Document:

Note - nonconvertible (High OID)

THIS NOTE (AS DEFINED BELOW) IS ISSUED IN EXCHANGE FOR (WITHOUT ANY ADDITIONAL CONSIDERATION) THE FIRST EXCHANGE NOTE (AS DEFINED BELOW). FOR PURPOSES OF RULE 144, THIS NOTE SHALL BE DEEMED TO HAVE BEEN ISSUED ON AUGUST 12, 2015. 

CONVERTIBLE PROMISSORY NOTE

U.S. $81,631.88

“Original Issue Date”: August 12, 2015

FOR VALUE RECEIVED, VAPOR HUB INTERNATIONAL INC., a Nevada corporation (“Borrower”), promises to pay in lawful money of the United States of America to the order of ILIAD RESEARCH AND TRADING, L.P., a Utah limited partnership, or its successors or assigns (“Lender”), the principal sum of $81,631.88, together with all other amounts due under this Convertible Promissory Note (this “Note”). This Note is issued pursuant to that certain Exchange Agreement with an effective date of July 15, 2016 (the “Exchange Date”), as the same may be amended from time to time (the “Exchange Agreement”), by and between Borrower and Lender, pursuant to which Lender exchanged the First Exchange Note (as defined in the Exchange Agreement) for this Note, pursuant to Section 3(a)(9) of the Securities Act of 1933, as amended.

1.

TRANSACTION DOCUMENTS. Borrower and Lender agree that the terms and provisions of the Purchase Agreement (as defined in the Exchange Agreement) and the other Transaction Documents (as defined in the Purchase Agreement) shall be deemed to apply in all respects to this Note. All references in the Purchase Agreement and the other Transaction Documents to the term “Note” shall be deemed to mean and refer to this Note and not the Original Note (as defined in the Exchange Agreement) or the First Exchange Note. Capitalized terms not defined herein shall have the same meaning as set forth in the Exchange Agreement. 

2.

PAYMENT. Borrower shall pay to Lender the entire remaining outstanding balance of this Note (the “Outstanding Balance”) in cash on or before July 15, 2017 (the “Maturity Date”). Borrower will make all payments of sums due hereunder to Lender at Lender’s address set forth in the Purchase Agreement, or at such other place as Lender may designate in writing. Unless otherwise agreed or required by applicable law, payments will be applied first to any unpaid collection costs and late charges, then to accrued interest and finally to principal.

3.

INTEREST. Interest shall accrue on the Outstanding Balance of this Note at the rate of ten percent (10%) per annum from the Exchange Date until the same is paid in full; provided, however, that upon the occurrence of an Event of Default (as defined below), the Outstanding Balance of this Note shall, upon written notice from Lender to Borrower, bear interest at the lesser of the rate of eighteen percent (18%) per annum or the maximum rate permitted by applicable law, and calculated on the basis of a 360-day year, from the date the applicable Event of Default occurred until paid.

4.

EXCHANGE FEE; ORIGINAL ISSUE DISCOUNT; TRANSACTION EXPENSES. As set forth in the Exchange Agreement, Borrower agreed to pay an Exchange Fee (as defined in the Exchange Agreement) in the amount of $2,500.00, which Exchange Fee is included in the principal balance of this Note and is fully earned as of the Exchange Date. In addition, in connection with the Original Note, Borrower agreed to pay $40,000.00 as an original issue discount and $5,000.00 to Lender to cover Lender’s legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of the Original Note, all of which amounts were included in the initial principal balance of the Original Note and are included in the initial principal balance of this Note, and all of which amounts are fully earned and payable as of the date hereof. Last, in connection with the First Exchange Note, Borrower agreed to pay an exchange fee in the amount of $24,750.00 to Lender, which amount was included in the initial principal balance of the First Exchange 

Note and is included in the initial principal balance of this Note, and which amount is fully earned and payable as of the date hereof.

5.

PREPAYMENT. Borrower may pay without penalty all or a portion of the amounts owed earlier than they are due. Early payments of less than all principal, fees and interest outstanding will not, unless agreed to by Lender in writing, relieve Borrower of any of Borrower’s obligations hereunder.

6.

CONVERSIONS.

6.1.

Conversion Price. Subject to the adjustments set forth herein, the conversion price (the “Conversion Price”) for each Conversion (as defined below) shall be equal to 70% (the “Conversion Factor”) multiplied by the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding the applicable Conversion. 

6.2.

Conversions. Lender has the right at any time until the Outstanding Balance has been paid in full, at its election, to convert (each instance of conversion is referred to herein as a “Conversion”) all or any part of the Outstanding Balance into shares (“Conversion Shares”) of fully paid and non-assessable common stock, $0.001 par value per share (“Common Stock”), of Borrower as per the following conversion formula: the number of Conversion Shares equals the amount being converted (the “Conversion Amount”) divided by the Conversion Price. Conversion notices in the form attached hereto as Exhibit A (each, a “Conversion Notice”) may be effectively delivered to Borrower by any method of Lender’s choice (including but not limited to facsimile, email, mail, overnight courier, or personal delivery), and all Conversions shall be cashless and not require further payment from Lender. Borrower shall deliver the Conversion Shares from any Conversion to Lender in accordance with Section 6.4 below. 

6.3.

Cash Payment Option. Upon receipt of a Conversion Notice, Borrower shall have the option, but not the obligation, to pay the applicable Conversion Amount in cash in lieu of delivering the Conversion Shares set forth in the applicable Conversion Notice (the “Cash Payment Option”). Borrower may exercise the Cash Payment Option by delivering the applicable Conversion Amount via wire transfer of immediately available funds to the account designated by Lender within two (2) business days of Borrower’s receipt of the Conversion Notice. In the event Borrower does not deliver the applicable Conversion Amount within such two (2) business day period, Borrower will be deemed to have elected not to exercise its Cash Payment Option and shall be obligated to deliver the applicable Conversion Shares in accordance with Section 6.4 below.    

6.4.

Method of Conversion Share Delivery. In the event Borrower elects not to exercise its Cash Payment Option, on or before the close of business on the third (3rd) Trading Day following the delivery of a Conversion Notice (the “Delivery Date”), Borrower shall, provided it is DWAC Eligible (as defined below) at such time, deliver or cause its transfer agent to deliver the Conversion Shares electronically via DWAC (as defined below) to the account designated by Lender in the Conversion Notice. If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the Conversion Notice), via reputable overnight courier, a certificate representing the number of shares of Common Stock equal to the number of Conversion Shares to which Lender shall be entitled, registered in the name of Lender or its designee. For the avoidance of doubt, Borrower has not met its obligation to deliver Conversion Shares by the Delivery Date unless Lender or its broker, as applicable, has actually received the certificate representing the Conversion Shares no later than the close of business on the Delivery Date pursuant to the terms set forth above. Moreover, and notwithstanding anything to the contrary herein or in any other Transaction Document, in the event Borrower or its transfer agent refuses to deliver the Conversion Shares to Lender on grounds that such issuance is in violation of Rule 144, Borrower shall deliver or cause its transfer agent to deliver the Conversion Shares to Lender with a restricted securities legend, but otherwise in accordance with the provisions of this Section 6.3. In conjunction therewith, Borrower will also deliver to Lender a written opinion from its 

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counsel or its transfer agent’s counsel opining as to why the issuance of the Conversion Shares violates Rule 144.

6.5.

Ownership Limitation. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, if at any time Lender shall or would be issued shares of Common Stock under any of the Transaction Documents, but such issuance would cause Lender (together with its affiliates) to beneficially own a number of shares exceeding 9.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the “Maximum Percentage”), then Borrower must not issue to Lender shares of Common Stock which would exceed the Maximum Percentage. For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the Securities Exchange Act of 1934, as amended. The shares of Common Stock issuable to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as the “Ownership Limitation Shares”. Borrower will reserve the Ownership Limitation Shares for the exclusive benefit of Lender. From time to time, Lender may notify Borrower in writing of the number of the Ownership Limitation Shares that may be issued to Lender without causing Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower shall be unconditionally obligated to immediately issue such designated shares to Lender, with a corresponding reduction in the number of the Ownership Limitation Shares. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.

6.6.

Certain Definitions. Certain terms used in this Section 6 are defined as follows:

(a)

“Bloomberg” means Bloomberg L.P. (or if that service is not then reporting the relevant information regarding the Common Stock, a comparable reporting service of national reputation selected by Lender and reasonably satisfactory to Borrower).

(b)

“Closing Bid Price” and “Closing Trade Price” means the last closing bid price and last closing trade price, respectively, for the Common Stock on its principal market, as reported by Bloomberg, or, if its principal market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of the Common Stock prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if its principal market is not the principal securities exchange or trading market for the Common Stock, the last closing bid price or last trade price, respectively, of the Common Stock on the principal securities exchange or trading market where the Common Stock is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of the Common Stock in the over-the-counter market on the electronic bulletin board for the Common Stock as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for the Common Stock by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for the Common Stock as reported by OTC Markets Group, Inc., and any successor thereto.

(c)

 “DTC” means the Depository Trust Company or any successor thereto.

(d)

“DTC/FAST Program” means DTC’s Fast Automated Securities Transfer program.

(e)

“DWAC” means the DTC’s Deposit/Withdrawal at Custodian system.

(f)

“DWAC Eligible” means that (i) Borrower’s Common Stock is eligible at DTC for full services pursuant to DTC’s operational arrangements, including without limitation transfer through DTC’s DWAC system, (ii) Borrower has been approved (without revocation) by DTC’s 

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underwriting department, (iii) Borrower’s transfer agent is approved as an agent in the DTC/FAST Program, (iv) the Conversion Shares are otherwise eligible for delivery via DWAC; (v) Borrower has previously delivered all Conversion Shares to Lender via DWAC; and (vi) Borrower’s transfer agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.

(g)

“Free Trading” means that (i) the Conversion Shares have been cleared and approved for public resale by the compliance departments of Lender’s brokerage firm and the clearing firm servicing such brokerage, and (ii) such Conversion Shares are held in the name of the clearing firm servicing Lender’s brokerage firm and have been deposited into such clearing firm’s account for the benefit of Lender.

(h)

“Trading Day” means any day on which the New York Stock Exchange is open for trading.

7.

EVENT OF DEFAULT. The occurrence and continuance of any of the following shall constitute an “Event of Default” under this Note:

7.1.

Failure to Pay. Borrower shall fail to pay when due, whether at stated maturity, upon acceleration or otherwise, any principal or interest payment, or any other payment required under the terms of this Note on the date due.  

7.2.

Failure to Deliver Conversion Shares. Borrower shall fail to deliver any Conversion Shares to Lender in accordance with the terms hereof.

7.3.

Breaches of Covenants. Borrower or any other person or entity fails to comply with or to perform when due any other term, obligation, covenant, or condition contained in this Note, in the Purchase Agreement, in the Exchange Agreement, any other Transaction Document, or in any other agreement securing payment of this Note and such failure to comply or perform when due is not cured within three (3) days of the initial occurrence of such failure to comply or perform when due. 

7.4.

Representations and Warranties. Any representation or warranty made by Borrower to Lender in this Note, the Purchase Agreement, the Exchange Agreement, any other Transaction Document, or any related agreement shall be materially false, incorrect, incomplete or misleading in any material respect when made or furnished.

7.5.

Voluntary Bankruptcy or Insolvency Proceedings. Borrower shall (i) apply for or consent to the appointment of a receiver, trustee, liquidator or custodian of itself or of all or a substantial part of its property, (ii) be unable, or admit in writing its inability, to pay its debts generally as they mature, (iii) make a general assignment for the benefit of its or any of its creditors, (iv) be dissolved or liquidated, or (v) commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or consent to any such relief or to the appointment of or taking possession of its property by any official in an involuntary case or other proceeding commenced against it.

7.6.

Involuntary Bankruptcy or Insolvency Proceedings. Proceedings for the appointment of a receiver, trustee, liquidator, or custodian of Borrower or of all or a substantial part of its property, or an involuntary case or other proceedings seeking liquidation, reorganization, or other relief with respect to Borrower or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect shall be commenced and an order for relief entered or such proceeding shall not be dismissed or discharged within sixty (60) days of commencement.

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7.7.

Government Action. If any governmental or regulatory authority takes or institutes any action that will materially affect Borrower’s financial condition, operations or ability to pay or perform Borrower’s obligations under this Note.

7.8.

Judgment. A judgment or judgments for the payment of money in excess of the sum of $100,000.00 in the aggregate shall be rendered against Borrower and either (i) the judgment creditor executes on such judgment or (ii) such judgment remains unpaid or undischarged for more than sixty (60) days from the date of entry thereof or such longer period during which execution of such judgment shall be stayed during an appeal from such judgment.

7.9.

Attachment. Any execution or attachment shall be issued whereby any substantial part of the property of Borrower shall be taken or attempted to be taken and the same shall not have been vacated or stayed within thirty (30) days after the issuance thereof.

7.10.

Failure to Make Required Filings. Borrower shall become delinquent in its filing requirements as a fully-reporting issuer registered with the United States Securities and Exchange Commission.

7.11.

Trading Suspension. Trading in Borrower’s Common Stock shall be suspended, halted, frozen, chilled, reach zero bid or shall otherwise cease trading on Borrower’s principal trading market.

7.12.

Cross Default. Borrower breaches or any event of default occurs under any term or provision of any Other Agreement (as defined hereafter), which breach or default, if capable of being cured, is not cured within ten (10) days following delivery of written notice of such breach or default by Lender to Borrower. For purposes hereof, “Other Agreement” means collectively, (i) all existing and future agreements and instruments between, among or by Borrower (or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and (ii) any financing agreement or a material agreement that affects Borrower’s ongoing business operations, excluding in both cases the Transaction Documents.

7.13.

Share Reserve.  Borrower shall fail to maintain the Share Reserve as required by the Exchange Agreement. 

8.

ACCELERATION; REMEDIES.

8.1.

At any time following the occurrence of an Event of Default (other than an Event of Default referred to in Sections 7.5 and 7.6), Lender may, by written notice to Borrower, declare all unpaid principal, plus all accrued interest and other amounts due hereunder to be immediately due and payable at the Mandatory Default Amount (as defined below) without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding. Upon the occurrence or existence of any Event of Default described in Sections 7.5 and 7.6, immediately and without notice, all outstanding unpaid principal, plus all accrued interest and other amounts due hereunder shall automatically become immediately due and payable at the Mandatory Default Amount, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding. In addition to the foregoing remedies, upon the occurrence or existence of any Event of Default, Lender may exercise any other right, power or remedy permitted to it by law, either by suit in equity or by action at law, or both. For purposes hereof, the term “Mandatory Default Amount” means an amount equal to 115% of the Outstanding Balance of this Note as of the date the Event of Default occurred, plus all interest, fees, and charges that may accrue on such Outstanding Balance thereafter.

8.2.

Upon the occurrence of a Change in Control (as defined below), and without further notice to Borrower, all unpaid principal, plus all accrued interest and other amounts due 

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hereunder, shall become immediately due and payable. For purposes hereof, a “Change in Control” means a sale of all or substantially all of a Borrower’s assets, or a merger, consolidation, significant equity financing, or other capital reorganization of Borrower with or into another company; provided however that a merger, consolidation, significant equity financing, or other capital reorganization in which the holders of more than fifty percent (50%) of the equity of Borrower outstanding immediately prior to such transaction continue to hold (either by the voting securities remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the total voting power represented by the voting securities of such Borrower, or such surviving entity, outstanding immediately after such transaction shall not constitute a Change in Control.

9.

UNCONDITIONAL OBLIGATION; NO OFFSET. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset, deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender, its successors and assigns, and agrees to make all payments due hereunder in accordance with the terms of this Note.

10.

NO USURY. Notwithstanding any other provision contained in this Note or in any instrument given to evidence the obligations evidenced hereby: (a) the rates of interest and charges provided for herein and therein shall in no event exceed the rates and charges which result in interest being charged at a rate equaling the maximum allowed by law; and (b) if, for any reason whatsoever, Lender ever receives as interest in connection with the transaction of which this Note is a part an amount which would result in interest being charged at a rate exceeding the maximum allowed by law, such amount or portion thereof as would otherwise be excessive interest shall automatically be applied toward reduction of the unpaid principal balance then outstanding hereunder and not toward payment of interest.

11.

ATTORNEYS’ FEES. If this Note is placed in the hands of an attorney for collection or enforcement prior to commencing arbitration or legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Lender otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note, then Borrower shall pay the costs incurred by Lender for such collection, enforcement or action including, without limitation, reasonable attorneys’ fees and disbursements. 

12.

GOVERNING LAW; VENUE. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Utah. The provisions set forth in the Purchase Agreement to determine the proper venue for any disputes are incorporated herein by this reference. 

13.

ARBITRATION OF DISPUTES. Borrower agrees that any dispute arising under this Note shall be subject to the Arbitration Provisions (as defined in the Purchase Agreement) set forth as an exhibit to the Purchase Agreement.

14.

WAIVERS. Borrower hereby waives presentment, notice of nonpayment, notice of dishonor, protest, demand and diligence.

15.

LOSS OR MUTILATION. On receipt by Borrower of evidence reasonably satisfactory to Borrower of the loss, theft, destruction or mutilation of this Note and, in the case of any such loss, theft or destruction of this Note, on delivery of an indemnity agreement reasonably satisfactory in form and amount to Borrower or, in the case of any such mutilation, on surrender and cancellation of such Note, Borrower at its expense will execute and deliver, in lieu thereof, a new Note of like tenor.

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16.

NOTICES. Any notice required or permitted hereunder shall be given in the manner provided in the subsection titled “Notices” in the Purchase Agreement, the terms of which are incorporated herein by this reference.

17.

AMENDMENT AND WAIVER. This Note and its terms and conditions may be amended, waived or modified only in writing by Borrower and Lender.

18.

SEVERABILITY. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of the parties to the fullest extent permitted and the balance of this Note shall remain in full force and effect.

19.

ASSIGNMENTS. Borrower may not assign this Note without the prior written consent of Lender. This Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower.

20.

FINAL NOTE. This Note, together with the Exchange Agreement and the other Transaction Documents, contains the complete understanding and agreement of Borrower and Lender and supersedes all prior representations, warranties, agreements, arrangements, understandings, and negotiations. THIS NOTE, TOGETHER WITH THE EXCHANGE AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

21.

WAIVER OF JURY TRIAL. BORROWER IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO THIS NOTE OR THE RELATIONSHIPS OF THE PARTIES HERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL RIGHTS TO DEMAND A TRIAL BY JURY ARISING UNDER COMMON LAW OR ANY APPLICABLE STATUTE, LAW, RULE OR REGULATION. FURTHER, BORROWER ACKNOWLEDGES THAT IT KNOWINGLY AND VOLUNTARILY IS WAIVING SUCH PARTY’S RIGHT TO DEMAND TRIAL BY JURY.

22.

TIME IS OF THE ESSENCE. Time is of the essence of this Note and each and every provision hereof in which time is an element. 

23.

LIQUIDATED DAMAGES. Lender and Borrower agree that in the event Borrower fails to comply with any of the terms or provisions of this Note, Lender’s damages would be uncertain and difficult (if not impossible) to accurately estimate because of the parties’ inability to predict future interest rates and other relevant factors. Accordingly, Lender and Borrower agree that any fees, balance adjustments, default interest or other charges assessed under this Note are not penalties but instead are intended by the parties to be, and shall be deemed, liquidated damages.

 [Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, Borrower has caused this Note to be issued as of the date first set forth above.

BORROWER:

VAPOR HUB INTERNATIONAL INC. 

By: 

Name: 

Title: 

[Signature Page to Convertible Promissory Note]

EXHIBIT A

Iliad Research and Trading, L.P.

303 East Wacker Drive, Suite 1040

Chicago, Illinois 60601

Vapor Hub International Inc.

Date: __________________

      

Attn: _________________

1871 Tapo Street

Simi Valley, California 93063

CONVERSION NOTICE

The above-captioned Lender hereby gives notice to Vapor Hub International Inc., a Nevada corporation (the “Borrower”), pursuant to that certain Convertible Promissory Note made by Borrower in favor of Lender with an original issue date of August 12, 2015 (the “Note”), that Lender elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.

A.

Date of Conversion: 

____________

B.

Conversion #:

 ____________

C.

Conversion Amount:

 ____________

D.

Conversion Price:  _______________ 

E.

Conversion Shares:  _______________ (C divided by D)

F.

Remaining Outstanding Balance of Note:  ____________*  

* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Transaction Documents (as defined in the Purchase Agreement), the terms of which shall control in the event of any dispute between the terms of this Conversion Notice and such Transaction Documents.

Please transfer the Conversion Shares electronically (via DWAC) to the following account:

Broker:  

Address:

DTC#:  

Account #:  

Account Name:  

To the extent the Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated shares to Lender via reputable overnight courier after receipt of this Conversion Notice (by facsimile transmission or otherwise) to:

_____________________________________

_____________________________________

_____________________________________

[Remainder of page intentionally left blank]

Sincerely,

Lender:

ILIAD RESEARCH AND TRADING, L.P.

By: Iliad Management, LLC, it General Partner

     By: Fife Trading, Inc., its Manager

            By: 

                   John M. Fife, PresidentExhibit 10.1

Exhibit 10.1

EMPLOYMENT AGREEMENT

This Employment Agreement (the “Employment Agreement” or “Agreement”) is made and entered into as of the 17th  day of July, 2016 (the “Execution Date”), by and between N-Viro International Corporation, a Delaware corporation (the “Company”), and Timothy R. Kasmoch, an individual (“Employee”).

W I T N E S S E T H:

WHEREAS, the Company owns and licenses the N-Viro Process (such activities, together with all other activities of the Company, as conducted at or prior to the termination of this Employment Agreement, and any future activities reasonably related thereto that are contemplated by the Company at the termination of this Employment Agreement identified in writing by the Company to Employee at the date of such termination, are hereinafter collectively referred to as the “Business Activities”); 

WHEREAS, the Company and Employee have agreed that Employee shall perform the duties of President and Chief Executive Officer subject to the terms and conditions set forth in this Employment Agreement.

NOW, THEREFORE, in consideration of the premises, the mutual promises, covenants and conditions herein contained and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto intending to be legally bound hereby agree as follows:

Section 1.

Employment.  During the Employment Period (as hereinafter defined), the Company shall employ Employee, and Employee shall accept employment with the Company, all upon the terms and subject to the conditions set forth in this Employment Agreement.

Section 2.

Capacity and Duties.  Employee shall be employed in the capacity of President and Chief Executive Officer of the Company and shall have such other duties, responsibilities and authorities as are assigned to him by the Board of Directors of the Company (the “Board”) so long as such additional duties, responsibilities and authorities are consistent with Employee's position and level of authority as President and Chief Executive Officer of the Company.  Employee shall report directly to the Board of the Company.  Subject to the control and general directions of the Board and except as otherwise herein provided, Employee shall devote all necessary business time, best efforts and attention to promote and advance the business of the Company and its subsidiaries and affiliates and to perform diligently and faithfully all the duties, responsibilities and obligations of Employee to be performed by him under this Employment Agreement.  Employee's duties shall include the ongoing management and oversight of the general business affairs and operations of the Company and its subsidiaries and affiliates and shall include, but not be limited to, routine operations, matters relating to research and development, technical direction, national and international development and/or licensing, national policy and governmental relations including those relating to water and the environment.   So long as Employee is employed by the Company, the Company shall use its best efforts to cause the Nominating Committee of the Board or the Board to nominate Employee for reelection as a director of the Company upon expiration of his current term as a director of the Company and, if so nominated, Employee shall consent to serve as a director if elected.  It is expressly understood that Employee also is and/or may become engaged in other limited business activities not involving the Company.  Any such independent activity shall be disclosed to the Audit Committee of the Company’s Board in advance, and any such other business activities shall not unreasonably interfere with Employee's performance of his obligations under this Employment Agreement.  

Section 3.

Term of Employment.  The term of employment of Employee by the Company pursuant to this Employment Agreement, which supersedes any prior agreement between Company and Employee, shall be for the period (the "Employment Period") commencing on July 17, 2016 (the “Commencement Date”) and ending on July 16, 2019 or later date that Employee's employment is extended in accordance with the provisions of this Employment Agreement (the “Termination Date”).  So long as Employee is in full compliance with all of the terms and conditions of this Employment Agreement, Employee is not in default under or in breach of any of the covenants, agreements, representations or warranties set forth in this Employment Agreement and neither Employee nor the Company has delivered a Notice of Termination (as hereinafter defined) to the other at least ninety (90) days prior to expiration of the then-current Employment Period that the Employment Period shall not be extended, then this Employment Agreement and the Employment Period shall automatically be extended for additional successive one (1) year periods.

Section 4.

Place of Employment.  Employee's principal place of work shall be deemed to be at such locations as may be agreed between the partied; provided, however, that the Board may not require that Employee permanently relocate to a place that is more than 30 miles from the executive offices of the Company or any such other place as agreed between the parties.  The Company and Employee acknowledge that Employee's principal place of work is consistent with the extensive national and international business travel which may be required of Employee in connection with the performance of his duties, responsibilities and authorities under this Agreement.

Section 5.

Compensation.  During the Employment Period, subject to all the terms and conditions of this Employment Agreement and, except as otherwise provided in Sections 9 or 10, as the case may be, as compensation for all services to be rendered by Employee under this Employment Agreement, the Company shall pay to or provide Employee with the following:

5.01

Base Salary.  The Company shall pay to Employee a base annual salary (the “Base Salary”) at the rate of at least One Hundred Fifty Thousand Dollars ($150,000) per year, payable at such intervals (at least monthly) as salaries are paid generally to other executive officers of the Company.  At least once each year on or before each January 1 during the Employment Period, Employee's Base Salary shall be reviewed by the Board and, at the discretion of the Board, may be increased to an amount determined in good faith based upon a complete review of Employee's performance under this Employment Agreement during the prior year and the growth and profitability of the Company and Employee’s contributions thereto, which review shall be communicated in writing to Employee.

5.02 

Cash Bonus.  At the sole and exclusive discretion of the Board, the Company may pay to Employee an annual cash bonus (the “Cash Bonus”) in an amount determined in good faith by the Board based upon a complete review of Employee's performance under this Employment Agreement during the current calendar year and the growth and profitability of the Company and Employee's contribution thereto.  Any Cash Bonus payable to Employee pursuant to this Section 5.02 shall be payable, if at all, on or before   January 31, of each year during the Employment Period immediately following the prior calendar year then ended, based upon Employee’s performance for the immediate prior calendar year. 

5.03

Option Grant.  The Company hereby grants to the Employee ten-year stock options to purchase One Hundred Thousand (100,000) shares of its common stock on each of the Execution Date and each successive anniversary of this Employment Agreement in 2017 and 2018, and are exercisable immediately on each Grant Date.  The exercise price of these options shall be the “fair market value” as defined in the N-Viro International Corporation 2010 Stock Option Plan (the “2010 Option Plan”) for the options to purchase shares, and are intended to be Incentive Stock Options or “ISOs” as further defined by the 2010 Option Plan.  Such options are being granted under, and are otherwise subject to the terms and conditions of the 2010 Option Plan.  The Employee acknowledges that the Company has delivered a copy of the 2010 Option Plan to him.

5.04

Vehicle Allowance.   Employer shall pay to Employee a monthly vehicle allowance, in lieu of reimbursement for miles driven or for fuel purchases, a total of Eight Hundred Fifty Dollars ($850.00) monthly.  Employer shall include as income on Employee’s Form W-2 any amounts required by IRS regulations.

Section 6.

Adherence to Standards.  Employee shall institute and comply with the written policies, standards, rules and regulations of the Company from time to time established for all executive officers of the Company.  

Section 7.

Review of Performance.  The Board may periodically review and evaluate the performance of Employee under this Employment Agreement with Employee.

Section 8.

Expenses.  The Company shall reimburse Employee for all reasonable, ordinary and necessary expenses (including, but not limited to, automobile and other business travel and customer entertainment expenses) incurred by him in connection with his employment hereunder; provided, however, Employee shall render to the Company a complete and accurate accounting of all such expenses in accordance with the substantiation requirements of Section 274 of the Internal Revenue Code of 1986, as amended (the “Code”), as a condition precedent to 

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such reimbursement.  Employee will also follow all established guidelines relating to reimbursement of expenses as may be promulgated by the Board.  Subject to the terms below, Employer may provide reimbursement for housing rental for Employee’s temporary accommodations in Florida.  Employee shall provide the actual rental cost of such temporary rental housing for reimbursement on his expense reports provided to the Company for approval after paying such amounts personally.  Company’s Compensation Committee shall review every six (6) months whether it is in the Company’s best interest to continue the reimbursement for temporary housing.  Company, if required to do so by IRS regulations, may report amounts that are treated as income on Employee’s Form W-2.

Section 9.

Termination with Cause by the Company. This Employment Agreement may be terminated with Cause (as hereinafter defined) by the Company provided that the Company shall (i) give Employee the Notice of Termination and (ii) pay Employee his annual base salary through the Termination Date at the rate in effect at the time the Notice of Termination is given plus any bonus or incentive compensation which have been earned or have become payable pursuant to the terms of this Employment Agreement or any compensation or benefit plan as of the Termination Date, but which have not yet been paid.  In addition, Employee shall have the right to exercise all options that have vested through and including the Termination Date.  

Section 10.

Termination without Cause by the Company or by Employee.  This Employment Agreement may be terminated by (i) the Company by reason of the death or Disability (as hereinafter defined) of Employee, (ii) the Company by giving Employee the Notice of Termination, (iii)  Employee after giving the Company the Notice of Termination at least thirty (30) days prior to such termination.  In the event of termination of this Employment Agreement under this Section 10 by Employee, the Company shall pay Employee his Base Salary through the Termination Date at the rate in effect at the time the Notice of Termination is given plus any bonus or incentive compensation which are due or have become payable pursuant to the terms of this Employment Agreement or any compensation or benefit plan as of the Termination Date, but which have not yet been paid.  In addition, Employee shall have the right to exercise all options that have vested through and including the Termination Date.  In the event of termination of this Employment Agreement under this Section 10 by the Company (other than by reason of the death or Disability of Employee) and such termination is on or prior to the Termination Date that would be in effect if such employment had not been terminated under this Section 10, the Company shall pay to Employee, in addition to the other benefits specifically provided for in this Section, his Base Salary for the period between the Termination Date and the natural expiration of this Employment Agreement or the expiration of any  extension period thereof in effect as of the Termination Date.  In addition, Employee shall have the right to exercise all options that have vested through and including the Termination Date.  This Section 10 shall not be interpreted so as to limit any benefits to which Employee, as a terminated employee of the Company, or his family may be entitled under the Company's life insurance, medical, hospitalization or disability plans following the Termination Date or under applicable law. 

Section 10A.    

Termination  with Cause by Employee.   Employee may elect, by written Notice of Termination to the Company, said Notice to be effective immediately upon receipt by the Company, to terminate his employment hereunder if:

(1)

The Company sells all or substantially all of its assets;

(2)

The Company merges or consolidates with, or undergoes a share exchange or other form of recapitalization with another business entity in a transaction immediately following which the holders of all of the outstanding shares of the voting capital stock of the Company own less than a majority of the outstanding shares of the voting capital stock of the resulting entity (whether or not the resulting entity is the Company);

(3)

More than Fifty (50%) percent of the outstanding shares of the voting capital stock of the Company are acquired by a person or group (as such terms are used in Section 13(d) of the Securities Exchange Act of 1934, as amended), which person or group includes neither Employee nor the holders of the majority of the outstanding shares of the voting capital stock of the Company on the date hereof;

(4)

The Company assigns to Employee duties which would require him, as a practical matter, to permanently relocate to a place that is more than 100 miles from the executive offices and/or a location agreed as Employee’s principal place of business;

(5)

 The Employee is removed as a member of the Board of Directors and other than by vote of the Company’s stockholders at an annual or special meeting of such stockholders; or 

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(6)

The Company shall have engaged in a material breach of this Agreement which for this purpose is defined as the occurrence of one or more of the following events without Employee’s prior written consent:

(i) Employee is otherwise removed from the position(s) provided for in this Agreement, for any reason other than the legal termination of his employment;

(ii) Employee is assigned any duties or responsibilities that are inconsistent, in any significant respect, with the scope of duties and responsibilities associated with Employee’s position;

(iii) Employee suffers a reduction in the authority, duties or responsibilities associated with his position, on the basis of which he makes a determination in good faith that he can no longer carry out such position in the manner contemplated at the time this Agreement was entered into;

(iv) Employee’s Base Salary is decreased by the Company without Employee’s agreement, or his benefits or opportunities under any employee benefit or incentive plan or program of the Company or any other material benefit specifically promised to Employee herein is or are materially reduced unless such benefit, plan, or program (but excluding Annual Base Salary) is reduced or eliminated for all eligible employees of the Company on an equal basis;

(v) the Company fails to pay Employee any payments under any bonus or incentive plans when such payments are due or issue shares to Employee upon his exercise of his options under the 2010 Option Plan;

(vi) the Company fails to reimburse Employee for business expenses in accordance with the Company’s policies, procedures or practices;

(vii) the Company fails to agree to or actually indemnify Employee for his actions and/or inactions, as either an employee, director or officer of the Company, to the fullest extent permitted by applicable law;

(viii) the Company fails to obtain a written agreement satisfactory to the Executive from any successor or assignee of the Company to assume and perform this Agreement; 

(ix)   the Company’s breach or failure to perform any of the indemnification obligations described in Section 13 of this Agreement including the failure to reimburse Employee promptly for his expenses and the failure to maintain directors’ and officers’ liability insurance; or

(x) the Company purports to terminate the Employee’s employment for cause and such purported termination of employment is not effected in accordance with the procedures required by this Agreement, and for purposes of this Agreement, such purported termination of employment shall be invalid and of no force and effect.

 If the Employee elects to terminate his employment hereunder pursuant to this Section 10A, (1) the Company shall continue to pay to Employee his base salary as provided in Section 5.01 hereof through the end of the Term or any extensions thereof; (2) the Company shall pay to Employee the Bonus specified in Section 5.02 hereof; (3) the Company shall continue to provide to Employee through the end of the Term the benefits provided at the Execution Date of this Employment Agreement as amended or supplemented by the Board through the date of termination; and (4) all of the options granted to Employee under Section 5.03 hereof to purchase shares of the common stock of the Company shall vest immediately; provided that Company may issue said shares on a schedule as required to comply with the maximum issuance limits in the 2010 Option Plan. 

(7)   No Mitigation. In the event of the termination of this Agreement and further payment from the Company is required hereunder, the Employee shall not be required to seek other employment in order to mitigate his damages hereunder, and Company shall not be permitted any offset for any earnings made in any subsequent employment.

Section 11.

Definitions.  In addition to the words and terms elsewhere defined in this Employment Agreement, certain capitalized words and terms used in this Employment Agreement shall have the meanings given to them by the definitions and descriptions in this Section 11 unless the context or use indicates another or different meaning or intent, and such definition shall be equally applicable to both the singular and plural forms of any of the capitalized words and terms herein defined.  The following words and terms are defined terms under this Employment Agreement:

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11.01

“Disability” shall mean a physical or mental illness which, in the judgment of the Company after consultation with the licensed physician attending Employee, impairs Employee’s ability to substantially perform the essential functions of his duties under this Employment Agreement as an employee with or without reasonable accommodation and as a result of which he shall have been absent from his duties with the Company on a full-time basis for three (3) consecutive months.

11.02

A termination with “Cause” shall mean a termination of this Employment Agreement by reason of (a) a good faith determination by the Board that Employee (i) failed to substantially perform his duties with the Company (other than a failure resulting from his incapacity due to physical or mental illness) after a written demand for substantial performance has been delivered to him by the Board, which demand specifically identifies the manner in which the Board believes he has not substantially performed his duties and Employee has failed to substantially perform as requested within a reasonable time, (ii) has engaged in conduct the consequences of which are materially adverse to the Company, monetarily or otherwise, (iii) is found guilty of fraud, dishonesty or other acts of gross misconduct or misfeasance in the performance of his duties under this Employment Agreement by a court of competent jurisdiction whose decision is final and non-appealable (provided, however, that Employee's Base Salary shall continue to be paid until such decision is final and non-appealable), (iv) is found to be under the influence of illegal drugs or other similar substance while performing his duties under this Employment Agreement or (v) is convicted of a felony (provided, however, that Employee's Base Salary shall continue to be paid until such conviction is final and non-appealable).  No act, or failure to act, on Employee's part shall be grounds for termination with Cause unless he has acted or failed to act with an absence of good faith or without a reasonable belief that his action or failure to act was in or at least not opposed to the best interests of the Company.  Not less than ten (10) business days before the Board’s consideration and adoption of a resolution determining that Employee engaged in conduct specified in the first sentence of this Section 11.02, Employee may, by written notice to the Board, cause the matter of the termination of his employment by the Company to be discussed at the next regularly scheduled meeting of the Board or at a special meeting of the Board.  The Board shall give Employee sufficient written notice of its intention to schedule a meeting to discuss such termination so as to permit Employee time to prepare for said meeting.   Employee shall be entitled to be present and to be represented by counsel at such meeting which shall be conducted according to a procedure deemed equitable by a majority of the directors present.  If, at the conclusion of such meeting, it shall be determined by a majority of the entire membership of the Board (exclusive of Employee)  that Employee engaged in conduct specified in the first sentence of Section 11.02, then the Board shall deliver the resolution specified in the next succeeding sentence. Notwithstanding the foregoing, Employee shall not be deemed to have been terminated with Cause unless there shall have been delivered to him a copy of a resolution duly adopted by the affirmative vote of not less than a majority of the entire membership of the Board (exclusive of Employee) at a meeting of the Board called at least in part for that purpose finding that in the good faith opinion of the Board, Employee engaged in conduct in the manner or of the type set forth above in the first sentence of this Section 11.02 and specifying the particulars thereof in detail.  

11.03

Notice of Termination. “Notice of Termination” shall mean a written notice which shall indicate the specific termination provision in this Employment Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Employee's employment under the provision so indicated; provided, however, no such purported termination shall be effective without such Notice of Termination; provided further, however, any purported termination by the Company or by Employee shall be communicated by a Notice of Termination to the other party hereto in accordance with Section 3 of this Employment Agreement.

Section 12.

Fees and Expenses.  The Company shall pay all legal fees and related expenses (including the costs of experts, evidence and counsel) incurred by Employee as a result of a contest or dispute over Employee's termination of employment if such contest or dispute is resolved in Employee's favor.

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Section 13.

Indemnification.  (a)   In addition to any rights of Employee under the Company’s certificate of incorporation and by-laws, any agreement, or any applicable State law, the Company hereby agrees to hold harmless and indemnify Employee:

(i)  Against any and all expenses (including attorney’s fees and costs), judgments, fines and amounts paid in settlement actually and reasonable incurred by Employee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the name of Company) to which Employee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Employee is, was or at any time becomes a director, officer, employee, consultant, or agent of the Company, or is or was serving or at any time serves at the request of the Company as a Director, officer, employee, consultant, partner, trustee or agent regardless of his subsequent title or position at another corporation, partnership, joint venture, trust or other enterprise;

(ii)  Otherwise to the fullest extent as may be provided to Employee by the Company under the by-laws of the Company and Delaware General Corporation Law (“GCL”).

(b)   No indemnity pursuant to this Section 13 shall be paid by Company under the following circumstances:

(i)   In respect to remuneration paid to Employee if it shall be determined by a final judgment or other final adjudication which is non-appealable that such remuneration was in violation of law;

(ii)   On account of conduct which is finally adjudged to have been willful misconduct by Employee; and

(iii)   In a final decision by a Court having jurisdiction in the matter shall determine that such indemnification to Employee is not lawful, and such decision is non-appealable.

(c)   All agreements and obligations of the Company contained herein shall continue during the period Employee is a director, employee, officer, consultant or agent of Company (or is or was serving at the request of the Company as a director, officer, employee, partner, consultant or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Employee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, or investigative, by reason of the fact that Employee was an officer or director of Company or serving in any other capacity referred to herein.

(d)   The Company shall not be liable to indemnify Employee under this Employment Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner, which would impose any penalty or limitation on Employee without Employee’s written consent or contain as part of the settlement any statement, description or assertion of wrongdoing by Employee.  Neither the Company nor Employee will unreasonably withhold their consent to any proposed settlement.

(e)   The Company will pay all Employee fees, costs and expenses incurred under, or related to, Employee’s indemnification under this Section 13, including all legal and accounting bills, immediately upon the presentment of bills for such expenses. Employee agrees that Employee will reimburse Company for all reasonable expenses paid by Company in defending any civil or criminal action, suit or proceeding against Employee in the event and only to the extent that it shall be ultimately determined without right of further appeal that Employee is not entitled to be indemnified by Company for such expenses. This Agreement shall not affect any rights of Employee against Company, any insurer, or any other person to seek indemnification or contribution.

(f)    If Company fails to pay any expenses (including without limiting the generality of the foregoing, legal fees and expenses incurred in defending any action, suit or proceeding), Employee shall be entitled to institute suit against Company to compel such payment and Company shall pay Employee all costs and legal fees incurred in enforcing such right to prompt payment.

(g)   To the extent allowable under Delaware law, the burden of proof with respect to any proceeding or determination with respect to Employee’s entitlement to indemnification under this Employment Agreement shall be on Company.

(h)   If any provision of this Section 13 shall be determined as conflicting with any provision of (1) Company’s certificate of incorporation and by-laws, (2) Delaware law, or (3) the provisions of any other agreement between the parties as to indemnification, and such other document or law would provide  Employee with greater rights to 

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benefits of indemnification, then such other document or law shall prevail; it being the intention of the parties hereto to provide maximum indemnification to Employee. Otherwise, unless prohibited by law, any document or law which affords Employee with greater rights of indemnification by Company than do the provisions of this Employment Agreement shall have superiority over the provisions of this Employment Agreement.

(i)   In support of its obligations hereunder, the Company agrees to maintain a director’s and officer’s liability and other insurance policies covering the Employee and further agrees that these policies shall be maintained both during and after the end of the Term of employment so as to provide as broad and as complete coverage as is reasonably available in relation both to the Employee’s position during the Term of Employment and to any claims arising thereafter but related to said Term of Employment. 

Section 14.

Notices.  For the purposes of this Employment Agreement, notices and all other communications provided for in the Employment Agreement shall be in writing and shall be deemed to have been duly given when personally delivered or sent by certified mail, return receipt requested, postage prepaid, or by expedited (overnight) courier with established national reputation, shipping prepaid or billed to sender, in either case addressed to the respective addresses last given by each party to the other (provided that all notices to the Company shall be directed to the attention of the Board with a copy to the Secretary of the Company) or to such other address as either party may have furnished to the other in writing in accordance herewith.  All notices and communication shall be deemed to have been received on the date of delivery thereof, on the third business day after the mailing thereof, or on the second day after deposit thereof with an expedited courier service, except that notice of change of address shall be effective only upon receipt.

Section 15.

Life Insurance.  The Company may, at any time after the execution of this Employment Agreement, apply for and procure as owner and for its own benefit, life insurance on Employee, in such amounts and in such form or forms as the Company may determine.  Employee shall, at the request of the Company, submit to such medical examinations, supply such information, and execute such documents as may be required by the insurance company or companies to whom the Company has applied for such insurance. Employee hereby represents that to his knowledge he is in good physical and mental condition and is not under the influence of illegal drugs or similar substance.

Section 16.

Proprietary Information and Inventions. Employee understands and acknowledges that:

16.01

Trust.  Employee’s employment creates a relationship of confidence and trust between Employee and the Company with respect to certain information applicable to the business of the Company and its subsidiaries (collectively, the “Group”) or applicable to the business of any licensee, vendor or customer of any of the Group, which may be made known to Employee by the Group or by any licensee, vendor or customer of any of the Group or learned by Employee during the Employment Period.

16.02

Proprietary Information.  The Group possesses and will continue to possess information that has been created, discovered, or developed by, or otherwise become known to, the Group (including, without limitation, information created, discovered, developed or made known to by Employee during the period of or arising out of his employment by the Company) or in which property rights have been or may be assigned or otherwise conveyed to the Group, which information has commercial value in the business in which the Group is engaged and is treated by the Group as confidential.  Except as otherwise herein provided, all such information is hereinafter called “Proprietary Information”, which term, as used herein, shall also include, but shall not be limited to, data, research, patents, inventions, discoveries, processes, procedures, formulae, proprietary technology, designs, marketing plans, strategies, forecasts, new products, unpublished financial statements, budgets, projections, licenses, prices, costs, and customer, supplier and potential acquisition candidates lists.  Notwithstanding anything contained in this Employment Agreement to the contrary, the term “Proprietary Information” shall not include (i) information which is in the public domain, (ii) information which is published or otherwise becomes part of the public domain through no fault of Employee, (iii) information which Employee can demonstrate was in Employee’s possession at the time of disclosure and was not acquired by Employee directly or indirectly from any of the Group on a confidential basis, (iv) information which becomes available to Employee on a non-confidential basis from a source other than any of the Group and which source, to the best of Employee’s knowledge, did not acquire the information on a confidential basis, (v) information 

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belonging to other entities, or (vi) information required to be disclosed by any federal or state law, rule or regulation or by any applicable judgment, order or decree or any court or governmental body or agency having jurisdiction in the premises.

All Proprietary Information shall be the sole property of the Group and their respective assigns.  Employee assigns to the Company any rights Employee may have or acquire in such Proprietary Information.  At all times, both during Employee's employment by the Company and after its termination, Employee shall keep in strictest confidence and trust all Proprietary Information, and Employee shall not use or disclose any Proprietary Information without the written consent of the Group, except as may be necessary in the ordinary course of performing Employee's duties as an employee of the Company.   Notwithstanding the foregoing, Employee agrees that all Proprietary Information shall be kept in confidence by Employee for a period of at least three (3) years after the Termination Date of this Employment Agreement.

Section 17.

Inventions.  Any and all inventions, conceptions, processes, discoveries, improvements, patent rights, letter patents, programs, copyrights, trademarks, trade names and applications therefore relating to technology used by the Company to treat and recycle wastewater sludge and other bio-organic wastes, in the United States and other countries, and any and all rights and interest in, to and under the same, that are conceived, made, acquired, or possessed by Employee, alone or with other employees, during the term of this Employment Agreement shall become the exclusive property of the Company and shall at all times and for all purposes be regarded as acquired and held by Employee in a fiduciary capacity for the sole benefit of the Company, and the Employee hereby assigns and agrees to assign the same to the Company without further compensation.  Employee agrees that, upon request, he will promptly make all disclosures, execute all applications, assignments or other instruments and perform all acts whatsoever necessary or desired by the Company to vest and confirm in it, its successors, assigns and nominees, fully and completely, all rights and interests created or contemplated by this Section.

Section 18.

Surrender of Documents. Employee shall, at the request of the Company, promptly surrender to the Company or its nominee any Proprietary Information or document, memorandum, record, letter or other paper in his possession or under his control relating to the operation, business or affairs of the Group.

Section 19.

Prior Employment Agreements.  Employee represents and warrants that Employee's performance of all the terms of this Employment Agreement and as an employee of the Company does not, and will not, breach any agreement to keep in confidence proprietary information acquired by Employee in confidence or in trust prior to Employee’s employment by the Company.  Employee has not entered into, and shall not enter into, any agreement, either written or oral, which is in conflict with this Employment Agreement or which would be violated by Employee entering into, or carrying out his obligations under, this Employment Agreement.  

Section 20.

Restrictive Covenant.  Except as provided herein and/or as agreed by the Board of the Company, Employee acknowledges and recognizes Employee’s possession of Proprietary Information and the highly competitive nature of the business of the Group and, accordingly, agrees that in consideration of the covenants and conditions contained herein Employee shall not, during the Employment Period, (i) directly or indirectly engage in any new Business Activities that do not involve the Company that relate to the treatment of biosolids, whether such engagement shall be as an employer, officer, director, owner, employee, consultant, stockholder, partner or other participant, (ii) assist others in engaging in any Business Activities in the manner described in the foregoing clause (i), or (iii) induce employees of the Company to terminate their employment with the Company or engage in any Business Activities for any other entity.  So long as Company is in full compliance with the terms and conditions of this Agreement, Employee shall not for a period of one (1) year following the termination of this Agreement, for any customer and/or active potential customer of the Company that was such a customer or potential customer as of the date of termination, attempt to contact or solicit said customer or potential customer to provide like services and/or performance as had been or was proposed to be provided by the Company. 

Section 21.

Remedies.  The parties hereto acknowledge and agree that the a remedy at law for a breach or a threatened breach of the provisions of Sections 16, 17, 18 and 20 herein would be inadequate, and in recognition of this fact, in the event of a breach or threatened breach of any of such provisions, it is agreed that the parties shall be entitled to equitable relief in the form of specific performance, a temporary restraining order, a temporary or permanent injunction or any other equitable remedy which may then be available, without posting bond or other security.  No remedy herein conferred is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given hereunder now or hereinafter existing at law or in equity or by statute or otherwise.

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Section 22.

Successive Employment Notice.  In the event this Employment Agreement is terminated by Employee pursuant to Section 10, within five (5) business days after the Termination Date, Employee shall provide notice to the Company of Employee’s next intended employment.  If such employment is not known by Employee at such date, Employee shall notify the Company immediately upon determination of such information.  Employee shall continue to provide the Company with notice of Employee’s place and nature of employment and any change in place or nature of employment during the period ending one (1) year after the Termination Date.

Section 23.

Successors.  This Employment Agreement shall be binding on the Company and any successor to any of its businesses or assets.  Without limiting the effect of the prior sentence, the Company shall require any successor or assign (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Employment Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession or assignment had taken place.  The Company’s failure to obtain said assumption shall be a breach of this Employment Agreement under Section 10A hereof.   As used in this Employment Agreement, "Company" shall mean the Company as hereinbefore defined and any successor or assign to its business and/or assets as aforesaid which assumes and agrees to perform this Employment Agreement or which is otherwise obligated under this Agreement by the first sentence of this Section 23, by operation of law or otherwise.

Section 24.

Binding Effect.  This Employment Agreement shall inure to the benefit of and be enforceable by Employee's personal and legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.  If Employee should die while any amounts would still be payable to him hereunder if he had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Employment Agreement to Employee's estate.

Section 25.

Modification and Waiver.  No provision of this Employment Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Employee and such officer as may be specifically designated by the Board.  No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Employment Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time.

Section 26.

Headings.  Headings used in this Employment Agreement are for convenience only and shall not be used to interpret or construe its provisions.

Section 27.

Waiver of Breach.  The waiver of either the Company or Employee of a breach of any provision of this Employment Agreement shall not operate or be construed as a waiver of any subsequent breach by either the Company or Employee.  Any such waiver must be in writing signed by the party against whom the waiver is sought to be enforced or asserted.  

Section 28.

Amendments.  No amendments or variations of the terms and conditions of this Employment Agreement shall be valid unless the same is in writing and signed by all of the parties hereto.

Section 29.

Severability.  The invalidity or unenforceability of any provision of this Employment Agreement, whether in whole or in part, shall not in any way affect the validity and/or enforceability of any other provision herein contained.  Any invalid or unenforceable provision shall be deemed severable to the extent of any such invalidity or unenforceability.

Section 30.

Governing Law; Arbitration.  

(a)  Governing Law.   This Employment Agreement shall be construed and enforced pursuant to the laws of the State of Ohio.  

(b)  Arbitration. (1) Any unresolved controversy or claim arising out of, in connection with, under or relating to this Employment Agreement, shall be submitted to arbitration (the “Arbitration”) before the American Arbitration Association (“AAA”) using the Commercial Arbitration Rules then in effect. The Arbitration shall be conducted by one (1) arbitrator mutually agreed upon by the parties.  The arbitration shall take place in Toledo, Ohio.  Judgment upon any award rendered in such arbitration will be binding and may be entered in any court 

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having jurisdiction thereof. Both parties agree and consent to the personal jurisdiction of the United States District Court for the Northern District of Ohio (located in Toledo), or the State Courts of the State of Ohio, for all purposes relating to the arbitration including any equitable relief, and the entry of judgment upon, and enforcement of, any award. 

(b)(2) There shall be limited discovery prior to the Arbitration hearing as follows: (i) exchange of witness lists and copies of documentary evidence and documents relating to or arising out of the issues to be arbitrated, (ii) depositions of all party witnesses and (iii) such other depositions as may be allowed by the arbitrator only upon a showing of good cause. Depositions shall be conducted in accordance with the Federal Rules of Civil Procedure.  

(b)(3)  A court reporter shall record all hearings, with such record constituting the official transcript of such proceedings.  The arbitrator shall be required to provide in writing to the parties the basis for the award or order of such arbitrator. The arbitrator shall have no power and authority to award punitive, exemplary, incidental and consequential (including without limitation lost profits) damages in favor of one party against the other party in the Arbitration.  Each party shall bear its own legal costs and expenses in connection with the Arbitration; provided, however, that the arbitrator shall make an award of legal fees, and all other costs and expenses of the Arbitration to the prevailing party as part of any Arbitration award including (i) the filing fees for the Arbitration and (ii) the stenographic costs of transcription.  The arbitrator’s fees shall be divided equally between the parties.   

Section 31.

Counterparts.  This Employment Agreement may be executed in more than one (1) counterpart and each counterpart shall be considered an original.

Section 32.

 Survival.   The provisions of Sections 10, 10A, 12, 13, 16 and 30 herein shall survive termination of this Employment Agreement for any reason.

Section 33.

Sections.  Unless the context requires a different meaning, all references to "Sections" in this Agreement shall mean the Section of this Agreement.

Section 34.

Publicity.  Press releases and other publicity materials relating to the transactions contemplated by this Employment Agreement shall be released by the parties hereto only after review and with the consent of the other party; provided, however, that if legal counsel for the Company advises the Company that disclosure of this Employment Agreement is required under applicable federal or state securities laws, then the Company shall be permitted to make such disclosure in the form recommended by such legal counsel without the prior consent of Employee.

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IN WITNESS WHEREOF, this Employment Agreement has been duly executed by the Company and Employee as of the date first above written.

N-VIRO INTERNATIONAL CORPORATION

By   /s/ Gene K. Richard

Gene K. Richard

Its:  Chairman, Compensation Committee

    /s/  Timothy R. Kasmoch

      Timothy R. Kasmoch

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