Document:

ex-10.1

 

 STRATEGIC PARTNERSHIP AGREEMENT
 

 This Strategic Partnership ("Agreement") is entered into this 17th day of October 2016 (the "Effective Date"), by and between GroGenesis, Inc., a corporation incorporated in Nevada, USA, having an address at 101 S. Reid Street, Suite 307, Sioux Falls, SD 57103, ("GroGenesis"), Eco Squared Solutions, Inc., a corporation incorporated in Nevada, USA, having an address at 3311 La Costa Avenue, Carlsbad, CA 92009, (“ESSI”) and Eco Water Solutions, Inc., a corporation incorporated in Nevada, USA, having an address at 6607 S. Baymont Street, Spokane, WA 99224, (“EWSI”), and together with GroGenesis, the "Parties" and each a "Party".
 

 Whereas, GroGenesis is a producer of natural plant health enhancement technologies;
 

 Whereas, ESSI is the exclusive owner of the PCT System for Separating Contaminants from Water (the “PCT System”);
 

 Whereas, EWSI is the exclusive licensee to market, sell, use, rent and/or lease the PCT System to end users; and
 

 Whereas, GroGenesis wishes to collaborate and set forth the terms of such collaboration with ESSI and EWSI regarding the joint control, management and marketing by the Parties of the PCT System on a worldwide basis (the "Territory").
 

 NOW THEREFORE the Parties hereby agree as follows: 
 

 1.
 PURPOSE AND OBJECT OF THE STRATEGIC PARTNERSHIP
 

 1.1.
 The Parties agree to form a Strategic Partnership ("SP"), subject to the terms and conditions of this Agreement, as follows and with the following responsibilities for each Party:
 

 1.1.1.
 The “SP” shall be formed through a newly formed South Dakota corporation named “American Water Sanitation, LLC”.  The formation costs and tax returns shall be borne by the SP.  Other ongoing accounting costs of the SP shall be the responsibility of GroGenesis, as described in Section 2.8.
 

 1.1.2.
 The purpose of the SP is to pool the respective resources of each Party in order to offer, through sale or other commercially acceptable means, the PCT System to certain clients of GroGenesis (“End Users”).  Furthermore, the purpose is to provide the services necessary to install the PCT System and technologies through the use of the PCT System (the “Services”) in three applications, including (i) water sanitation and remediation for contaminated bodies of water, (ii) water sanitation and remediation for bodies of water that irrigate and hydrate livestock and (iii) water sanitation and remediation for bodies of water that provide clean water for human consumption.
 

 1.1.3.
 The objective of the SP is to fulfill its intended purpose at a mutually agreeable profit margin in order to grow the sales, and Services of the PCT System in the Territory and separately from each Party’s other independent business interests not related to SP’s activities to End Users.
 

 1.2.
 Nothing in this Agreement shall be considered as a limitation of the powers or rights of any of the Parties to carry on its independent business for its sole benefit in addition to the SP.
 

 

 

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 2.
 UNDERTAKING OF THE PARTIES; FINANCING & PARTICIPATION SHARES & ROLES
 

 2.1.
 GroGenesis shall manage the framework for management expertise, marketing and distribution for the PCT System and shall provide a sales and marketing plan outlining expected unit volume in the Territory.  Until agreed otherwise, GroGenesis shall incur all costs related to the establishment and set-up costs associated therewith.
 

 2.2.
 ESSI shall manage the framework for production and manufacturing technology for the PCT System and shall provide the initial PCT Systems and develop plans to provide the number of PCT Systems on an as-needed basis.  Until agreed otherwise, ESSI shall incur all costs related to the establishment and set-up costs associated therewith, except that ESSI shall be paid a minimum of 50% of ESSI’s manufacturing costs upon any order of the PCT System and 50% upon shipment.  Such payments shall be made through the SP and be facilitated by the SP’s requirement that any End Users have payment terms similar or no more favorable to any End User in order to defray the need for any loans or investments by any of the Parties into the SP.
 

 2.3.
 EWSI shall provide and manage the framework for establishing a network of sub-licensees, sub-dealers or sub-distributors.  Until agreed otherwise, EWSI shall incur all costs related to the establishment and set-up costs associated therewith.
 

 2.4.
 A Work Plan (as defined below) shall be established between the Parties that more fully outlines the responsibilities under this Section 2 and shall be attached as Exhibit A.
 

 2.5.
 With exception to the cost of manufacturing and cost of services associated with the manufacturing, installation and maintenance for any sale, lease, rental or any other operational, field testing and/or commercial services provided to End Users of the PCT System that shall be borne by the SP, each Party shall each bear their own respective costs associated with the performance of their respective duties under the SP.
 

 2.6.
 The ownership structure of the SP shall be allocated as to 51% to GroGenesis and 24.5% to ESSI and 24.5% to EWSI.
 

 2.7.
 The net profits of the SP, as defined as operating income less any applicable taxes owed by the SP, shall be allocated as to 50% to GroGenesis and as to 50% to EWSI.  EWSI and ESSI shall divide EWSI profits pursuant to the controlling terms as specified in their separate exclusive license agreement.
 

 2.8.
 The operations, management and accounting functions of the SP shall be governed by GroGenesis with respect to marketing and distribution and by ESSI and EWSI with respect to the requisite technical support, maintenance and repair protocol and procedures, and the necessary trained personnel to effectuate all requisite policies, procedures and protocols needed in the regular course of business and marketing of the PCT System.  ESSI and EWSI understand that GroGenesis is a U.S. Public Company and is registered under the Securities Acts of 1933 and 1934 (the “Securities Acts”) and that GroGenesis must comply with specific auditing standards for its public reporting.  As such GroGenesis will be required to manage and oversee the finances and accounting of the SP in order to properly maintain its books and records under the Securities Acts.
 

 2.9.
 The board of the SP shall consist of five (5) directors, with three (3) chosen by GroGenesis and one (1) chosen by ESSI and one (1) chosen by EWSI (the “Board of Directors”).
 

 

 

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 2.10.
 In addition, if required for SP in the Territory, each Party shall have the option to invest additional sums into the SP (the "Initial Funding").  The terms of such Funding shall be negotiated in good faith and shall be mutually agreed by all Parties at such time of any Funding.  Any additional fundings beyond the Initial Funding shall be agreed by the Parties in the Work Plan (as defined below).
 

 2.11.
 All Parties shall comply with all applicable laws within their respective roles and within the Territory at all times.
 

 3.
 WORK PLAN
 

 3.1.
 The definitive work plan, setting forth in detail the respective tasks for which each of the Parties is responsible for under the SP together with a time schedule for the completion of such tasks (hereinafter referred to as the "Work Plan") will be agreed upon in writing by the Parties and shall be attached to this Agreement as Exhibit A, within no later than 60 days following the Effective Date.  Any change to the Work Plan shall be approved in advance by the Steering Committee (as defined below).
 

 3.2.
 Each Party shall exert its reasonable commercial efforts to carry out its respective tasks in a timely and professional manner in accordance with the Work Plan.
 

 3.3.
 Notwithstanding anything to the contrary that may be inferred by any provision of this Agreement, no Party shall have the authority or right, nor shall any Party hold itself out as having the authority or right to assume, create or undertake any obligation of any kind whatsoever, expressed or implied, on behalf or in the name of any other Party unless otherwise agreed by the Parties in writing, and as set forth in this Agreement.
 

 4.
 STEERING COMMITTEE
 

 4.1.
 The Parties shall set up a steering committee for the management of the SP, which shall also serve as the Board of Directors of the SP ("Steering Committee").
 

 4.2.
 The Steering Committee shall be composed of five (5) representatives consistent with the Board of Directors or that the Board of Directors may separately designtate from time to time as necessary.  Each Party shall be entitled to replace its member(s) after informing the other Parties in writing.  Each Party will appoint by written notice to the other Party the said representatives.  The members shall be nominated by the Parties prior to the first Steering Committee Meeting.
 

 4.3.
 All management decisions relating to the SP shall be taken unanimously by the Steering Committee.
 

 4.4.
 As a general rule, the Steering Committee shall meet (in person and/or via phone or video conference) at least annually, unless agreed otherwise.  Any Party who wishes to summon a Steering Committee meeting, shall give the other members of the Steering Committee at least five (5) calendar days' notice of meetings and shall also fix the date, time, place and agenda with the relevant data and documents to be approved, attached to the agenda.
 

 4.5.
 At the meeting of the Steering Committee, other representatives of the Parties or legal counsels may be present without a voting right, so that information is more complete and taking resolutions is more constructive, provided their attendance is communicated in advance.
 

 4.6.
 One member appointed by the majority equity holder in SP shall serve as chairman of the Steering Committee.
 

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 4.7.
 Each member of the Steering Committee shall have one vote.
 

 4.8.
 The resolutions of the Steering Committee shall be recorded in minutes and will be sent (by Email) to all members of the Steering Committee within one week.  Such minutes shall be deemed to have been approved by the Steering Committee if no objections are raised within a period of fourteen (14) calendar days after receipt thereof.
 

 4.9.
 In urgent cases, a unanimous decision of the Steering Committee may also be reached by e-mail or fax initiated by the Chairman and, on the occasion of the following Steering Committee meeting, such decision shall be ratified and included in the minutes.
 

 4.10.
 The members of the Steering Committee will not receive any remuneration, except as may otherwise be agreed in writing by the Parties.
 

 5.
 REPRESENTATIONS AND WARRANTIES OF EACH PARTY.
 

 Each Party hereby represents, warrants and undertakes that: (i) it has the requisite power and authority to enter into and carry out the terms of this Agreement and its performance under this Agreement will not conflict and/or constitute a breach of with any other obligation it may have to any other Party and/or cause the breach of or violation of any applicable laws or regulation; (ii) it shall keep complete, accurate and correct books of account and records consistent with sound business and accounting principles and practices and any other documentation related to its SP activities and make such books of accounts, records and documentation available for inspection by the other Parties and agrees that it will notify the other Parties immediately if it becomes aware of any actual or potential claims, suits, actions, allegations or charges that could affect any Party’s ability to fully perform its duties or to exercise its rights under the Agreement.  Without derogating from any of the forgoing, each Party shall keep the other Parties regularly informed of all developments relating to the SP and its activities under this Agreement and provide the other Parties with any information relating to its activities reasonably requested by any other Party.
 

 6.
 INDEMNIFICATION.
 

 6.1.
 Each Party ("Indemnifying Party") agrees to indemnify, defend and hold harmless the other Party, and its respective officers, directors, shareholders, employees, accountants, attorneys, agents, affiliates, subsidiaries, successors and assigns ("Indemnified Party") from and against any and all third party claims, damages, liabilities, costs and out of pocket expenses, including reasonable legal fees and expenses (collectively "Losses"), arising out of : (i) any breach of any express warranty, representation, covenant or obligation made by the Indemnifying Party in this Agreement ; and/or (ii) the negligence or willful misconduct of the Indemnifying Party, except to the extent that such losses arise from: (i) any breach of any express warranty, representation, covenant or obligation made by any of the Indemnified Parties in this Agreement; and/or (ii) the negligence or willful misconduct of any of Indemnified Parties.
 

 6.2.
 The foregoing indemnity is conditioned upon (i) prompt written notice by the Indemnified Party to the Indemnifying Party of any claim, action or demand for which indemnity is claimed, provided that the failure to provide such notice shall not relieve the Indemnifying Party form its indemnification obligations, except if the Indemnifying Party was prejudiced by such failure; (ii) the opportunity to take control over the defense and settlement thereof by the Indemnifying Party; (iii) the Indemnified Party's right to be represented by separate counsel at its own expense, provided that if the Indemnifying Party fails to assume the defense or settle of any claim giving rise to the indemnification obligation within a relabeled period, the Indemnified Party shall have the right to defend the claim using counsel of its choice at the expense of the Indemnifying Party and (iii) such reasonable cooperation by the indemnified party in the defense as the indemnifying party may request.
 

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 No Party shall, without the prior written consent of the other Parties, settle, compromise or consent to the entry of any judgment with respect to any pending or threatened claim, such consent not to be unreasonably withheld or delayed.  The indemnification provided for under this Section 6 shall remain subject to the limitation of liability described in Section 7 below.
 

 7.
 LIMITATIONS OF LIABILITY; AND DISCLAIMERS.
 

 7.1.
 EXCEPT FOR ANY LABILITY WITH RESPECT TO HUMAN INJURY AND/OR DEATH, UNDER NO CIRCUMSTANCES SHALL ANY PARTY BE LIABLE TO ANOTHER PARTY FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL OR EXEMPLARY DAMAGES (EVEN IF THAT PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES), ARISING FROM PERFORMANCE UNDER OR FAILURE OF PERFORMANCE OF ANY PROVISION OF THIS AGREEMENT (INCLUDING SUCH DAMAGES INCURRED BY THIRD PARTIES), SUCH AS, BUT NOT LIMITED TO, LOSS OF REVENUE OR ANTICIPATED PROFITS OR LOST BUSINESS.  THIS SECTION 7 SETS FORTH LIMITATIONS ON LIABILITY FOR DAMAGES AND SHALL BE INAPPLICABLE TO ANY CONTRACTUAL OBLIGATION TO INDEMNIFY THAT MAY BE SET FORTH IN THIS AGREEMENT.  SOME JURISDICTIONS DO NOT PERMIT THE DISCLAIMER OF CERTAIN CATEGORIES OF DAMAGES, SO SOME OF THE FOREGOING MAY BE INAPPLICABLE DEPENDING ON THE JURISDICTION.
 

 7.2.
 WITHOUT DEROGATING FROM THE FORGOING, UNDER NO CIRCUMSTANCE WILL THE LIABILITY OF ANY PARTY TO ANOTHER PARTY, WHETHER FOR BREACH OF CONTRACT, IN TORT (INCLUDING BUT NOT LIMITED TO NEGLIGENCE) OR OTHERWISE SHALL EXCEED IN AGGREGATE AN AMOUNT OF $50,000 (FIFTY THOUSAND US DOLLARS).
 

 8.
 TERM & TERMINATION
 

 8.1.
 This Agreement shall enter into effect on the Effective Date and shall remain in effect thereafter until terminated pursuant to this Section 8 below.
 

 8.2.
 This Agreement may be terminated as follows:
 

 8.2.1.
 by written agreement by all the Parties;
 

 8.2.2.
 by any Party upon written notice to the other Parties (with immediate effect), in the event of insolvency, bankruptcy, or voluntary dissolution of any Party hereto during the term hereof or in the event of a Party's assignment of its assets for the benefit of creditors, and the Parties hereto shall have the rights as provided by applicable law;
 

 8.2.3.
 by any Party upon written notice to the other Parties (with immediate effect), in the event of a force majeure event, including, but not limited to, delay or failure in performance of this Agreement by any other Party due to acts of God, acts of governments, wars, riots, strikes, accidents in transportation, or other causes beyond the reasonable control of any other Party that continues for longer than ninety (90) days; or
 

 8.2.4.
 by any Party upon written notice to the other Parties (with immediate effect), in the event that any other Party has committed a material breach of any of the terms and conditions of this Agreement or has materially defaulted in the performance of any of its obligations under this Agreement, (provided that the non-breaching/non-defaulting Party has first given the other Parties written notice of the grounds supporting the material breach or default and any breaching/defaulting Party has not cured the material breach or default within thirty (30) days of receipt of such notice) without derogating from non-other legal and equitable remedies available to the breaching or non-defaulting Parties as provided by law, equity and/or this Agreement.
 

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 8.3.
 Sections 6, 7, 8.3, 9, 10 and 11 hereof shall survive the expiration or termination of this Agreement for any reason and shall remain in full force and effect thereafter.
 

 8.4.
 Termination of this Agreement shall not relieve any Party of any liability which accrued hereunder prior to the effective date of such termination, nor preclude any Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice any Party’s right to obtain performance of any obligation.  The remedies provided under this Agreement are cumulative, and are not exclusive of other remedies available to any Party in law or equity.
 

 9.
 CONFIDENTIALITY; NON-CIRCUMVENTION; OWNERSHIP
 

 9.1.
 Under this Agreement, the Parties may disclose or reveal to eachother and/or any other entity mentioned in this Agreement, and/or their respective affiliates, its confidential or proprietary information (“Confidential Information”).  Any such Confidential Information shall include, but not be limited to, development and manufacturing plans, know-how, financial reports, intellectual property or other non-public information proprietary to the SP, or that is proprietary to each of the Parties individually.  Each Party shall hold Confidential Information in strict confidence and secrecy and will not use or disclose, transfer and/or publish such Confidential Information in any manner or for any purposes not expressly contemplated by this Agreement.  Each Party shall not disclose any Confidential Information except to its employees who are have a need to know such Confidential Information for the purposes of this Agreement and who are subject to written agreements containing non-disclosure and non-use obligations no less restrictive than those set forth herein.  Notwithstanding the foregoing, Confidential Information shall not include information that (i) has become public knowledge through legal means without fault by the other Parties, (ii) is already public knowledge prior to the disclosure of the Confidential Information by the other Parties (iii) is known to the other Parties prior to disclosure of the same pursuant to this Agreement, or (iv) is independently developed by the other Parties without reference to or use of the Confidential Information.
 

 9.2.
 Upon any Party’s request, all or any requested portion of its Confidential Information (including, but not limited to, tangible and electronic copies, notes, summaries or extracts of any information) will be promptly returned to the respective Party or destroyed, and the returning Party will provide the respective Party with written certification stating that such Confidential Information has been returned or destroyed.
 

 9.3.
 Each of the parties will, and will cause its affiliates and representatives to, maintain in strict confidentiality this document and any transactions contemplated hereunder, the terms set forth herein and any discussions among the Parties in such respect except for any mention in any applications to official authorities for regulatory approval, or in the fulfillment of any duty owed to any competent authority (including a duty to make regulatory filings and/or reports and/or reporting under the requirements of any securities exchange).  Each of the Parties will only use received Confidential Information for its own information and as needed in related SP activities and business decisions and will not use or allow any use by others to compete with SP in any form, manner or commercial circumvention using such Confidential Information.
 

 9.4.
 The Parties shall consult and coordinate with each other respecting the timing and content of any publicity, press or news releases or other public announcements regarding this Agreement and the transactions contemplated hereby and no Party shall use the name of the other for marketing, advertising or promotional purposes without the prior written consent of the other Parties, all except for any mention in any applications to official authorities for regulatory approval, or in the fulfillment of any duty owed to any competent authority (including a duty to make regulatory filings and/or reports and/or reporting under the requirements of any securities exchange) or, in the case of GroGenesis, in the presentation of activities to its potential investors business partners and/or collaborators.
 

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 9.5.
 Without derogating from any of the forgoing, ESSI and EWSI specifically acknowledge and agree that GroGenesis, Inc. is a publicly traded company and that in the course of disclosure, ESSI and EWSI may receive certain material non-public information (financial, commercial or other).  ESSI and EWSI are aware that the United States securities laws impose restrictions on trading in securities when in possession of such information.  ESSI and EWSI further acknowledge and agree that using such information and utilizing it to its benefit may cause all Parties to be in violation of the applicable securities laws.  ESSI and EWSI undertake and agree that it and/or anyone on its behalf, shall not, directly or indirectly utilize such information in a way which may be considered ‘insider trading’ or in any way which may be considered prohibited, restricted misappropriate or otherwise in violation of the securities laws applicable to.  ESSI and EWSI also understand that, notwithstanding this Section 9, GroGenesis has disclosure obiligations under the Securities Acts.
 

 10.
 LEGAL FEES; GOVERNING LAW; DISPUTE RESOLUTION
 

 10.1.
 Each of the Parties will pay its own legal and other costs of finalizing this Agreement.
 

 10.2.
 This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Nevada, without regard to the conflict of laws rules thereof.  Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules.  The number of arbitrators shall be one and the place of arbitration shall be Nevada, where Nevada law shall apply.  Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.
 

 10.3.
 Notwithstanding the foregoing, each Party shall be entitled to pursue an injunction or other equitable relief against another Party or its agents in any jurisdiction in order to enforce the provisions hereof in respect of confidentiality and intellectual property. 
 

 11.
 MISCELLANEOUS
 

 11.1.
 This Agreement shall not be assigned by any Party to any third party without the written consent of the other Parties which consent shall not be unreasonably withheld; except that any Party may assign this Agreement, without such consent upon written notice to the other Parties, to: (i) an Affiliate of such Party, or (ii) an entity that acquires all or substantially all of its business or assets to which this Agreement pertains, whether by merger, reorganization, acquisition, sale or otherwise.  This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.
 

 11.2.
 This Agreement (including the exhibits hereto) sets forth the entire agreement and understanding among the Parties relative to the subject matter contained herein and supersedes all other agreements, oral and written, heretofore made between the Parties.  Only a writing signed by the Parties may amend this Agreement or any exhibits.  Such Amendment shall become binding as of the date indicated in the amendment or the date last signed by the authorized representatives of the Parties, if not otherwise provided for.  If any one or more of the terms of this Agreement shall for any reason be held to be invalid or unenforceable, such term shall be construed in a manner to enable it to be enforced to the extent compatible with applicable law.  Any determination of the invalidity or unenforceability of any provision of the Agreement shall not affect the remaining provisions hereof unless the business purpose of this Agreement is substantially frustrated thereby.
 

 

 

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 11.3.
 Except as otherwise provided in this Agreement, all notices permitted or required by this Agreement shall be in writing and shall be deemed to have been duly served (i) upon personal delivery (ii) upon facsimile or electronic e-mail transmission (receipt of which has been confirmed by the recipient) or (iii) seven (7) business days after deposit, postage prepaid, return receipt requested, if sent by reputed  overnight international currier service and addressed to the address of the Parties as set forth below or in accordance with such other address information as the Party to receive notice may provide in writing to the other Party in accordance with the above notice provisions.  Any notice given by any other method will be deemed to have been duly served upon receipt thereof:
 

 If to GroGenesis, Inc. at:
 

 101 S. Reid Street, Suite 307
 Sioux Falls, SD  57103
 Attn:  Richard Kamolvathin, Chief Executive Officer
 Email:  rdk@grogenesis.com
 

 If to Eco Squared Solutions, Inc. at:
 

 3311 La Costa Avenue
 Carlsbad, CA  92009
 Attn:  Robert Baron, President & CFO
 Email:  alcor1@pacbell.net 
 

 If to Eco Water Solutions, Inc. at:
 

 6607 S. Baymont Street
 Spokane, WA  99224
 Attn:  Greg Ruff, President
 Email:  gregpaulruff@aol.com 
 

 11.4.
 Each Party represents that it has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in drafting this Agreement.  In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption shall exist or be implied against the Party which drafted such terms and provisions.
 

 11.5.
 No waiver by any Party, whether express or implied, of its rights under any provision of this Agreement shall constitute a waiver of such Party’s rights under such provisions at any other time or a waiver of such Party’s rights under any other provision of this Agreement.  The failure or delay of a party to claim the performance of an obligation of another party shall not be deemed a waiver of the performance of such obligation or of any future obligations of a similar nature.
 

 11.6.
 It is hereby agreed and declared between the Parties that they shall act in all respects relating to this Agreement as independent contractors and there neither is, nor shall there be any employer-employee or principal-agent relationship between the Parties.  Each Party will be responsible for payment of all salaries and taxes and social welfare benefits and any other payments of any kind in respect of its own employees and officers, regardless of the location of the performance of their duties, or the source of the directions for the performance thereof.
 

 11.7.
 This Agreement may be executed in any number of counterparts (including counterparts transmitted by facsimile and by electronic mail), each of which shall be deemed an original, but all of which taken together shall be deemed to constitute one and the same instrument.
 

 [signature page immediately follows]
 

 

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

 	 	 	
	 GroGenesis, Inc.
	  
	 Eco Water Solutions, Inc.

	  
	  
	  

	  
	  
	  

	 /s/ Richard D. Kamolvathin
	  
	 /s/ Greg Ruff

	 Signature
	  
	 Signature

	  
	  
	  

	 Richard D. Kamolvathin
	  
	 Greg Ruff

	 Name (Print)
	  
	 Name (Print)

	  
	  
	  

	 Chief Executive Officer and Director
	  
	 President & Director

	 Title
	  
	 Title

	  
	  
	  

	  
	  
	  

	 Eco Squared Solutions, Inc.
	  
	  

	  
	  
	  

	  
	  
	  

	 /s/ Robert Baron
	  
	  

	 Signature
	  
	  

	  
	  
	  

	 Robert Baron
	  
	  

	 Name (Print)
	  
	  

	  
	  
	  

	 President, CFO & Director
	  
	  

	 Title
	  
	  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 EXHIBIT A
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 10Exhibit 4.1 Form of Warrant

NEITHER THIS SECURITY NOR THE SECURITIES FOR WHICH THIS SECURITY IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

FORM OF COMMON STOCK PURCHASE WARRANT

SIGMA LABS, INC.

Warrant Shares: ______

Issuance Date: October 17, 2016

THIS COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received, ____________, or its assigns (the “Holder”) is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, to subscribe for and purchase from Sigma Labs, Inc., a Nevada corporation (the “Company”), up to ____________ shares of Common Stock (subject to adjustment hereunder, the “Warrant Shares”). The purchase price of one Warrant Share under this Warrant shall be equal to the Exercise Price, as defined in Section 2(b).

Section 1.

Definitions. Capitalized terms used and not otherwise defined herein shall have the meanings set forth in that certain Securities Purchase Agreement (the “Purchase Agreement”), dated October 17, 2016, among the Company and the Purchasers.

Section 2.

Exercise.

(a)

Exercise of the purchase rights represented by this Warrant may be made, in whole or in part, at any time or times during the period beginning on the Initial Exercise Date and ending on the close of business on the Termination Date, each as hereinafter defined. “Initial Exercise Date” shall mean the date that is the later of (i) 90 days following the closing of the Company’s proposed public securities offering initially filed with the Securities and Exchange Commission on July 28, 2016 (the “Public Offering”), or (ii) 120 days after the Issuance Date, provided however that if the Warrant is not otherwise exercisable on the 180th day following the Issuance Date, the 180th day following the Issuance Date shall be the Initial Exercise Date. “Termination Date” shall mean the three-year anniversary of the Issuance Date. The Holder shall effect exercise by delivery to the Company (or such other office or agency of the Company as it may designate by notice in writing to the registered Holder at the address of the Holder appearing on the books of the Company) of a duly executed facsimile copy of the Notice of Exercise Form annexed hereto. Within two (2) Trading Days following the date of exercise as aforesaid, the Holder shall deliver the aggregate Exercise Price for the shares specified in the applicable Notice of Exercise by wire transfer or cashier’s check drawn on a United States bank unless the cashless exercise procedure specified in Section 2(c) below is specified in the applicable Notice of Exercise. Notwithstanding anything herein to the contrary (although the Holder may surrender the Warrant to, and receive a replacement Warrant from, the Company), the Holder shall not be required to physically surrender this Warrant to the Company until the Holder has purchased all of the Warrant Shares available hereunder and the Warrant has been exercised in full, in which case, the Holder shall surrender this Warrant to the Company for cancellation within three (3) Trading Days of the date the final Notice of Exercise is delivered to the Company. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. The Holder and the Company shall maintain records showing the number of Warrant Shares purchased and the date of such purchases. The Company shall deliver any objection to any Notice of Exercise Form within one (1) Trading Day of delivery of such notice. The Holder by acceptance of this Warrant, acknowledges and agrees that, by reason of the provisions of this paragraph, following the purchase of a portion of the Warrant Shares hereunder, the number of Warrant Shares available for purchase hereunder at any given time may be less than the amount stated on the face hereof.

(b)

Exercise Price. The initial exercise price per share of the Common Stock under this Warrant shall be equal to the lesser of (i) the final price per Unit in the Public Offering, and (ii) 150% of the closing price of the Common Stock as reported by the OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices) on the Issuance Date, subject to adjustment under Section 3 (the “Exercise Price”). 

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(c)

Cashless Exercise. If, at any time after the Initial Exercise Date, there is no effective Registration Statement covering the resale of the Warrant Shares by the Holder, then this Warrant may also be exercised at the Holder’s election, in whole or in part and in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise, at such time by means of a “cashless exercise” in which the Holder shall be entitled to receive a number of Warrant Shares equal to the quotient obtained by dividing [(A x B) – (A x C)] by (B), where:

(A)

= the number of Warrant Shares that would be issuable upon exercise of this Warrant in accordance with the terms of this Warrant if such exercise were by means of a cash exercise rather than a cashless exercise;

(B)

= the greater of (i) the arithmetic average of the VWAPs for the five (5) consecutive Trading Days ending on the date immediately preceding the date on which the Holder elects to exercise this Warrant by means of a “cashless exercise,” as set forth in the applicable Notice of Exercise or (ii) the VWAP for the Trading Day immediately prior to the date on which the Holder makes such “cashless exercise” election; 

(C)

= the Exercise Price of this Warrant, as adjusted hereunder, at the time of such exercise.

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b) if OTCQB or OTCQX is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on OTCQB or OTCQX as applicable, (c) if the Common Stock is not then listed or quoted for trading on OTCQB or OTCQX and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the Holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

If Warrant Shares are issued in such a cashless exercise, the parties acknowledge and agree that in accordance with Section 3(a)(9) of the Securities Act, the Warrant Shares shall take on the characteristics of the Warrants being exercised, and the holding period of the Warrants being exercised may be tacked on to the holding period of the Warrant Shares if Section 3(a)(9) of the Securities Act allows for that. The Company agrees not to take any position contrary to this Section 2(c).

Notwithstanding anything herein to the contrary, if on the Termination Date (unless the Holder notifies the Company otherwise) if there is no effective Registration Statement covering the resale of the Warrant Shares by the Holder, then this Warrant shall be automatically exercised via cashless exercise pursuant to this Section 2(c).

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(d)

Mechanics of Exercise. 

(i)

Delivery of Certificates Upon Exercise. Certificates for shares purchased hereunder shall be transmitted to the Holder by the Transfer Agent by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit or Withdrawal at Custodian system (“DWAC”) if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Warrant Shares to or resale of the Warrant Shares by the Holder or (B) this Warrant is being exercised via cashless exercise and Rule 144 is available, and otherwise by physical delivery to the address specified by the Holder in the Notice of Exercise by the date that is three (3) Trading Days (or two Trading Days if Exchange Act Rule 15c6-1(a) is amended by the SEC to provide for settlement within two business days after a trade has been executed) after the latest of (A) the delivery to the Company of the Notice of Exercise and (B) payment of the aggregate Exercise Price as set forth above (unless by cashless exercise, if permitted) (such date, the “Warrant Share Delivery Date”), so long as, no later than the latest of the date in clause (A) or (B), the Holder and the Holder’s broker have provided to the Company or the Company’s transfer agent all customary documents requested by the Company’s transfer agent in connection with the foregoing delivery. The Warrant Shares shall be deemed to have been issued, and Holder or any other person so designated to be named therein shall be deemed to have become a holder of record of such shares for all purposes, as of the date the Warrant has been exercised, with payment to the Company of the Exercise Price (or by cashless exercise, if permitted) and all taxes required to be paid by the Holder, if any, pursuant to Section 2(d)(vi) prior to the issuance of such shares, having been paid. The Company understands that a delay in the delivery of the Warrant Shares after the Warrant Share Delivery Date could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Warrant Shares upon exercise of this Warrant the proportionate amount of $10 per Trading Day (increasing to $20 per Trading Day after the fifth (5th) Trading Day) after the Warrant Share Delivery Date for each $1,000 of Exercise Price of Warrant Shares for which this Warrant is exercised which are not timely delivered. The Company shall pay any payments incurred under this Section 2(d)(i) in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Warrant Shares by the Warrant Share Delivery Date, the Holder may revoke all or part of the relevant Warrant exercise by delivery of a notice to such effect to the Company, whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the exercise of the relevant portion of this Warrant, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.

(ii)

Delivery of New Warrants Upon Exercise. If this Warrant shall have been exercised in part, the Company shall, at the request of a Holder and upon surrender of this Warrant certificate, at the time of delivery of the certificate or certificates representing Warrant Shares, deliver to the Holder a new Warrant evidencing the rights of the Holder to purchase the unpurchased Warrant Shares called for by this Warrant, which new Warrant shall in all other respects be identical to this Warrant.

(iii)

Rescission Rights. If the Company fails to deliver the Warrant Shares or cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to Section 2(d)(i) by the Warrant Share Delivery Date, then the Holder will have the right, at any time prior to issuance of such Warrant Shares, to rescind such exercise.

(iv)

Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise. In addition to any other rights available to the Holder, if the Company fails to deliver the Warrant Shares, or cause the Transfer Agent to transmit to the Holder a certificate or the certificates representing the Warrant Shares pursuant to an exercise on or before the Warrant Share Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Shares which the Holder anticipated receiving upon such exercise (a “Buy-In”), then the Company shall (A) pay in cash to the Holder the amount, if any, by which (x) the Holder’s total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (1) the number of Warrant Shares that the Company was required to deliver to the Holder in connection with the exercise at issue times (2) the price at which the sell order giving rise to such purchase obligation was executed, and (B) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of Warrant Shares for which such exercise was not honored (in which case such exercise shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued had the Company timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (A) of the immediately preceding sentence the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon exercise of the Warrant as required pursuant to the terms hereof.

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(v)

No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Warrant. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such exercise, the Company shall, at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Exercise Price or round up to the next whole share.

(vi)

Charges, Taxes and Expenses. Issuance of certificates for Warrant Shares shall be made without charge to the Holder for any issue or transfer tax or other incidental expense in respect of the issuance of such certificate including any charges of any clearing firm, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder or in such name or names as may be directed by the Holder; provided, however, that in the event certificates for Warrant Shares are to be issued in a name other than the name of the Holder, this Warrant when surrendered for exercise shall be accompanied by the Assignment Form attached hereto duly executed by the Holder and the Company may require, as a condition thereto, the payment of a sum sufficient to reimburse it for any transfer tax incidental thereto. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Exercise.

(vii)

Closing of Books. The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

(e)

Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, pursuant to Section 2 or otherwise, to the extent that after giving effect to such issuance after exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other Persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, nonexercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or nonconverted portion of any other securities of the Company (including, without limitation, any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 2(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this Section 2(e) applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 2(e), in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or the Transfer Agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within one Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. The Holder, upon not less than 61 days’ prior notice to the Company, may increase the Beneficial Ownership Limitation provisions of this Section 2(e) solely with respect to the Holder’s Warrant, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this Section 2(e) shall continue to apply. Any such increase will not be effective until the 61st day after such notice is delivered to the Company. The Holder may also decrease the Beneficial Ownership Limitation provisions of this Section 2(e) solely with respect to the Holder’s Warrant at any time, which decrease shall be effectively immediately upon delivery of notice to the Company. The provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 2(e) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Warrant.

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Section 3.

Certain Adjustments. 

(a)

Stock Dividends and Splits. If the Company, at any time while this Warrant is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions on shares of its Common Stock or any other equity or equity equivalent securities payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon exercise of this Warrant or pursuant to any of the other Transaction Documents), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of reverse stock split) outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each case the Exercise Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event, and the number of shares issuable upon exercise of this Warrant shall be proportionately adjusted such that the aggregate Exercise Price of this Warrant shall remain unchanged. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

(b)

Adjustments for Issuance of Additional Securities. Until the earlier of (i) the closing of the Public Offering, and (ii) the full exercise or expiration of this Warrant, in the event that the Company shall, at any time, issue or sell any additional shares of Common Stock or Common Stock Equivalents (hereafter defined) in a transaction other than an Exempt Issuance (“Additional Shares of Common Stock”), at a price per share less than the Exercise Price then in effect or without consideration (a “Dilutive Issuance” based on a “Dilutive Issuance Price”), then the Exercise Price upon each such issuance shall be reduced to the Dilutive Issuance Price and the number of Warrant Shares (excluding Warrant Shares previously exercised) shall not be adjusted. 

If the price per share for which Additional Shares of Common Stock are sold, or may be issuable pursuant to any such Common Stock Equivalent, is less than the applicable Exercise Price then in effect, or if, after any such issuance of Common Stock Equivalents, the price per share for which Additional Shares of Common Stock may be issuable thereafter is amended or adjusted, and such price as so amended shall be less than the applicable Exercise Price in effect at the time of such amendment or adjustment, then the applicable Exercise Price shall be adjusted upon each such issuance or amendment as provided in this Section 3(b); however, no adjustment shall be made to the number of Warrant Shares issuable upon exercise of this Warrant immediately prior to such adjustment or amendment. In case any Common Stock Equivalent is issued in connection with the issue or sale of other securities of the Company, together comprising one integrated transaction, (x) the Common Stock Equivalents will be deemed to have been issued for the Option Value of such Common Stock Equivalents and (y) the other securities issued or sold in such integrated transaction shall be deemed to have been issued or sold for the difference of (I) the aggregate consideration received by the Company less any consideration paid or payable by the Company pursuant to the terms of such other securities of the Company, less (II) the Option Value. If any shares of Common Stock or Common Stock Equivalents are issued or sold or deemed to have been issued or sold for cash, the amount of such consideration received by the Company will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock or Common Stock Equivalents are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company will be the VWAP of such publicly traded securities on the date of receipt. If any shares of Common Stock or Common Stock Equivalents are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock or Common Stock Equivalents, as the case may be. 

“Common Stock Equivalents” means any rights or warrants or options to purchase any Common Stock or Convertible Securities.

5

“Option Value” means the value of a Common Stock Equivalent based on the Black Scholes Option Pricing model obtained from the "OV" function on Bloomberg determined as of (A) the Trading Day prior to the public announcement of the issuance of the applicable Common Stock Equivalent, if the issuance of such Common Stock Equivalent is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is not publicly announced, for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the applicable Common Stock Equivalent as of the applicable date of determination, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of (A) the Trading Day immediately following the public announcement of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is not publicly announced, (iii) the underlying price per share used in such calculation shall be the highest VWAP of the Common Stock during the period beginning on the Trading Day prior to the execution of definitive documentation relating to the issuance of the applicable Common Stock Equivalent and ending on (A) the Trading Day immediately following the public announcement of such issuance, if the issuance of such Common Stock Equivalent is publicly announced or (B) the Trading Day immediately following the issuance of the applicable Common Stock Equivalent if the issuance of such Common Stock Equivalent is not publicly announced, (iv) a zero cost of borrow and (v) a 360 day annualization factor.

The provisions of this Section 3(b) shall apply each time the Company, at any time after the Issuance Date and prior to the earlier of (i) the closing of the Public Offering and (ii) the 180th day following the Issuance Date, shall issue any securities with a Dilutive Issuance Price. Notwithstanding the foregoing, no adjustment shall be made pursuant to this Section 3(b) with respect to an Exempt Issuance (as defined in the Purchase Agreement).

(c)

Intentionally Left Blank. 

(d)

Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 3(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then, upon complete exercise of this Warrant, the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Warrant (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

(e)

Pro Rata Distributions. If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock (and not to the Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to subscribe for or purchase any security other than the Common Stock (which shall be subject to Section 3(c)), then in each such case the Exercise Price shall be adjusted by multiplying the Exercise Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the VWAP determined as of the record date mentioned above, and of which the numerator shall be such VWAP on such record date less the then per share fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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(f)

Fundamental Transaction. If, at any time while this Warrant is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions other than the Public Offering consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive, for each Warrant Share that would have been issuable upon such exercise immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation on the exercise of this Warrant), at the option of the Holder the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such Fundamental Transaction (without regard to any limitation on the exercise of this Warrant). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. Notwithstanding anything to the contrary, in the event of a Fundamental Transaction, the Company or any Successor Entity (as defined below) shall, at the Holder’s option, exercisable at any time concurrently with, or within 30 days after, the consummation of the Fundamental Transaction, purchase this Warrant from the Holder by paying to the Holder an amount of cash equal to the Black Scholes Value of the remaining unexercised portion of this Warrant on the date of the consummation of such Fundamental Transaction or (ii) the positive difference between the cash per share paid in such Fundamental Transaction minus the then in effect Exercise Price. “Black Scholes Value” means the value of the unexercised portion of this Warrant based on the Black and Scholes Option Pricing Model obtained from the “OV” function on Bloomberg, L.P. (“Bloomberg”) determined as of the day of consummation of the applicable Fundamental Transaction for pricing purposes and reflecting (A) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date, (B) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg as of the Trading Day immediately following the public announcement of the applicable Fundamental Transaction, (C) the underlying price per share used in such calculation shall be the sum of the price per share being offered in cash, if any, plus the value of any non-cash consideration, if any, being offered in such Fundamental Transaction and (D) a remaining option time equal to the time between the date of the public announcement of the applicable Fundamental Transaction and the Termination Date. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Warrant and the other Transaction Documents in accordance with the provisions of this Section 3(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the Holder, deliver to the Holder in exchange for this Warrant a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Warrant which is exercisable for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon exercise of this Warrant prior to such Fundamental Transaction (without regard to any limitation on the exercise of this Warrant), and with an exercise price which applies the exercise price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such exercise price being for the purpose of protecting the economic value of this Warrant immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Warrant and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Warrant and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein. 

7

(g)

Calculations. All calculations under this Section 3 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 3, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding treasury shares, if any) issued and outstanding.

(h)

Notice to Holder. 

(i)

Adjustment to Exercise Price. Whenever the Exercise Price is adjusted pursuant to any provision of this Section 3, the Company shall promptly email to the Holder a notice setting forth the Exercise Price after such adjustment and any resulting adjustment to the number of Warrant Shares and setting forth a brief statement of the facts requiring such adjustment. The Holder may supply an email address to the Company and change such address.

(ii)

Notice to Allow Exercise by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall deliver to the Holder at its last address as it shall appear upon the Warrant Register of the Company, at least 20 calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange; provided that the failure to email such notice or any defect therein or in the emailing thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries (as determined in good faith by the Company), the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to exercise this Warrant during the period commencing on the date of such notice to the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

Section 4.

Transfer of Warrant.

(a)

Transferability. Subject to compliance with any applicable securities laws and the provisions of the Purchase Agreement, this Warrant and all rights hereunder (including, without limitation, any registration rights) are transferable, in whole or in part, upon surrender of this Warrant at the principal office of the Company or its designated agent, together with a written assignment of this Warrant substantially in the form attached hereto duly executed by the Holder or its agent or attorney and funds sufficient to pay any transfer taxes payable upon the making of such transfer. Upon such surrender and, if required, such payment, the Company shall execute and deliver a new Warrant or Warrants in the name of the assignee or assignees, as applicable, and in the denomination or denominations specified in such instrument of assignment, and shall issue to the assignor a new Warrant evidencing the portion of this Warrant not so assigned, and this Warrant shall promptly be cancelled. The Warrant, if properly assigned in accordance herewith, may be exercised by a new holder for the purchase of Warrant Shares without having a new Warrant issued.

(b)

New Warrants. This Warrant may be divided or combined with other Warrants upon presentation hereof at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Holder or its agent or attorney. Subject to compliance with Section 4(a), as to any transfer which may be involved in such division or combination, the Company shall execute and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided or combined in accordance with such notice. All Warrants issued on transfers or exchanges shall be dated the initial issuance date of this Warrant and shall be identical with this Warrant except as to the number of Warrant Shares issuable pursuant thereto.

(c)

Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

8

Section 5.

Miscellaneous.

(a)

No Rights as Stockholder Until Exercise. This Warrant does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of the Company prior to the exercise hereof other than as explicitly set forth in Section 3. 

(b)

Loss, Theft, Destruction or Mutilation of Warrant. The Company covenants that upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant or any stock certificate relating to the Warrant Shares, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and upon surrender and cancellation of such Warrant or stock certificate, if mutilated, the Company will make and deliver a new Warrant or stock certificate of like tenor and dated as of such cancellation, in lieu of such Warrant or stock certificate.

(c)

Saturdays, Sundays, Holidays, etc. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall not be a Trading Day, then, such action may be taken or such right may be exercised on the next succeeding Trading Day.

(d)

Authorized Shares. The Company covenants that, during the period the Warrant is outstanding, it will reserve and keep available out of its authorized and unissued shares of Common Stock for the purpose of issuances upon exercise of the Warrant, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder, not less than 300% of the number of Warrant Shares issuable upon the exercise of this Warrant until the Public Offering, however, after the date of the Public Offering, such reserve shall be reduced to 100% of the number of Warrant Shares issuable upon the exercise of this Warrant. Provided, however, to the extent that the Company is required to reserve 300% but does not have enough authorized shares to do so, the Company shall then use its best efforts to convene a special meeting of its shareholders and seek to amend its authorized number of shares of Common Stock to a number which permits the Company to reserve 300% of the number of Warrant Shares issuable upon exercise of this Warrant, and upon receiving such approval the Company shall reserve 300/%. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable. Further, if necessary, the Company will use its best efforts to increase its authorized Common Stock as provided in Section 4.9 of the Purchase Agreement so the Company always has enough authorized shares to reserve the aforementioned number of Warrant Shares issuable upon the exercise of this Warrant in favor of the Holder.

Except and to the extent as waived or consented to by the Holder, the Company shall not by any action, including, without limitation, amending its articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant against impairment. Without limiting the generality of the foregoing, the Company will (i) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (ii) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant and (iii) use best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof, as may be, necessary to enable the Company to perform its obligations under this Warrant.

Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall use commercially reasonable efforts to obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

(e)

Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of this Warrant shall be determined in accordance with the provisions of the Purchase Agreement.

(f)

Restrictions. The Holder acknowledges that the Warrant Shares acquired upon the exercise of this Warrant, if not registered or if not exercised on a cashless basis when Rule 144 is available, may have restrictions upon resale imposed by state and federal securities laws.

(g)

Non-waiver and Expenses. No course of dealing or any delay or failure to exercise any right hereunder on the part of Holder shall operate as a waiver of such right or otherwise prejudice the Holder’s rights, powers or remedies. Without limiting any other provision of this Warrant or the Purchase Agreement, if the Company willfully and knowingly fails to comply with any provision of this Warrant, which results in any material damages to the Holder, the Company shall pay to the Holder such amounts as shall be sufficient to cover any costs and expenses including, but not limited to, reasonable attorneys’ fees, including those of appellate proceedings, incurred by the Holder in collecting any amounts due pursuant hereto or in otherwise enforcing any of its rights, powers or remedies hereunder.

9

(h)

Notices. Any notice, request or other document required or permitted to be given or delivered to the Holder by the Company shall be delivered in accordance with the notice provisions of the Purchase Agreement.

(i)

Limitation of Liability. No provision hereof, in the absence of any affirmative action by the Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of the Holder, shall give rise to any liability of the Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

(j)

Remedies. The Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate or that there is no irreparable harm and not to require the posting of a bond or other security.

(k)

Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors and permitted assigns of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of any Holder from time to time of this Warrant and shall be enforceable by the Holder or holder of Warrant Shares.

(l)

Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and Holders of at least a majority of the outstanding Warrants issued pursuant to the Purchase Agreement.

(m)

Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

(n)

Headings. The headings used in this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.

********************

(Signature Page Follows)

10

IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its officer thereunto duly authorized as of the date first above indicated.

		
	 
	SIGMA LABS, INC.

	 
	

By:__________________________________________

 Name: Mark Cola

 Title: President and Chief Executive Officer 

11

NOTICE OF EXERCISE

TO:

SIGMA LABS, INC.

(1)

The undersigned hereby elects to purchase ________ Warrant Shares of the Company pursuant to the terms of the attached Warrant (only if exercised in full), and tenders herewith payment of the exercise price in full, together with all applicable transfer taxes, if any.

(2)

Payment shall take the form of (check applicable box):

[  ] in lawful money of the United States; or

[  ] [if permitted] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in subsection 2(c), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in subsection 2(c).

(3)

Please issue a certificate or certificates representing said Warrant Shares in the name of the undersigned or in such other name as is specified below:

_______________________________

(4)

After giving effect to this Notice of Exercise, the undersigned will not have exceeded the Beneficial Ownership Limitation.

The Warrant Shares shall be delivered to the following DWAC Account Number or by physical delivery of a certificate to:

_______________________________

_______________________________

_______________________________

[SIGNATURE OF HOLDER]

Name of Investing Entity: ________________________________________________________________________

Signature of Authorized Signatory of Investing Entity: __________________________________________________

Name of Authorized Signatory: ____________________________________________________________________

Title of Authorized Signatory: _____________________________________________________________________

Date: _________________________________________________________________________________________

ASSIGNMENT FORM

(To assign the foregoing warrant, execute

this form and supply required information. 

Do not use this form to exercise the warrant.)

SIGMA LABS, INC.

FOR VALUE RECEIVED, [____] all of or [_______] shares of the foregoing Warrant and all rights evidenced thereby are hereby assigned to

_______________________________________________ whose address is

_______________________________________________________________

_______________________________________________________________

Dated: ______________, _______

Holder’s Signature:

_____________________________

Holder’s Address:

_____________________________

_____________________________

Signature Guaranteed: ___________________________________________

NOTE: The signature to this Assignment Form must correspond with the name as it appears on the face of the Warrant, without alteration or enlargement or any change whatsoever, and must be guaranteed by a bank or trust company. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Warrant.

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