the Indemnified Party expressly for use in the Registration Statement, any post-effective amendment thereof or supplement thereto, or any preliminary prospectus or final prospectus (as amended or supplemented). 

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Section 9.3           METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for indemnification by any Indemnified Party (as defined below) under Section 9.2 shall be asserted and resolved as follows:

 

(a)          In the event any claim or demand in respect of which an Indemnified Party might seek indemnity under Section 9.2 is asserted against or sought to be collected from such Indemnified Party by a person other than a party hereto or an affiliate thereof (a "THIRD PARTY CLAIM"), the Indemnified Party shall deliver a written notification, enclosing a copy of all papers served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim for indemnification that is being asserted under any provision of Section 9.2 against an Indemnifying Party, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim (a "CLAIM NOTICE") with reasonable promptness to the Indemnifying Party. If the Indemnified Party fails to provide the Claim Notice with reasonable promptness after the Indemnified Party receives notice of such Third Party Claim, the Indemnifying Party shall not be obligated to indemnify the Indemnified Party with respect to such Third Party Claim to the extent that the Indemnifying Party's ability to defend has been prejudiced by such failure of the Indemnified Party. The Indemnifying Party shall notify the Indemnified Party as soon as practicable within the period ending thirty (30) calendar days following receipt by the Indemnifying Party of either a Claim Notice or an Indemnity Notice (as defined below) (the "DISPUTE PERIOD") whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party under Section 9.2 and whether the Indemnifying Party desires, at its sole cost and expense, to defend the Indemnified Party against such Third Party Claim.

 

(i)          If the Indemnifying Party notifies the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Indemnified Party with respect to the Third Party Claim pursuant to this Section 9.3(a), then the Indemnifying Party shall have the right to defend, with counsel reasonably satisfactory to the Indemnified Party, at the sole cost and expense of the Indemnifying Party, such Third Party Claim by all appropriate proceedings, which proceedings shall be vigorously and diligently prosecuted by the Indemnifying Party to a final conclusion or will be settled at the discretion of the Indemnifying Party (but only with the consent of the Indemnified Party in the case of any settlement that provides for any relief other than the payment of monetary damages or that provides for the payment of monetary damages as to which the Indemnified Party shall not be indemnified in full pursuant to Section 9.2). The Indemnifying Party shall have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that the Indemnified Party may, at the sole cost and expense of the Indemnified Party, at any time prior to the Indemnifying Party's delivery of the notice referred to in the first sentence of this clause (i), file any motion, answer or other pleadings or take any other action that the Indemnified Party reasonably believes to be necessary or appropriate to protect its interests; and provided further, that if requested by the Indemnifying Party, the Indemnified Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnifying Party in contesting any Third Party Claim that the Indemnifying Party elects to contest. The Indemnified Party may participate in, but not control, any defense or settlement of any Third Party Claim controlled by the Indemnifying Party pursuant to this clause (i), and except as provided in the preceding sentence, the Indemnified Party shall bear its own costs and expenses with respect to such participation. Notwithstanding the foregoing, the Indemnified Party may takeover the control of the defense or settlement of a Third Party Claim at any time if it irrevocably waives its right to indemnity under Section 9.2 with respect to such Third Party Claim.

 

(ii)         If the Indemnifying Party fails to notify the Indemnified Party within the Dispute Period that the Indemnifying Party desires to defend the Third Party Claim pursuant to Section 9.3(a), or if the Indemnifying Party gives such notice but fails to prosecute vigorously and diligently or settle the Third Party Claim, or if the Indemnifying Party fails to give any notice whatsoever within the Dispute Period, then the Indemnified Party shall have the right to defend, at the sole cost and expense of the Indemnifying Party, the Third Party Claim by all appropriate proceedings, which proceedings shall be prosecuted by the Indemnified Party in a reasonable manner and in good faith or will be settled at the discretion of the Indemnified Party(with the consent of the Indemnifying Party, which consent will not be unreasonably withheld). The Indemnified Party will have full control of such defense and proceedings, including any compromise or settlement thereof; provided, however, that if requested by the Indemnified Party, the Indemnifying Party will, at the sole cost and expense of the Indemnifying Party, provide reasonable cooperation to the Indemnified Party and its counsel in contesting any Third Party Claim which the Indemnified Party is contesting. Notwithstanding the foregoing provisions of this clause (ii), if the Indemnifying Party has notified the Indemnified Party within the Dispute Period that the Indemnifying Party disputes its liability or the amount of its liability hereunder to the Indemnified Party with respect to such Third Party Claim and if such dispute is resolved in favor of the Indemnifying Party in the manner provided in clause (iii) below, the Indemnifying Party will not be required to bear the costs and expenses of the Indemnified Party's defense pursuant to this clause (ii) or of the Indemnifying Party's participation therein at the Indemnified Party's request, and the Indemnified Party shall reimburse the Indemnifying Party in full for all reasonable costs and expenses incurred by the Indemnifying Party in connection with such litigation. The Indemnifying Party may participate in, but not control, any defense or settlement controlled by the Indemnified Party pursuant to this clause (ii), and the Indemnifying Party shall bear its own costs and expenses with respect to such participation.

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(iii)        If the Indemnifying Party notifies the Indemnified Party that it does not dispute its liability or the amount of its liability to the Indemnified Party with respect to the Third Party Claim under Section 9.2 or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes its liability or the amount of its liability to the Indemnified Party with respect to such Third Party Claim, the amount of Damages specified in the Claim Notice shall be conclusively deemed a liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

 

(b)          In the event any Indemnified Party should have a claim under Section 9.2 against the Indemnifying Party that does not involve a Third Party Claim, the Indemnified Party shall deliver a written notification of a claim for indemnity under Section 9.2 specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such claim (an "INDEMNITY NOTICE") with reasonable promptness to the Indemnifying Party. The failure by any Indemnified Party to give the Indemnity Notice shall not impair such party's rights hereunder except to the extent that the Indemnifying Party demonstrates that it has been irreparably prejudiced thereby. If the Indemnifying Party notifies the Indemnified Party that it does not dispute the claim or the amount of the claim described in such Indemnity Notice or fails to notify the Indemnified Party within the Dispute Period whether the Indemnifying Party disputes the claim or the amount of the claim described in such Indemnity Notice, the amount of Damages specified in the Indemnity Notice will be conclusively deemed a liability of the Indemnifying Party under Section 9.2 and the Indemnifying Party shall pay the amount of such Damages to the Indemnified Party on demand. If the Indemnifying Party has timely disputed its liability or the amount of its liability with respect to such claim, the Indemnifying Party and the Indemnified Party shall proceed in good faith to negotiate a resolution of such dispute; provided, however, that if the dispute is not resolved within thirty (30) days after the Claim Notice, the Indemnifying Party shall be entitled to institute such legal action as it deems appropriate.

 

(c)          The Indemnifying Party agrees to pay the Indemnified Party, 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.

 

(d)          The indemnity provisions contained herein shall be in addition to (i) any cause of action or similar rights of the Indemnified Party against the Indemnifying Party or others, and (ii) any liabilities the Indemnifying Party may be subject to.

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ARTICLE X

MISCELLANEOUS

 

Section 10.1         GOVERNING LAW; JURISDICTION. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the Company and the Investor shall be governed, construed and interpreted in accordance with the laws of the State of California, without giving effect to principles of conflicts of law. Each of the Company and Investor hereby submit to the exclusive jurisdiction of the United States Federal and state courts located in California with respect to the the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein.

 

Section 10.2         JURY TRIAL WAIVER. The Company and the Investor hereby waive a trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other in respect of any matter arising out of or in connection with the Transaction Documents.

 

Section 10.3         ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the Company and Investor and their respective successors. Neither this Agreement nor any rights of Investor or the Company hereunder may be assigned by either party to any other person.

 

Section 10.4         THIRD PARTY BENEFICIARIES. This Agreement is intended for the benefit of the Company and Investor and their respective successors, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.

 

Section 10.5         TERMINATION. The Company may terminate this Agreement at any time by written notice to the Investor. Additionally, this Agreement shall terminate at the end of Commitment Period or as otherwise provided herein; provided, however, that the provisions of Articles IX, and Sections 10.1 and 10.2 shall survive the termination of this Agreement for a period of twenty four (24) months.

 

Section 10.6         ENTIRE AGREEMENT, AMENDMENT; NO WAIVER. This Agreement and the instruments referenced herein contain the entire understanding of the Company and Investor with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor Investor makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the party to be charged with enforcement.

 

Section 10.7         FEES AND EXPENSES. The Company agrees to pay its own expenses in connection with the preparation of this Agreement and performance of its obligations hereunder. The Company shall pay all stamp or other similar taxes and duties levied in connection with issuance of the Put Shares pursuant hereto.

 

Section 10.8         COUNTERPARTS. This Agreement may be executed in multiple counterparts, each of which may be executed by less than all of the parties and shall be deemed to be an original instrument which shall be enforceable against the parties actually executing such counterparts and all of which together shall constitute one and the same instrument. This Agreement may be delivered to the other parties hereto by email of a copy of this Agreement bearing the signature of the parties so delivering this Agreement.

 

Section 10.9         SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that such severability shall be ineffective if it materially changes the economic benefit of this Agreement to any party.

 

Section 10.10         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.

 

Section 10.11         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.

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Section 10.12         EQUITABLE RELIEF. The Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to Investor. The Company therefore agrees that Investor shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

 

Section 10.13         TITLE AND SUBTITLES. The titles and subtitles used in this Agreement are used for the convenience of reference and are not to be considered in construing or interpreting this Agreement.

 

Section 10.14         REPORTING ENTITY FOR THE COMMON STOCK. The reporting entity relied upon for the determination of the Closing Price for the Common Stock on any given Trading Day for the purposes of this Agreement shall be Bloomberg Finance L.P. or any successor thereto. The written mutual consent of Investor and the Company shall be required to employ any other reporting entity.

 

Section 10.15         PUBLICITY. The Company and Investor shall consult with each other in issuing any press releases or otherwise making public statements with respect to the transactions contemplated hereby and no party shall issue any such press release or otherwise make any such public statement without the prior written consent of the other parties, which consent shall not be unreasonably withheld or delayed, except that no prior consent shall be required if such disclosure is required by law, in which such case the disclosing party shall provide the other parties with prior notice of such public statement. Notwithstanding the foregoing, the Company shall not publicly disclose the name of Investor without the prior written consent of such Investor, except to the extent required by law. Investor acknowledges that this Agreement and all or part of the Transaction Documents may be deemed to be "material contracts" as that term is defined by Item 601(b)(10) of Regulation S-K, and that the Company may therefore be required to file such documents as exhibits to reports or registration statements filed under the Securities Act or the Exchange Act. Investor further agrees that the status of such documents and materials as material contracts shall be determined solely by the Company, in consultation with its counsel.

[-Signature page follows-]

 

 

 

 

 

 

14

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed by their respective officers thereunto duly authorized as of the day and year first above written.

COMPANY:

INDOOR HARVEST CORP.

By: /s/ Chad Sykes

Name: Chad Sykes

Title: CEO

INVESTOR:

KODIAK CAPITAL GROUP, LLC

By: /s/ Ryan Hodson

Name: Ryan Hodson

Title: Managing Member

[-Signature page to Equity Purchase Agreement-]

15

EXHIBIT A

 

FORM OF PUT NOTICE

 

TO: KODIAK CAPITAL GROUP, LLC

 

We refer to the Equity Purchase Agreement dated January 30, 2016 (the “Agreement”) entered into by Indoor Harvest Corp. (the “Company”) and you. Capitalized terms defined in the Agreement shall, unless otherwise defined, have the same meaning when used herein.

We hereby:

1) Give you notice that we require you to purchase ______________ Put Shares;

2) Certify that, as of the date hereof, to the best of our knowledge, the conditions set forth in Section 7.2 of the Agreement are satisfied.

Date: _____________, 2016

__________

By:

Name:

Title:

 

16

EXHIBIT B

 

FORM OF CERTIFICATE OF THE CHIEF EXECUTIVE OFFICER OF INDOOR HARVEST CORP.

 

Pursuant to Section 7.2(j) of that certain Equity Purchase Agreement dated January 30, 2016 (the “Agreement”) by and between the Company and Kodiak Capital Group, LLC (the “Investor”), the undersigned, in his capacity as the Chief Executive Officer of Indoor Harvest Corp. (the “Company”), and not in his individual capacity, hereby certifies, as of the date hereof (such date, the “Condition Satisfaction Date”), the following:

 

1.          The representations and warranties of the Company are true and correct in all material respects as of the Condition Satisfaction Date as though made on the Condition Satisfaction Date (except for representations and warranties specifically made as of a particular date) with respect to all periods, and as to all events and circumstances occurring or existing to and including the Condition Satisfaction Date, except for any conditions which have temporarily caused any representations or warranties of the Company set forth in the Agreement to be incorrect and which have been corrected with no continuing impairment to the Company or Investor; and

 

2.          All of the Company’s conditions to Closing set forth in Section 7.2 of the Agreement have been satisfied as of the Condition Satisfaction Date.

 

Capitalized terms used herein shall have the meanings set forth in the Agreement unless otherwise defined herein.

 

IN WITNESS WHEREOF, the undersigned has hereunto affixed his hand as of the __________ day of ____________, 2016.

 

By:

Name:

Title:

17

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