INDEX TO AKERNA’S
FINANCIAL STATEMENTS
AKERNA
CORP.
Condensed
Consolidated Balance Sheets
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$
|
18,780,897
|
|
|
$
|
21,867,289
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
500,000
|
|
Accounts receivable, net
|
|
|
1,753,935
|
|
|
|
1,257,274
|
|
Prepaid expenses and other assets
|
|
|
1,108,917
|
|
|
|
577,674
|
|
Total current assets
|
|
|
22,143,749
|
|
|
|
24,202,237
|
|
|
|
|
|
|
|
|
|
|
Investment
|
|
|
250,000
|
|
|
|
-
|
|
Total assets
|
|
$
|
22,393,749
|
|
|
$
|
24,202,237
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,670,005
|
|
|
$
|
1,317,566
|
|
Accrued liabilities
|
|
|
564,348
|
|
|
|
500,550
|
|
Deferred revenue
|
|
|
844,554
|
|
|
|
624,387
|
|
Total current liabilities
|
|
|
3,078,907
|
|
|
|
2,442,503
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001; 5,000,000 shares
authorized, none are issued and outstanding at December 31, 2019 and June 30, 2019
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $0.0001; 75,000,000 shares
authorized, 10,921,485 issued and outstanding at December 31, 2019, and 10,589,746 shares authorized, issued and outstanding
at June 30, 2019
|
|
|
1,093
|
|
|
|
1,059
|
|
Additional paid-in capital
|
|
|
52,065,102
|
|
|
|
47,325,421
|
|
Accumulated deficit
|
|
|
(32,751,353
|
)
|
|
|
(25,566,746
|
)
|
Total stockholders’ equity
|
|
|
19,314,842
|
|
|
|
21,759,734
|
|
Total liabilities and stockholders’ equity
|
|
$
|
22,393,749
|
|
|
$
|
24,202,237
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements
AKERNA
CORP.
Condensed
Statements of Operations (unaudited)
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Software
|
|
$
|
2,498,174
|
|
|
$
|
2,269,924
|
|
|
$
|
4,802,654
|
|
|
$
|
4,149,186
|
|
Consulting
|
|
|
725,000
|
|
|
|
239,797
|
|
|
|
1,556,363
|
|
|
|
609,880
|
|
Other
|
|
|
83,029
|
|
|
|
64,191
|
|
|
|
140,076
|
|
|
|
114,245
|
|
Total revenues
|
|
|
3,306,203
|
|
|
|
2,573,912
|
|
|
|
6,499,093
|
|
|
|
4,873,311
|
|
Cost of revenues
|
|
|
1,638,840
|
|
|
|
1,320,995
|
|
|
|
3,036,201
|
|
|
|
2,384,130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
1,667,363
|
|
|
|
1,252,917
|
|
|
|
3,462,892
|
|
|
|
2,489,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product development
|
|
|
1,261,509
|
|
|
|
1,075,003
|
|
|
|
2,392,389
|
|
|
|
1,876,475
|
|
Selling, general, and administrative
|
|
|
4,796,404
|
|
|
|
2,629,452
|
|
|
|
8,380,219
|
|
|
|
4,776,944
|
|
Total operating expenses
|
|
|
6,057,913
|
|
|
|
3,704,455
|
|
|
|
10,772,608
|
|
|
|
6,653,419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(4,390,550
|
)
|
|
|
(2,451,538
|
)
|
|
|
(7,309,716
|
)
|
|
|
(4,164,238
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
51,857
|
|
|
|
30,723
|
|
|
|
125,239
|
|
|
|
48,351
|
|
Other
|
|
|
157
|
|
|
|
26,444
|
|
|
|
(130
|
)
|
|
|
25,833
|
|
Total other income
|
|
|
52,014
|
|
|
|
57,167
|
|
|
|
125,109
|
|
|
|
74,184
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,338,536
|
)
|
|
$
|
(2,394,371
|
)
|
|
$
|
(7,184,607
|
)
|
|
$
|
(4,090,054
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common stock outstanding
|
|
|
10,958,772
|
|
|
|
6,022,026
|
|
|
|
10,918,942
|
|
|
|
5,755,931
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.40
|
)
|
|
$
|
(0.40
|
)
|
|
$
|
(0.66
|
)
|
|
$
|
(0.71
|
)
|
The accompanying notes are an integral part
of these condensed consolidated financial statements
AKERNA
CORP.
Condensed
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
For
the six months ended December 31, 2019
|
|
Common
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 1, 2019
|
|
|
10,589,746
|
|
|
$
|
1,059
|
|
|
$
|
47,325,421
|
|
|
$
|
(25,566,746
|
)
|
|
$
|
21,759,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
161,165
|
|
|
|
-
|
|
|
|
161,165
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received in connection with exercise of warrants
|
|
|
368,910
|
|
|
|
37
|
|
|
|
4,242,417
|
|
|
|
-
|
|
|
|
4,242,454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,846,071
|
)
|
|
|
(2,846,071
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2019
|
|
|
10,958,656
|
|
|
|
1,096
|
|
|
|
51,729,003
|
|
|
|
(28,412,817
|
)
|
|
|
23,317,282
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
|
-
|
|
|
|
331,485
|
|
|
|
-
|
|
|
|
331,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeitures of restricted shares
|
|
|
(37,572
|
)
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received in connection with exercise of warrants
|
|
|
401
|
|
|
|
-
|
|
|
|
4,611
|
|
|
|
-
|
|
|
|
4,611
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,338,536
|
)
|
|
|
(4,338,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2019
|
|
|
10,921,485
|
|
|
$
|
1,093
|
|
|
$
|
52,065,102
|
|
|
$
|
(32,751,353
|
)
|
|
$
|
(19,314,842
|
)
|
The accompanying notes are an integral part
of these condensed consolidated financial statements
AKERNA
CORP.
Condensed
Consolidated Statements of Changes in Stockholders’ Equity (unaudited)
For
the six months ended December 31, 2018
|
|
Common
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 1, 2018
|
|
|
4,922,650
|
|
|
$
|
492
|
|
|
$
|
14,563,102
|
|
|
$
|
(13,163,531
|
)
|
|
$
|
1,400,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares in exchange for cash
|
|
|
1,099,376
|
|
|
|
110
|
|
|
|
9,999,890
|
|
|
|
-
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,695,683
|
)
|
|
|
(1,695,683
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – September 30, 2018
|
|
|
6,022,026
|
|
|
|
602
|
|
|
|
24,562,992
|
|
|
|
(14,859,214
|
)
|
|
|
9,704,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,394,371
|
)
|
|
|
(2,394,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – December 31, 2018
|
|
|
6,022,026
|
|
|
$
|
602
|
|
|
$
|
24,562,992
|
|
|
$
|
(17,253,585
|
)
|
|
$
|
7,310,009
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements
AKERNA
CORP.
Condensed
Consolidated Statements of Cash Flows (unaudited)
|
|
For the six months ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,184,607
|
)
|
|
$
|
(4,090,054
|
)
|
Adjustment to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Bad debt expense
|
|
|
724,350
|
|
|
|
101,446
|
|
Stock-based compensation expense
|
|
|
492,650
|
|
|
|
-
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(1,221,011
|
)
|
|
|
(240,351
|
)
|
Prepaid expenses and other current assets
|
|
|
(531,243
|
)
|
|
|
(72,063
|
)
|
Accounts payable
|
|
|
352,439
|
|
|
|
603,652
|
|
Accrued liabilities
|
|
|
63,798
|
|
|
|
336,758
|
|
Deferred revenue
|
|
|
220,167
|
|
|
|
(128,577
|
)
|
Net cash used in operating activities
|
|
|
(7,083,457
|
)
|
|
|
(3,489,189
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Investment acquired in Zol Solutions
|
|
|
(250,000
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(250,000
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Cash received in connection with exercise of warrants
|
|
|
4,247,065
|
|
|
|
-
|
|
Cash received in connection with issuance of shares
|
|
|
-
|
|
|
|
10,000,000
|
|
Net cash provided by financing activities
|
|
|
4,247,065
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and restricted cash
|
|
|
(3,086,392
|
)
|
|
|
6,510,811
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash - beginning of period
|
|
|
22,367,289
|
|
|
|
2,572,401
|
|
|
|
|
|
|
|
|
|
|
Cash and restricted cash - end of period
|
|
$
|
19,280,897
|
|
|
$
|
9,083,212
|
|
|
|
|
|
|
|
|
|
|
Cash paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
2,355
|
|
|
$
|
987
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeiture of Restricted Shares included in outstanding common stock
|
|
$
|
(3
|
)
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these condensed consolidated financial statements
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
1 - Description of Business, Liquidity and Capital Resources
Description
of Business
Akerna
Corp. (the “Company”, “We”, “Our” or “Akerna”), through its wholly-owned subsidiary
MJ Freeway, LLC (“MJF”) provides enterprise software solutions that enable regulatory compliance and inventory management.
The Company’s proprietary, broad and growing suite of solutions are adaptable for industries in which interfacing with government
regulatory agencies for compliance purposes is required, or where the tracking of organic materials from seed or plant to end
products is desired. The Company developed products intended to assist states in monitoring licensed businesses’ compliance
with state regulations, and to help state-licensed businesses operate in compliance with such law. The Company provides its regulatory
software platform, Leaf Data Systems®, to state government regulatory agencies, and its commercial software platform, MJ Platform®,
to state-licensed businesses.
We
consult with clients on a wide range of areas to help them maintain compliance with state law. Our project-focused consulting
services help clients initiate or expand business operations. Our advisory engagements include service offerings focused on compliance
requirement assessments, readiness and best practices, compliance monitoring systems, application processes, inspection readiness
and business plan and compliance reviews. We typically provide our consulting services to clients in emerging markets that are
seeking consultation on newly introduced licensing regimes and assistance with the regulatory compliant build-out of operations.
The
accompanying financial statements and related notes reflect the historical results of MJF prior to the mergers completed in June
2019 (“the Mergers”) with MTech Acquisition Corp. (“MTech”) and other related entities, which resulted
in the combined company, and do not include the historical results of MTech prior to the completion of the Mergers.
Liquidity
and Capital Resources
Since
its inception, the Company has incurred recurring operating losses, used cash from operations, and relied on capital raising transactions
to continue ongoing operations. Although we have continuing negative cash flow from operations, the Company anticipates that its
current cash will be sufficient to meet the working capital requirements for the next twelve months. From time to time,
we may pursue various strategic business opportunities. These opportunities may include investment in or ownership of additional
technology companies through direct investments, acquisitions, joint ventures and other arrangements. We can provide no
assurance that we will successfully identify such opportunities or that, if we identify and pursue any of these opportunities,
any of them will be consummated. Consequently, the Company may raise additional equity or debt capital or enter into arrangements
to secure necessary financing to fund the completion of such strategic business opportunities, although no assurance can be provided
that we will be successful in completing a future capital raise. The sale of additional equity could result in additional
dilution to the Company’s existing stockholders, and financing arrangements may not be available to us, or may not be available
in sufficient amounts or on acceptable terms. Our future operating performance will be subject to future economic conditions and
to financial, business and other factors, many of which are beyond our control. See “Risk Factors” in our Annual Report
on Form 10-K for the fiscal year ended June 30, 2019 for a discussion of the risks related to our liquidity and capital structure.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
2 - Summary of Significant Accounting Policies
Since
the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies, except
as disclosed below.
Basis
of Presentation
These
unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange
Commission (“SEC”), for interim reporting. As permitted under those rules, certain footnotes and other financial information
that are normally required by accounting principles generally accepted in the United States of America (“U.S. GAAP”)
can be condensed or omitted. The condensed consolidated balance sheet for the year ended June 30, 2019 was derived from the
Company’s audited financial statements, but does not include all disclosures required by U.S. GAAP. The information
included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated financial statements and notes
thereto of the Company for the year ended June 30, 2019 which were included in the annual report on Form 10-K
filed by the Company on September 23, 2019.
In
the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual
consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring
adjustments, considered necessary for the fair presentation of the Company’s financial position and operating results. The
results for the three and six months ended December 31, 2019 are not necessarily indicative of the operating results
for the year ending June 30, 2020, or any other interim or future periods.
Accounts
Receivable, Net
The
Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate
is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred
could differ materially from the amounts estimated in determining the allowance. The allowance for doubtful accounts was $417,028
as December 31, 2019 and $190,088 as of June 30, 2019.
Concentrations
of Credit Risk
The
Company grants credit in the normal course of business to its customers. The Company periodically performs credit analysis and
monitors the financial condition of its customers to reduce credit risk.
During
the three months ended December 31, 2019, two customers accounted for 23% and 14% of total revenues, respectively. At December
31, 2019, the same two customers accounted for 50% and 24% of net accounts receivable, respectively. During the three months ended
December 31, 2018, two customers accounted for 38% and 14% of total revenues, respectively. At December 31, 2018, one customer
accounted for 61% of net accounts receivable.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
During
the six months ended December 31, 2019, two customers accounted for 23% and 13% of total revenues, respectively. During the six
months ended December 31, 2018, two customers accounted for 36% and 12% of total revenues, respectively.
Investments
The Company makes strategic
investments comprised of non-marketable equity securities. Non-marketable equity securities are recorded within Other assets
in the accompanying Condensed Consolidated Balance Sheets. Determining how an investment will be accounted for depends upon the
characteristics of the security it has purchased and the degree of control or influence, both direct and indirect, that the Company
will be able to exert over that investment.
Revenue
Recognition
The Company derives its
revenues from the following two primary sources: (1) subscription revenues, which are comprised of subscription fees from government
and commercial customers accessing the Company’s enterprise cloud computing services and from customers paying for additional
support beyond the standard support that is included in the basic subscription fees; and (2) consulting services, which include
service offerings focused on compliance requirement assessments, readiness and best practices, compliance monitoring systems, application
processes, inspection readiness and business plan and compliance reviews to operators interested in integrating our platform into
their respective operations.
The
Company commences revenue recognition when all of the following conditions are satisfied:
|
●
|
There
is persuasive evidence of an arrangement
|
|
●
|
The
service has been or is being provided to the customer
|
|
●
|
The
collection of the fees is reasonably assured
|
|
●
|
The
amount of fees to be paid by the customer is fixed or determinable
|
Subscription
Revenue
Subscription
revenue is recognized ratably, beginning when access to the applicable software is provided to the customer, over the contractual
period. The Company typically invoices customers at the beginning of the term, in multi-year, annual, quarterly or monthly installments.
In instances where collection of fees occurs in advance of service delivery, revenue recognition is deferred until such services
are delivered. Revenue for implementation fees is recognized ratably over the expected term of the agreement, including expected
renewals.
The
Company includes service level commitments to customers warranting certain levels of uptime reliability and performance and permitting
those customers to receive credits in the event that those levels are not met. In addition, customer contracts often include (i)
specific obligations that require the Company to maintain the availability of the customer’s data through the service and
that customer content is secured against unauthorized access or loss, and (ii) indemnity provisions whereby the Company indemnifies
customers from third-party claims asserted against them that result from the Company’s failure to maintain the availability
of their content or securing the same from unauthorized access or loss. To date, the Company has not incurred any material costs
as a result of such commitments. Any such credits or payments made to customers under these arrangements are recorded as a reduction
of revenue.
Consulting
Services and Other Revenues
Consulting
services revenue consists of contracts with fixed terms and fee structures based upon the volume and activity, or fixed price
contracts for consulting and strategic services. When these services are not combined with subscription revenues as a single unit
of accounting, as discussed below, these revenues are recognized as services are rendered and accepted by the customer. From time
to time, the Company purchases equipment for resale to customers. Such equipment is generally drop-shipped to the Company’s
customers. The Company recognizes revenue as the services are performed or products are delivered.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Cost
of Revenue
Cost
of revenue consists primarily of costs related to providing the subscription and other services to the Company’s customers,
including employee compensation and related expenses for datacenter operations, customer support and professional services personnel,
payments to outside technology service providers, security services and other tools.
Deferred
Revenue
Deferred
revenue primarily consists of payments received in advance of revenue recognition from subscription services described above and
is recognized as the revenue recognition criteria are met. The deferred revenue balance is influenced by several factors, including
seasonality, the compounding effects of renewals, invoice duration, invoice timing, size and new business within the year.
Deferred revenue that will
be recognized during the succeeding twelve-month period is recorded as Deferred revenue, which is a current liability in the accompany
Consolidated Balance Sheets.
Reclassifications
Certain
prior year financial statement amounts have been reclassified for consistency with the current year presentation.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Recently
Issued Accounting Pronouncements
ASU
2014-09, Revenue from Contracts with Customers (Topic 606), supersedes the revenue recognition requirements and industry-specific
guidance under Revenue Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised
goods or services to customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for
those goods or services. ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing, and uncertainty
of revenue and cash flows arising from customer contracts. As an Emerging Growth Company, ASU No. 2014-09 is effective for the
Company’s fiscal 2020 annual reporting period and for interim periods thereafter, with early adoption permitted, and allows
for either full retrospective or modified retrospective adoption. The Company is evaluating the impact of adoption of the new
standard on its consolidated financial statements.
In
January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets
and Financial Liabilities, which requires certain equity investments to be measured at fair value with changes in fair value
recognized in net income, to record changes in instrument-specific credit risk for financial liabilities measured under the fair
value option in other comprehensive income. The new standard is expected to reduce diversity in practice. The new standard is
effective for the Company’s fiscal 2020 annual reporting period and for interim periods thereafter. The Company is evaluating
the impact of adoption of the new standard on its consolidated financial statements.
In
February 2016, the FASB issued ASU No. 2016-02, Leases. The new standard, as subsequently amended, establishes a right-of-use
model that requires a lessee to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms
longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of
expense recognition in the statement of operations. The new standard is effective for the Company beginning July 1, 2021 with
early adoption permitted. The Company is evaluating the impact of adoption of the new standard on its consolidated financial statements.
In June 2016, the
FASB issued ASU 2016-13, Financial Instruments - Credit Losses, and also issued subsequent amendments to the initial guidance,
ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11 (collectively, Topic 326), to introduce a new impairment model for recognizing
credit losses on financial instruments based on an estimate of current expected credit losses (CECL). Under Topic 326, an entity
is required to estimate CECL on available-for-sale (AFS) debt securities only when the fair value is below the amortized cost
of the asset and is no longer based on an impairment being “other-than-temporary”. Topic 326 also requires the impairment
calculation on an individual security level and requires an entity use present value of cash flows when estimating the CECL. The
credit-related losses are required to be recognized through earnings and non-credit related losses are reported in other comprehensive
income. In April 2019, the FASB further clarified the scope of Topic 326 and addressed issues related to accrued interest receivable
balances, recoveries, variable interest rates and prepayment. Topic 326 will be effective for the Company in fiscal years beginning
after July 1, 2023, with early adoption permitted. The Company is evaluating the impact of adoption of the new standard on its
consolidated financial statements.
In
June 2018, the FASB issued ASU No. 2018-07, Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based
Payment Accounting, which eliminates the separate accounting model for nonemployee share-based payment awards and generally
requires companies to account for share-based payment transactions with nonemployees in the same way as share-based payment transactions
with employees. Under the new guidance, nonemployee share-based payment transactions are measured at the grant-date fair value
and are no longer remeasured at the then-current fair values at each reporting date until the share options have vested. The amended
guidance is effective for the Company’s fiscal 2020 annual reporting period and for interim periods thereafter, with early
adoption permitted. The Company is evaluating the impact of adoption of the new standard on its consolidated financial statements.
In
August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40):
Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which
broadens the scope of existing guidance applicable to internal-use software development costs. The update requires costs to be
capitalized or expensed based on the nature of the costs and the project stage in which they are incurred subject to amortization
and impairment guidance consistent with existing internal-use software development cost guidance. The guidance is applicable for
the Company beginning July 1, 2023 with early adoption permitted, including adoption in an interim period. The Company is evaluating
the impact of adoption of the new standard on its financial statements.
In
November 2019, the FASB issued ASU 2019-10, “Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging
(Topic 815), and Leases (Topic 842)” (“ASU 2019-10”). ASU 2019-10 (i) provides a framework to stagger effective
dates for future major accounting standards and (ii) amends the effective dates for certain major new accounting standards to
give implementation relief to certain types of entities. Specifically, ASU 2019-10 changes some effective dates for certain new
standards on the following topics in the FASB Accounting Standards Codification (ASC): (a) Derivatives and Hedging (ASC 815) –
now effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December
15, 2021; (b) Leases (ASC 842) - now effective for fiscal years beginning after December 15, 2020 and interim periods within fiscal
years beginning after December 15, 2021; (c) Financial Instruments — Credit Losses (ASC 326) - now effective for fiscal
years beginning after December 15, 2022, including interim periods within those fiscal years; and (d) Intangibles — Goodwill
and Other (ASC 350) - now effective for fiscal years beginning after December 15, 2022, including interim periods within those
fiscal years. The Company adopted ASU 2019-10 and its adoption did not have a material impact on the Company’s financial
statements and financial statement disclosures.
In January 2020, the
FASB issued ASU 2020-01, Investments—Equity Securities (Topic 321), Investments—Equity Method and Joint Ventures (Topic
323), and Derivatives and Hedging (Topic 815): Clarifying the Interactions between Topics 321, 323 and 815. The new standard addresses
accounting for the transition into and out of the equity method and measurement of certain purchased options and forward contracts
to acquire investments. The standard is effective for the Company for annual and interim periods beginning after July 1, 2022,
with early adoption permitted. Adoption of the standard requires changes to be made prospectively. The Company is evaluating the
impact of adoption of the new standard on its consolidated financial statements.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
3 - Balance Sheet Disclosures
Prepaid
expenses and other current assets consist of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Software and technology
|
|
$
|
675,306
|
|
|
$
|
237,930
|
|
Professional services
|
|
|
292,484
|
|
|
|
169,804
|
|
Insurance
|
|
|
89,202
|
|
|
|
159,940
|
|
Deposit
|
|
|
51,925
|
|
|
|
10,000
|
|
|
|
$
|
1,108,917
|
|
|
$
|
577,674
|
|
At
December 31, 2019, approximately $277,000 of software and technology prepaid expenses was related to a contract with a cloud software
company specializing in business intelligence. The balance will be amortized over one year.
As
of December 31, 2019, approximately $181,000 of professional services prepaid expenses related to the contract with the State
of Utah. These costs will be deferred and recognized at the same time as the related revenue is recognized, under the matching
principle.
Accrued
liabilities consist of the following:
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2019
|
|
Professional fees
|
|
$
|
-
|
|
|
$
|
49,205
|
|
Accrued acquisition-related costs
|
|
|
500,000
|
|
|
|
-
|
|
Sales taxes
|
|
|
2,390
|
|
|
|
36,358
|
|
Compensation
|
|
|
61,958
|
|
|
|
354,724
|
|
Leaf Data Systems contractors
|
|
|
-
|
|
|
|
19,557
|
|
Other
|
|
|
-
|
|
|
|
40,706
|
|
|
|
$
|
564,348
|
|
|
$
|
500,550
|
|
The
accrued compensation as of June 30, 2019 includes approximately $215,000 of accrued bonus earned by the Company’s Chief
Executive Officer with respect to fiscal year 2019. The balance was paid in October, 2019.
At
December 31, 2019, the Company accrued $500,000 in fees related to deal costs for the Solo acquisition (Note 8).
Note
4 - Loss Per Share
Basic
net loss per share is calculated based on the weighted-average number of shares of common stock outstanding in accordance with
ASC Topic 260, Earnings per Share. Diluted net loss per common share is calculated based on the weighted-average number of shares
of common stock outstanding plus the effect of potentially dilutive issuances of common stock. When the Company reports a net
loss, the calculation of diluted net loss per common stock excludes issuances of common stock as the effect would be anti-dilutive.
For the six months ended December 31, 2019, 6,183,594 potentially dilutive issuances of shares of common stock have been excluded
from the computation of diluted weighted average shares outstanding because the effect would be anti-dilutive. Of the total securities
excluded, 5,813,804 shares of common stock are underlying outstanding warrants to purchase common stock and 369,790 were related
to the unvested shares of restricted common stock. For the six months ended December 31, 2018, 5,993,750 potentially dilutive
issuances of shares of common stock all related to warrants to purchase shares of common stock have been excluded from the computation
of diluted weighted average shares of common stock outstanding because the effect would be anti-dilutive.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
5 - Stockholders’ Equity
Issuances
for Cash
In
August 2018, MJF issued 4,115,042 Series C Preferred Units (1,099,376 shares of common stock after retroactively applying the
exchange ratio) for cash consideration of $10,000,000. Following the Mergers, all the Units were converted into Akerna’s
common stock.
Restricted
Shares
Prior
to the Mergers, MJF had in place a Profit Interest Incentive Plan (the “Profits Interest Plan”) whereby it could grant
profit interest units (“PIUs”) to employees or consultants and other independent advisors of the Company. PIUs granted
under the Profits Interest Plan would generally vest once a year over four years commencing on the date granted, or based on specified
performance targets. MJF had the right, but not the obligation, to repurchase vested PIUs from holders upon their termination
of employment. Unvested PIUs were to be forfeited upon termination of employment. If the holder was terminated for cause, as defined,
all vested and unvested units would be forfeited. PIUs repurchased or canceled or forfeited by the award recipient were available
for reissuance. Upon completion of the Mergers in June 2019, the non-vested PIUs were exchanged for restricted shares of common
stock (“Restricted Shares”) subject to restricted stock agreements with varying vesting terms that reflect the vesting
conditions applicable to PIUs of the applicable MJF equity holders at the time of the Mergers.
During
the six months ended December 31, 2018, 285,324 PIUs were granted (which were exchanged for 76,239 Restricted Shares in the Mergers)
and 92,500 PIUs (which would equate to 24,716 Restricted Shares after applying the exchange ratio) were forfeited.
A
summary of the Company’s unvested Restricted Shares and Restricted Stock Units (“RSUs”) activity in the six
months ended December 31, 2019 is presented here:
|
|
Restricted
Shares
|
|
|
Restricted
Stock Units
|
|
|
Weighted
Average
Grant Date
Fair
|
|
|
Total
|
|
Nonvested at July 1, 2019
|
|
|
215,063
|
|
|
|
-
|
|
|
$
|
11.99
|
|
|
|
215,063
|
|
Vested
|
|
|
(7,347
|
)
|
|
|
-
|
|
|
|
11.99
|
|
|
|
(7,347
|
)
|
Granted
|
|
|
-
|
|
|
|
199,646
|
|
|
|
7.97
|
|
|
|
199,646
|
|
Forfeited
|
|
|
(37,572
|
)
|
|
|
-
|
|
|
|
11.99
|
|
|
|
(37,572
|
)
|
Nonvested at December 31, 2019
|
|
|
170,144
|
|
|
|
199,646
|
|
|
$
|
9.82
|
|
|
|
369,790
|
|
For
the six months ended December 31, 2019, stock-based compensation expense related to the ratable amortization of the unvested Restricted
Shares and RSUs was $492,650, and approximately $2.9 million of total unrecognized costs related to Restricted Shares and RSUs
will be ratably recognized over an estimated weighted average remaining vesting period of 2.9 years
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Warrants
A
summary of the status of outstanding warrants to purchase common stock at December 31, 2019 and the changes during the six months
then ended, is presented in the following table:
|
|
Shares
issuable
upon
exercise of
warrants
|
|
|
Weighted
average
exercise
price
|
|
|
Weighted
average
remaining
life
|
|
Outstanding at July 1, 2019
|
|
|
6,183,115
|
|
|
$
|
11.50
|
|
|
|
3.72
|
|
Issued
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
(369,311
|
)
|
|
|
11.50
|
|
|
|
-
|
|
Expired/cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2019
|
|
|
5,813,804
|
|
|
$
|
11.50
|
|
|
|
3.15
|
|
There
was no aggregate intrinsic value for the warrants outstanding as of December 31, 2019.
Note
6 - Commitments and Contingencies
Operating
Leases
The
Company leases facilities, equipment, and vehicles under non-cancelable operating leases. Rent expense for the three months ended
December 31, 2019 and 2018, was $40,000 and $35,475, respectively. Rent expense for the six months ended December 31, 2019 and
2018, was $76,000 and $78,950, respectively.
On September 30, 2019,
the Company entered into an office service agreement (the “Office Lease”) effective and commencing February 1, 2020
and expiring January 31, 2022, unless earlier terminated by either party in accordance with the terms of the Office Lease. The
Office Lease relates to new office space located at 1630 Welton Street, Denver, Colorado, 80202. In October 2019, the Company
paid a security deposit equal to a one-month payment and initial set-up fees of $43,925. The monthly payments will be in the amount
of $41,925 subject to a 4% annual indexation increase at each anniversary of the commencement date during the term of the Office
Lease.
Future
minimum lease payments to be made pursuant to the Office Lease and the current leases are approximately $241,000 for the
remainder of the year ended June 30, 2020, approximately $530,000 for the year ended June 30, 2021, and approximately $316,000
for the year ended June 30, 2022.
Compensation
Agreement with Jessica Billingsley
On
November 11, 2019, the Compensation Committee of the Board of Directors of the Company established the terms on which Ms. Billingsley,
the Company’s Chief Executive Officer, may earn a bonus for the fiscal year ended June 30, 2020. The Compensation Committee
determined that Ms. Billingsley will be eligible for a bonus derived from the same targets with respect to her bonuses in fiscal
year 2019, which were as follows:
The
annual bonus was determined based upon the following four (4) budget components, platform recurring revenue, government recurring
revenue, services revenue and net income. Each scales linearly between achieving 75% to 100%, and greater than 100% with respect
to platform recurring revenue and government recurring revenue budget components respectively, of the applicable fiscal year’s
budget for each such component (with 50% of the target bonus payable upon achievement of 75% of budget, 100% of the target bonus
payable upon achievement of budget (and, with respect to the platform recurring revenue and government recurring revenue budget
components, with 200% of each weighted portion of the target bonus payable upon achievement of 125% of the corresponding component
of budget (the “Accelerator”), with linear interpolation between points)).
However,
during fiscal year 2020 the Accelerator may be paid at the sole discretion of the Compensation Committee in cash, stock, or a
combination thereof.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
In
addition, the Compensation Committee determined that, during fiscal year 2020, Ms. Billingsley is eligible to earn a performance
based incentive of $250,000, payable in stock, whereby (a) 50% of the bonus is automatically granted if the Company’s stock
price/shareholder return increases by 15% (measuring point starts at $10 per share) with respect to the consecutive 20-day volume
weighted average price prior to and including June 30, 2020, and (b) the remaining 50% of the bonus may be paid at the sole discretion
of the Compensation Committee.
Letter-of-Credit
As
of December 31, 2019, the Company had a standby letter-of-credit with a bank in the amount of $500,000, which was classified as
restricted cash on the balance sheets. The beneficiary of the letter-of-credit is an insurance company. The letter-of-credit will
expire on June 22, 2020.
Litigation
From
time to time, the Company may be involved in litigation relating to claims arising out of its operations in the normal course
of business. The Company will accrue a liability for such matters when it is probable that a liability has been incurred and the
amount can be reasonably estimated. When only a range of possible loss can be established, the most probable amount in the range
is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in
the range is accrued. The accrual for a litigation loss contingency might include, for example, estimates of potential damages,
outside legal fees and other directly related costs expected to be incurred. As of December 31, 2019, and through the date these
financial statements were issued, there were no legal proceedings requiring recognition or disclosure in the financial statements.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Note
7 – Long-term Investments
License
Agreement with Zol Solutions, Inc.
On October 7, 2019, the
Company participated in an offering of preferred stock of Zol Solutions, Inc. (“ZolTrain”) along with other investors
in which the Company purchased approximately 203,000 shares of Series Seed Peferred Stock (the “ZolTrain Preferred”)
for a purchase price of $250,000, which represents a minority interest in ZolTrain.
The ZolTrain Preferred is
convertible into shares of common stock of ZolTrain at a price of $1.232 per share at the option of the holder and contains certain
anti-dilution protection in the event of certain future issuances of securities by ZolTrain. The Company is entitled to vote the
number of common shares in which the ZolTrain Preferred is convertible into at any meeting of the ZolTrain stockholders. Holders
of the Zoltrain Preferred are entitled to preference in liquidation of Zoltrain and maintain the right to put the ZolTrain Preferred
back to Zoltrain for cash in the event of the occurrence of certain liquidating events, as defined in the agreement.
The definitive agreement
also provides the Company with rights of first refusal with respect to newly issued securities of ZolTrain as well as issued and
outstanding securities of ZolTrain that are offered to third parties. In connection with the agreement, Nina Simosko, our Chief
Revenue Officer, was appointed as a member of ZolTrain’s board of directors. In the event that Ms. Simosko or any other representative
of the Company is not a member of ZolTrain’s board of directors, the Company is entitled to consult with and advise ZolTrain’s
management on significant business issues.
Subsequent to the investment,
the Company entered into a license/reseller agreement with ZolTrain, effective October 24, 2019, to provide ZolTrain’s online
cannabis training platform as a co-branded integration option into the Company’s MJ Platform and Leaf Data Systems. The Company
and ZolTrain will share subscription-based revenue generated from the Company’s customers. The amount of the share of revenue
for each of the Company and ZolTrain will be depend on both (a) the number of training modules accessed by a customer and (b) which
party created the accessed content. In addition to the revenue sharing arrangement, the license/reseller agreement provides the
Company with the right to receive additional consideration from ZolTrain in the form of an equity earnout if certain revenue milestones
are achieved during 2020, 2021, and 2022. The Company’s ability to recognize revenue from the additional earnout consideration
in the future will mainly depend on whether or not it becomes probable that such revenue milestones will be achieved.
Note
8 - Subsequent Events
On
January 15, 2020, the Company closed on a Stock Purchase Agreement (the “Agreement”) previously entered into with
substantially all of the shareholders of Solo Sciences, Inc. (“Solo”), pursuant to which the Company acquired all
right, title and interest in 80.40% of the issued and outstanding capital stock of Solo (calculated on a fully diluted basis),
free and clear of all liens.
Solo
offers a tagging technology, the solo*TAG (“Solo Tag”), as an alternative to expensive RFID technology required by
states in which Metrc is used for the state tracking system. Solo Tag is less expensive and more secure than RFID technology,
leveraging Solo’s patented cryptographically secure technology. Additionally, Solo offers manufacturers to use its proprietary
graphic trust mark, the solo*CODE™ (“Solo Code”), on their product packaging to enable consumers to scan products
with the help of Solo proprietary phone application and learn if a product is real or fake as well get real-time notifications.
The
purchase price was $18.0 million, which will be adjusted for final working capital acquired. There were $500,000 of costs directly
related to the acquisition included in the condensed consolidated statements of operations for the three and six months ended
December 31, 2019 as well.
The
remaining portion of the purchase price, $15.6 million, is payable in 1,950,000 shares of the Company’s common stock, issued
without registration under the Securities Act in reliance on Regulation D thereunder, of which 570,000 shares of the Company’s
common stock will be held in escrow subject to the satisfaction of certain conditions stipulated in the Agreement. This initial
consideration is subject to an adjustment no later than 120 days following the closing date. The Company has an option to acquire
the remaining minority stake in Solo during the 12 months following the close in either cash or shares (the “Company Option”).
Beginning the expiration of the Company Option, Solo has a 3-month option to acquire between 40% and 55% of Solo back from the
Company in cash.
The
Company also agreed to pay fees to the legacy Solo shareholders equal to the lesser of (i) $0.01 per Solo Tag and Solo Code sold
or (ii) 7% of net revenue. The fees will be paid annually until the earlier of: (1) the Company’s shares trading above $12
per share for consecutive 20 days in a 30-day period; (b) the Company no longer owning a majority stake in Solo; or (c) the expiration
of the patents related to Solo Tag and Solo Code, which is December 1, 2029.
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
Since
the acquisition occurred subsequent to December 31, 2019, no results from operations of Solo are included in our consolidated
statement of operations for the three and nine months ended December 31, 2019. It is currently impractical to disclose a preliminary
purchase price allocation of Solo or pro forma financial information combining both companies as of the earliest period presented
in these financial statements as Solo is currently in the process of closing its books and records.
In accordance with ASC
855-10, the Company has analyzed events and transactions that occurred subsequent to December 31, 2019, through the date these
financial statements were issued and have determined that other than as discussed above, there are no material subsequent events
to disclose or recognize in these financial statements.
Note
9 – Revisions of Previously Issued Financial Statements
During
the course of preparing the Quarterly Report on Form 10-Q for the three months ended September 30, 2019, the Company identified
certain previously duplicated revenues, which resulted in the overstatement of total assets and revenue during the periods outlined
below, and the understatement of net losses for the periods outlined below. Additionally, during the course of preparing its Annual
Report on Form 10-K for the fiscal year ended June 30, 2019, the Company identified certain costs of revenue related to consulting
services previously being recorded in operating expenses, which resulted in the overstatement of the gross profit for each of
the quarters during the fiscal year ended June 30, 2019. See Item. 4 of Part I, Controls and Procedures.
|
|
Year ended June 30, 2018
|
|
|
|
As reported
|
|
|
Adjustment
|
|
|
As revised
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,017,731
|
|
|
$
|
(223,766
|
)
|
|
$
|
2,793,965
|
|
Total liabilities
|
|
|
1,393,902
|
|
|
|
-
|
|
|
|
1,393,902
|
|
Total stockholders’ equity
|
|
|
1,623,829
|
|
|
|
(223,766
|
)
|
|
|
1,400,063
|
|
Net loss
|
|
|
(1,623,182
|
)
|
|
|
(72,501
|
)
|
|
|
(1,695,683
|
)
|
Net loss per share
|
|
|
(0.30
|
)
|
|
|
|
|
|
|
(0.31
|
)
|
|
|
Three months ended September
30, 2018
|
|
|
|
As reported
|
|
|
Adjustment
|
|
|
As revised
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
12,090,810
|
|
|
|
(296,267
|
)
|
|
|
11,794,543
|
|
Total liabilities
|
|
|
2,090,163
|
|
|
|
-
|
|
|
|
2,090,163
|
|
Total stockholders’ equity
|
|
|
10,000,647
|
|
|
|
(296,267
|
)
|
|
|
9,704,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
2,371,900
|
|
|
|
(72,501
|
)
|
|
|
2,299,399
|
|
Cost of revenue
|
|
|
956,123
|
|
|
|
107,012
|
|
|
|
1,063,135
|
|
Gross profit
|
|
|
1,415,777
|
|
|
|
(179,513
|
)
|
|
|
1,236,264
|
|
Operating expenses
|
|
|
3,055,976
|
|
|
|
(107,012
|
)
|
|
|
2,948,964
|
|
Net loss
|
|
|
(1,623,182
|
)
|
|
|
(72,501
|
)
|
|
|
(1,695,683
|
)
|
Net loss per share
|
|
|
(0.30
|
)
|
|
|
|
|
|
|
(0.31
|
)
|
AKERNA
CORP.
Notes
to Condensed Consolidated Financial Statements
(Unaudited)
|
|
Three months ended December
31, 2018
|
|
|
|
As reported
|
|
|
Adjustment
|
|
|
As revised
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
9,836,178
|
|
|
|
(320,434
|
)
|
|
|
9,515,744
|
|
Total liabilities
|
|
|
2,205,735
|
|
|
|
-
|
|
|
|
2,205,735
|
|
Total stockholders’ equity
|
|
|
7,630,443
|
|
|
|
(320,434
|
)
|
|
|
7,310,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
2,598,079
|
|
|
|
(24,167
|
)
|
|
|
2,573,912
|
|
Cost of revenue
|
|
|
1,198,911
|
|
|
|
122,084
|
|
|
|
1,320,995
|
|
Gross profit
|
|
|
1,399,168
|
|
|
|
(146,251
|
)
|
|
|
1,252,917
|
|
Operating expenses
|
|
|
3,826,539
|
|
|
|
(122,084
|
)
|
|
|
3,704,455
|
|
Net loss
|
|
|
(2,370,204
|
)
|
|
|
(24,167
|
)
|
|
|
(2,394,371
|
)
|
Net loss per share
|
|
|
(0.39
|
)
|
|
|
|
|
|
|
(0.40
|
)
|
|
|
Three months ended March
31, 2019
|
|
|
|
As reported
|
|
|
Adjustment
|
|
|
As revised
|
|
Condensed Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
8,199,718
|
|
|
|
(320,434
|
)
|
|
|
7,879,284
|
|
Total liabilities
|
|
|
3,059,378
|
|
|
|
-
|
|
|
|
3,059,378
|
|
Total stockholders’ equity
|
|
|
5,140,340
|
|
|
|
(320,434
|
)
|
|
|
4,819,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
2,327,880
|
|
|
|
-
|
|
|
|
2,327,880
|
|
Cost of revenue
|
|
|
1,042,403
|
|
|
|
124,079
|
|
|
|
1,166,482
|
|
Gross profit
|
|
|
1,285,477
|
|
|
|
(124,079
|
)
|
|
|
1,161,398
|
|
Operating expenses
|
|
|
3,788,644
|
|
|
|
(124,079
|
)
|
|
|
3,664,565
|
|
Net loss
|
|
|
(2,490,103
|
)
|
|
|
-
|
|
|
|
(2,490,103
|
)
|
Net loss per share
|
|
|
(0.41
|
)
|
|
|
|
|
|
|
(0.41
|
)
|
|
|
Three months ended June 30,
2019
|
|
|
|
As reported
|
|
|
Adjustment
|
|
|
As revised
|
|
Consolidated Balance Sheet
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
24,522,671
|
|
|
|
(320,434
|
)
|
|
|
24,202,237
|
|
Total liabilities
|
|
|
2,442,503
|
|
|
|
-
|
|
|
|
2,442,503
|
|
Total stockholders’ equity
|
|
|
22,080,168
|
|
|
|
(320,434
|
)
|
|
|
21,759,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
10,919,785
|
|
|
|
(96,668
|
)
|
|
|
10,823,117
|
|
Cost of revenue
|
|
|
4,633,844
|
|
|
|
-
|
|
|
|
4,633,844
|
|
Gross profit
|
|
|
6,285,941
|
|
|
|
(96,668
|
)
|
|
|
6,189,273
|
|
Operating expenses
|
|
|
18,701,619
|
|
|
|
-
|
|
|
|
18,701,619
|
|
Net loss
|
|
|
(12,306,547
|
)
|
|
|
(96,668
|
)
|
|
|
(12,403,215
|
)
|
Net loss per share
|
|
|
(2.04
|
)
|
|
|
|
|
|
|
(2.05
|
)
|
In
accordance with SEC Staff Accounting Bulletin No 108, the Company has evaluated these errors, based on an analysis of quantitative
and qualitative factors, as to whether it was material to the condensed consolidated statements of operations for the three months
ended September 30, 2018, December 31, 2018, and March 31, 2019, and consolidated statements of operations for the year ended
June 30, 2019, as well as to the consolidated balance sheets as of June 30, 2019 and 2018, condensed consolidated balance sheets
as of September 30, 2018, December 31, 2018, and March 30, 2019, and as to whether amendments of previously filed financial statements
with the SEC are required. The Company has determined that quantitatively and qualitatively, the errors have no material impact
to the above mentioned financial statements.
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
To the Shareholders and Board of Directors
of
Akerna Corp.
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of Akerna Corp. (the “Company”) as of June 30, 2019 and 2018, the related consolidated statements
of operations, changes in stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2019,
and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of June 30, 2019 and 2018, and the results
of its operations and its cash flows for each of the two years in the period ended June 30, 2019, in conformity with accounting
principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required
to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures
in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provides
a reasonable basis for our opinion.
/s/ Marcum llp
Marcum llp
We have served as the Company’s auditor since 2018.
New York, NY
September 23, 2019
AKERNA CORP.
Consolidated Balance Sheets
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
|
$
|
21,867,289
|
|
|
$
|
1,572,090
|
|
Restricted cash
|
|
|
500,000
|
|
|
|
1,000,311
|
|
Accounts receivable, net
|
|
|
1,577,708
|
|
|
|
254,092
|
|
Prepaid expenses and other assets
|
|
|
577,674
|
|
|
|
191,238
|
|
Total current assets
|
|
$
|
24,522,671
|
|
|
$
|
3,017,731
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,317,566
|
|
|
$
|
550,437
|
|
Accrued liabilities
|
|
|
500,550
|
|
|
|
373,834
|
|
Deferred revenue
|
|
|
624,387
|
|
|
|
469,631
|
|
Total current liabilities
|
|
|
2,442,503
|
|
|
|
1,393,902
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.0001; 5,000,000 shares authorized, none are issued and outstanding at June 30, 2019 and 2018
|
|
|
-
|
|
|
|
-
|
|
Common stock, par value $0.0001; 75,000,000 shares authorized, 10,589,746 issued and outstanding at June 30, 2019, and 4,922,650 shares authorized, issued and outstanding at June 30, 2018
|
|
|
1,059
|
|
|
|
492
|
|
Additional paid-in capital
|
|
|
47,325,421
|
|
|
|
14,563,102
|
|
Accumulated deficit
|
|
|
(25,246,312
|
)
|
|
|
(12,939,765
|
)
|
Total stockholders’ equity
|
|
|
22,080,168
|
|
|
|
1,623,829
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
24,522,671
|
|
|
$
|
3,017,731
|
|
See notes to consolidated financial statements.
AKERNA CORP.
Consolidated Statements of Operations
|
|
For the Year Ended
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
|
|
|
|
|
Software
|
|
$
|
8,256,492
|
|
|
$
|
8,082,424
|
|
Consulting
|
|
|
2,403,797
|
|
|
|
2,281,836
|
|
Other
|
|
|
259,496
|
|
|
|
112,523
|
|
Total revenues
|
|
|
10,919,785
|
|
|
|
10,476,783
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
4,633,844
|
|
|
|
4,361,963
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
6,285,941
|
|
|
|
6,114,820
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Product development
|
|
|
5,565,097
|
|
|
|
2,645,093
|
|
Selling, general, and administrative
|
|
|
13,136,522
|
|
|
|
5,932,887
|
|
Total operating expenses
|
|
|
18,701,619
|
|
|
|
8,577,980
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(12,415,678
|
)
|
|
|
(2,463,160
|
)
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest
|
|
|
91,239
|
|
|
|
5,841
|
|
Other
|
|
|
17,892
|
|
|
|
(30,990
|
)
|
Total other income (expense)
|
|
|
109,131
|
|
|
|
(25,149
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(12,306,547
|
)
|
|
$
|
(2,488,309
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common shares outstanding
|
|
|
6,045,382
|
|
|
|
4,870,950
|
|
Basic and diluted net loss per common share
|
|
$
|
(2.04
|
)
|
|
$
|
(0.51
|
)
|
See notes to consolidated financial statements.
AKERNA CORP.
Consolidated Statements
of Changes in Stockholders’ Equity
For the years
ended June 30, 2019 and 2018
|
|
Common
|
|
|
Additional
Paid-In
|
|
|
Accumulated
|
|
|
Total
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 1, 2017
|
|
|
4,784,910
|
|
|
$
|
478
|
|
|
$
|
13,563,116
|
|
|
$
|
(10,451,456
|
)
|
|
$
|
3,112,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares in exchange for cash
|
|
|
137,740
|
|
|
|
14
|
|
|
|
999,986
|
|
|
|
-
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,488,309
|
)
|
|
|
(2,488,309
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – July 1, 2018
|
|
|
4,922,650
|
|
|
|
492
|
|
|
|
14,563,102
|
|
|
|
(12,939,765
|
)
|
|
|
1,623,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares in exchange for cash
|
|
|
1,099,376
|
|
|
|
110
|
|
|
|
9,999,890
|
|
|
|
-
|
|
|
|
10,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares in connection with reverse merger
|
|
|
3,880,282
|
|
|
|
388
|
|
|
|
18,878,387
|
|
|
|
-
|
|
|
|
18,878,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of shares for compensation in connection with reverse merger
|
|
|
498,073
|
|
|
|
50
|
|
|
|
3,393,231
|
|
|
|
|
|
|
|
3,393,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
|
|
|
|
|
|
490,830
|
|
|
|
|
|
|
|
490,830
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless exercise of options
|
|
|
189,365
|
|
|
|
19
|
|
|
|
(19
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(12,306,547
|
)
|
|
|
(12,306,547
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance – June 30, 2019
|
|
|
10,589,746
|
|
|
$
|
1,059
|
|
|
$
|
47,325,421
|
|
|
$
|
(25,246,312
|
)
|
|
$
|
22,080,168
|
|
See notes to consolidated financial statements.
AKERNA CORP.
Consolidated Statements of Cash Flows
|
|
For
the year ended
|
|
|
|
June
30,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(12,306,547
|
)
|
|
$
|
(2,488,309
|
)
|
Adjustment
to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
345,941
|
|
|
|
169,784
|
|
Stock-based
compensation expense
|
|
|
3,884,111
|
|
|
|
-
|
|
Changes
in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,669,557
|
)
|
|
|
(329,013
|
)
|
Prepaid
expenses and other current assets
|
|
|
(351,144
|
)
|
|
|
161,889
|
|
Accounts
payable
|
|
|
767,129
|
|
|
|
(555,290
|
)
|
Accrued
liabilities
|
|
|
126,716
|
|
|
|
(51,603
|
)
|
Deferred
revenue
|
|
|
154,756
|
|
|
|
(651,339
|
)
|
Net
cash used in operating activities
|
|
|
(9,048,595
|
)
|
|
|
(3,743,881
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities
|
|
|
|
|
|
|
|
|
Cash
received in connection with the reverse merger
|
|
|
18,843,483
|
|
|
|
-
|
|
Net
cash provided by investing activities
|
|
|
18,843,483
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities
|
|
|
|
|
|
|
|
|
Cash
received in connection with issuance of shares
|
|
|
10,000,000
|
|
|
|
1,000,000
|
|
Net
cash provided by financing activities
|
|
|
10,000,000
|
|
|
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and restricted cash
|
|
|
19,794,888
|
|
|
|
(2,743,881
|
)
|
|
|
|
|
|
|
|
|
|
Cash
and restricted cash - beginning of period
|
|
|
2,572,401
|
|
|
|
5,316,282
|
|
|
|
|
|
|
|
|
|
|
Cash
and restricted cash - end of period
|
|
$
|
22,367,289
|
|
|
$
|
2,572,401
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless
exercise of options
|
|
$
|
19
|
|
|
$
|
-
|
|
Prepaid
expenses received in connection with reverse merger
|
|
$
|
35,292
|
|
|
$
|
-
|
|
See notes to consolidated financial statements.
AKERNA CORP.
Notes to Consolidated Financial Statements
June 30, 2019
Note 1 - Description of Business,
Liquidity and Capital Resources
Description of Business
Akerna Corp. (the “Company”
or “Akerna”), through its wholly-owned subsidiary MJ Freeway, LLC (“MJF”) is a regulatory compliance and
inventory management technology company. The Company’s proprietary software platform is adaptable for industries in which
interfacing with government regulatory agencies for compliance purposes is required, or where the tracking of organic materials
from seed or plant to end products is desired. The Company developed products intended to assist states in monitoring licensed
businesses’ compliance with state regulations, and to help state-licensed businesses operate in compliance with such law.
The Company provides its regulatory software platform, Leaf Data Systems®, to state government regulatory agencies, and its
commercial software platform, MJ Platform®, to state-licensed businesses.
On October 10, 2018 (as amended on April
17, 2019), MJF entered into a definitive merger agreement (the “Merger Agreement”) with MTech Acquisition Corp. (“MTech”),
the Company (f/k/a MTech Acquisition Holdings Inc.), MTech Purchaser Merger Sub Inc., a Delaware corporation and a wholly-owned
subsidiary of Akerna (“Purchaser Merger Sub”), MTech Company Merger Sub LLC, a Colorado limited liability company
and a wholly-owned subsidiary of Akerna (“Company Merger Sub” and, together with Purchaser Merger Sub, the “Merger
Subs”, and the Merger Subs collectively with MTech and Akerna, the “Purchaser Parties”), MTech Sponsor LLC,
a Florida limited liability company, in the capacity as the representative for the equity holders of Akerna (other than the Sellers)
thereunder (the “Purchaser Representative”), and Harold Handelsman, in the capacity as the representative for the
Sellers thereunder (the “Seller Representative”). MTech, collectively with Akerna, Purchaser Merger Sub and MTech
Company Merger Sub, shall be referred to as “MTech”. The Merger Agreement provided for two mergers: (i) the merger
of Purchaser Merger Sub with and into MTech, with MTech continuing as the surviving entity (the “Purchaser Merger”),
and (ii) the merger of MTech Company Merger Sub with and into the Company, with the Company continuing as the surviving entity
(the “Company Merger”, and together with the Purchaser Merger, the “Mergers”).
On June 17, 2019, the Mergers contemplated
by the Merger Agreement were consummated. In connection with the closing of the Mergers, the registrant changed its name from
MTech Acquisition Holdings Inc. to Akerna Corp.
Upon the closing of the Mergers (Note
4), the outstanding Common Units, Preferred Units, and Profit Interest Units of MJF were exchanged for shares of common stock
of Akerna at an exchange ratio of one Unit of MJF to 0.26716 shares of Akerna common stock (the “Exchange Ratio). Except
as otherwise noted, all common share amounts and per share amounts have been adjusted to reflect this Exchange Ratio, which was
effected upon the Merger.
The Mergers have been accounted for as
a reverse merger in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The owners and management of MJF have actual or effective voting and operating control of the combined company. In the Merger
transaction, MTech is the accounting acquiree and MJF is the accounting acquirer. A reverse recapitalization is equivalent to
the issuance of stock by the private operating company for the net monetary assets of the accounting acquiree accompanied by a
recapitalization with accounting similar to that resulting from a reverse acquisition, except that no goodwill or intangible assets
are recorded.
The accompanying financial statements
and related notes reflect the historical results of MJF prior to the merger and of the combined company following the Mergers,
and do not include the historical results of MTech prior to the completion of the Mergers.
Liquidity and Capital Resources
Since its inception, the Company has incurred
recurring operating losses, used cash from operations, and relied on capital raising transactions to continue ongoing operations.
However, based on the funds the Company has available as of the date
these financial statements are issued primarily as a result of the business combination (Note 4), the Company believes that it
has sufficient capital to fund its anticipated operating expenses for at least next twelve months from the date these financial
statements are issued. Management will continue to evaluate the impact of this standard on the Company’s consolidated
financial statements.
AKERNA CORP.
Notes to Consolidated Financial Statements
Note 2 - Summary of Significant
Accounting Policies
Basis of presentation
The accompanying consolidated financial
statements have been prepared in accordance with U.S. GAAP and pursuant to the accounting and disclosure rules and regulations
of the Securities and Exchange Commission (“SEC”).
Principles of Consolidation
The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated in
consolidation.
Use of estimates
The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Significant estimates for the years ended June 30, 2019 and 2018 were the
Company’s allowance for doubtful accounts, the estimated average customer life used in the calculation of the deferral and
recognition of implementation fees earned from certain customers, the estimated useful lives of long-lived assets, stock-based
compensation and the deferred tax asset valuation allowance. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid instruments
purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents for the years
ended June 30, 2019 and 2018. The Company continually monitors its positions with, and the credit quality of, the financial institutions
with which it invests. As of the balance sheet date, and periodically throughout the year, the Company has maintained balances
in various operating accounts in excess of federally insured limits. At June 30, 2019, approximately $22 million of the Company’s
cash balances were uninsured. The Company has not experienced any losses on such accounts.
Restricted Cash
Restricted cash serves as collateral for
the Company’s letter-of-credit (See Note 7).
Prepaid Expenses
Prepaid expenses consist primarily of
third-party technology and software used by in the Company in its day-to-day operations and professional services expenses paid
in advance. (See Note 3).
Accounts Receivable, Net
The Company provides an allowance
for doubtful accounts equal to the estimated uncollectible amounts. The Company’s estimate is based on historical
collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the
Company’s estimate of the allowance for doubtful accounts will change and that losses ultimately incurred could differ
materially from the amounts estimated in determining the allowance. The allowance for doubtful accounts was $190,088 and
$39,571 as of June 30, 2019 and 2018, respectively.
Concentrations of Credit Risk
The Company grants credit in the normal
course of business to customers in the United States. The Company periodically performs credit analysis and monitors the financial
condition of its customers to reduce credit risk.
During the year ended June 30, 2019, one
customer accounted for 30% of total revenues. At June 30, 2019, two customers accounted for 33% and 24% of net accounts receivable,
respectively. During the year ended June 30, 2018, the same customer accounted for 37% of total revenues. At June 30, 2018, the
same two customers accounted for 55% and 11% of net accounts receivable, respectively.
AKERNA CORP.
Notes to Consolidated Financial Statements
Property and Equipment
Property
and equipment are stated at cost. Depreciation is provided utilizing the straight-line method over the estimated useful lives
for owned assets, ranging from five to seven years, and the shorter of the estimated economic life or related lease terms for
leasehold improvements. Repairs and maintenance costs that do not improve the service potential or extend the economic life are
expensed as incurred. The Company’s purchases of property and equipment have historically been immaterial.
Fair Value of Financial Instruments
The
carrying amounts of financial instruments, including cash, restricted cash, accounts receivable, prepaid expenses, accounts payable
and accrued liabilities approximated fair value as of June 30, 2019 and 2018 because of the relatively short term nature of these
instruments. The Company accounts for fair value measurements in accordance with Accounting Standards Codification (“ASC”)
Topic No. 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures about fair value measurements.
ASC
Topic 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy
under ASC Topic 820 are described below:
|
Level 1:
|
Unadjusted quoted prices in active markets that
are accessible at the measurement date for identical, unrestricted assets or liabilities.
|
|
|
|
|
Level 2:
|
Applies to assets or liabilities for which there are inputs
other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted prices for
similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable
or can be derived principally from, or corroborated by, observable market data.
|
|
|
|
|
Level 3:
|
Prices or valuation techniques that require inputs that are
both significant to the fair value measurement and unobservable (supported by little or no market activity).
|
Software Development Costs
The
Company accounts for costs incurred in the development of computer software in accordance with ASC Subtopic 350-40, Intangibles
- Goodwill and Other - Internal-Use Software. Costs incurred in the application development stage are subject to capitalization
and subsequent amortization and impairment. Application development stage costs were not material for the Company during the years
ended June 30, 2019 or 2018. Product development costs are primarily comprised of personnel costs incurred related to activities
for evaluating future changes to the software, testing, bug fixes, and other maintenance activities. Product development costs
are expensed as incurred.
Revenue Recognition
The Company recognizes revenue only when
all of the following criteria have been met: persuasive evidence of an arrangement exists, delivery has occurred or services have
been performed, the fee for the arrangement is fixed or determinable, and collectability is reasonable assured.
The Company’s software-as-a-service
fees are earned through arrangements in which customers pay the Company a recurring subscription fee based upon the terms of their
respective contracts. The Company’s software revenues generated from government customers totaled $4,251,263 and $4,470,310
of total revenues during the years ended June 30, 2019 and 2018, respectively (See Note 2, “Concentration of Credit Risk”).
Total costs of government revenues incurred by the Company, which are included in cost of revenues on the statements of operations,
were $2,150,062 and $2,670,319 during the years ended June 30, 2019 and 2018, respectively.
AKERNA CORP.
Notes to Consolidated Financial Statements
The Company also offers various software
consulting services to its customers, including implementation services, business planning, support, and other customer services.
From time to time, the Company purchases equipment for resale to customers. Such equipment is generally drop-shipped to the Company’s
customers. The Company recognizes revenue as the services are performed or products are delivered, or in the case of up-front
implementation fees, over the longer of the contract term or estimated customer life.
In most arrangements, the Company bills
the customer prior to performing services, which requires the Company to record deferred revenue on the accompanying balance sheets.
Reclassifications
Certain prior
year financial statement amounts have been reclassified for consistency with the current year presentation. More specifically,
$319,798 has been reclassified from selling, general and administrative expenses to cost of revenues. These reclassifications
had no effect on the reported results of operations.
Income Taxes
Income taxes are accounted for using the
asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the carrying amounts and the tax basis of other assets and liabilities. The Company provides
for income taxes at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. The Company uses
a two-step approach for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding
uncertainties in income tax positions. The Company recognizes interest and penalties related to income tax matters in selling,
general, and administrative expense in the consolidated statement of operations.
The Company recognizes deferred tax assets
to the extent that its assets are more likely than not to be realized. In making such a determination, the Company considers all
available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future
taxable income, tax planning strategies, and results of recent operations. If the Company determines that it would be able to realize
its deferred tax assets in the future in excess of their net recorded amount, it will make an adjustment to the deferred tax asset
valuation allowance, which would reduce the provision for income taxes.
Stock-Based Compensation
The Company accounts for grants of share-based
awards to employees in accordance with ASC 718, Compensation—Stock Compensation. This standard requires compensation
expense to be measured based on the estimated fair value of the share-based awards on the date of grant and recognized as expense
on a straight-line basis over the requisite service period, which is generally the vesting period. Share-based payments issued
to non-employees are recorded at their fair values, are revalued quarterly as the equity instruments vest and are recognized as
expense over the related service period in accordance with the provisions of ASC 718 and ASC 505, Equity. The value of
each share grant is based on the share price on the grant date.
Segments
The Company’s chief operating decision
maker reviews financial information presented on a consolidated basis for purposes of allocating resources and evaluating financial
performance and information for different revenue streams is not evaluated separately. As such, the Company’s operations
constitute a single operating segment and one reportable segment.
Recently Issued Accounting Pronouncements
ASU 2014-09, Revenue from Contracts
with Customers (Topic 606), supersedes the revenue recognition requirements and industry-specific guidance under Revenue
Recognition (Topic 605). Topic 606 requires an entity to recognize revenue when it transfers promised goods or services to
customers in an amount that reflects the consideration the entity expects to be entitled to in exchange for those goods or services.
ASU No. 2014-09 also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows
arising from customer contracts. As an Emerging Growth Company, ASU No. 2014-09 is effective for the Company’s fiscal 2020
annual reporting period and for interim periods thereafter, with early adoption permitted, and allows for either full retrospective
or modified retrospective adoption. The Company is evaluating the impact of adoption of the new standard on its consolidated financial
statements.
AKERNA CORP.
Notes to Consolidated Financial Statements
In January 2016, the FASB issued
ASU No. 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,
which requires certain equity investments to be measured at fair value with changes in fair value recognized in net income, to
record changes in instrument-specific credit risk for financial liabilities measured under the fair value option in other comprehensive
income. The new standard is expected to reduce diversity in practice. The new standard is effective for the Company’s fiscal
2020 annual reporting period and for interim periods thereafter. The Company is evaluating the impact of adoption of the new standard
on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases. The new standard, as subsequently amended, establishes a right-of-use model that requires a lessee to record a right-of-use
asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as
either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The
new standard is effective for the Company beginning July 1, 2020 with early adoption permitted. The Company is evaluating the impact
of adoption of the new standard on its consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-09,
Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting which simplifies the accounting
for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities,
and classification on the statement of cash flows. Among other changes, the new standard allows non-public business entities to
make an accounting policy election to either estimate the number of awards that are expected to vest or to account for forfeitures
as they occur. The Company has adopted the new standard effective July 1, 2018. The adoption of this standard had no material impact
on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments. Among other things, these
amendments require the measurement of all expected credit losses for financial assets held at the reporting date based on historical
experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now
use forward-looking information to better inform their credit loss estimates. The new standard is effective for the Company beginning
July 1, 2021 with early adoption permitted. The Company is evaluating the impact of adoption of the new standard on its consolidated
financial statements.
In June 2018, the FASB issued ASU No. 2018-07,
Compensation- Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which eliminates
the separate accounting model for nonemployee share-based payment awards and generally requires companies to account for share-based
payment transactions with nonemployees in the same way as share-based payment transactions with employees. Under the new guidance,
nonemployee share-based payment transactions are measured at the grant-date fair value and are no longer remeasured at the then-current
fair values at each reporting date until the share options have vested. The amended guidance is effective for fiscal years beginning
after December 15, 2018, with early adoption permitted. The Company is evaluating the impact of adoption of the new standard on
its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15,
Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customers Accounting for Implementation Costs
Incurred in a Cloud Computing Arrangement That Is a Service Contract, which broadens the scope of existing guidance applicable
to internal-use software development costs. The update requires costs to be capitalized or expensed based on the nature of the
costs and the project stage in which they are incurred subject to amortization and impairment guidance consistent with existing
internal-use software development cost guidance. The guidance is applicable for the Company beginning July 1, 2020 with early adoption
permitted, including adoption in an interim period. The Company is evaluating the impact of adoption of the new standard on its
consolidated financial statements.
In April 2019, the FASB issued ASU No. 2019-04, Codification
Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial
Instruments. This ASU provides supplemental guidance and clarification to ASU No. 2016-13 and must be adopted concurrently with
the adoption of ASU No. 2016-13. The Company has adopted the new standard effective April, 2019. The adoption of this standard
had no material impact on the Company’s consolidated financial statements.
AKERNA CORP.
Notes to Consolidated Financial Statements
Note 3 - Balance Sheet Disclosures
Prepaid expenses consist of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Software and technology
|
|
$
|
237,930
|
|
|
$
|
115,516
|
|
Professional services
|
|
|
169,804
|
|
|
|
47,626
|
|
Insurance
|
|
|
159,940
|
|
|
|
18,096
|
|
Deposit
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
$
|
577,674
|
|
|
$
|
191,238
|
|
Accrued liabilities consist of the following:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Professional fees
|
|
$
|
49,205
|
|
|
$
|
24,404
|
|
Sales taxes
|
|
|
36,358
|
|
|
|
66,347
|
|
Compensation
|
|
|
354,724
|
|
|
|
251,393
|
|
Leaf Data Systems contractors
|
|
|
19,557
|
|
|
|
-
|
|
Other
|
|
|
40,706
|
|
|
|
31,690
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
500,550
|
|
|
$
|
373,834
|
|
The accrued compensation as of June 30,
2018 includes $122,000 of accrued bonus earned by the Company’s Chief Executive Officer and a member of the Company’s
Board of Managers during the year ended June 30, 2018 and such bonus is calculated based on the Company’s operational results.
The accrued compensation as of June 30, 2019, includes approximately $215,000 of accrued bonus earned by the Company’s Chief
Executive Officer.
Note 4 - Reverse Merger
and Private Placement
Reverse
Merger
As
noted above, on October 10, 2018, the Company entered into the Merger Agreement (Note 1). On January 18, 2019, the parties to
the Merger Agreement and certain of the holders of MJF’s outstanding preferred and common units entered into an allocation
agreement which served to modify the allocation of the merger consideration prescribed by the Merger Agreement. Under the terms
of the allocation agreement, if the merger closes, additional shares comprising the merger consideration shall be reallocated
to holders of the profit interest units of MJF, which additional shares shall be funded from shares otherwise issuable to such
holders of MJF’s preferred and common units.
On
April 17, 2019, the Merger Agreement was amended to (i) increase the size of the MTech board of directors following the closing
of the merger from seven (7) to eight (8) directors, (ii) increase the number of directors appointed prior to the Closing by MJF
from four (4) to five (5) directors (which additional director will qualify as an independent director under the Nasdaq Stock
Market rules) and (iii) revise the classification of directors so that the Class B directors will include two (2) MJF directors
and one (1) MTech director.
On June 17, 2019, MTech and MJF consummated
the Mergers contemplated by the Merger Agreement. In connection with the closing of the Mergers, the registrant changed its name
from MTech Acquisition Holdings Inc. to Akerna Corp (“Akerna”). The Merger Consideration was paid through the issuance
of 6,520,099 shares of MTech common stock (the “Consideration Shares”) to the former holders of MJF common
units, preferred units, and profit interest units at a price per share equal to $10.16 per share. Of the total amount of Akerna
shares issued in the merger, 283,010 fully vested shares of Akerna common stock and 215,063 unvested shares of Akerna common stock
were allocated to the former holders of MJF profit interest units. Notwithstanding the foregoing, 652,010 of the total issuable
shares (the “Escrow Shares”) will be held in an escrow account (the “Escrow Account”) to cover any adjustments
to the Merger Consideration or claims for indemnification pursuant to the Merger Agreement until ninety (90) days after Akerna
files its Annual Report on Form 10-K with the Commission for the fiscal year ending June 30, 2019, with the exception of Escrow
Shares held to satisfy then pending claims which shall remain in the Escrow Account until the claims are resolved.
AKERNA CORP.
Notes to Consolidated Financial Statements
As disclosed above, (a) 283,011 fully
vested shares of common stock were allocated to the former holders of MJF profit interest units, resulting in an immediate one-time
charge of approximately $3.4 million to be recorded by MJF on June 17, 2019 and (b) 215,063 unvested shares of common stock were
allocated to the holders of MJF profit interest units, of which approximately $2.1 million of compensation expense related to
such profit interest units will be ratably recognized over an estimated remaining vesting period of 3 years. The calculation of
the amount of the current and future expenses to be taken by MJF was based on the closing price of the Akerna common shares on
the date of the Mergers.
In connection with the Merger Agreement,
all recipients of the Consideration Shares executed a lock-up agreement (the “Lock-up Agreement”).
Pursuant to the Lock-up Agreement, each holder agreed not to engage in any transfer or other transaction with respect to the Consideration
Shares for a period of time. With respect to 50% of the Consideration Shares, each holder agreed not to engage in a transfer
or other transaction until the earlier of (1) one year from the closing of the Business Combination and (2) the date on which
Akerna closes a subsequent corporate transaction with an unaffiliated third party that results in all of Akerna’s shareholders
having the right to exchange their shares for cash, securities or other property. With respect to the remaining 50% of the
Consideration Shares, each holder agreed not to engage in a transfer or other transaction until the earlier of (1) one year from
the closing the business combination, (2) the date on which Akerna closes a subsequent corporate transaction with an unaffiliated
third party that results in all of Akerna’s shareholders having the right to exchange their shares for cash, securities
or other property and (3) the date on which the closing share price of Akerna common stock equals or exceeds $12.50 per share
for any twenty trading days with any thirty trading day period.
Upon the Closing of the Merger, Akerna’s
certificate of incorporation was amended and restated to have one single class of common stock and 75,000,000 authorized shares
of common stock, par value $0.0001 per share. Akerna also had 5,000,000 authorized shares of preferred stock.
MTech also entered into a series of securities
purchase agreements with certain investors (the “PIPE Investors”), whereby MTech issued 901,074 shares of Class A
common stock (the “Private Placement Shares”) for an aggregate purchase price of $9.2 million (the “Private
Placement”), which closed simultaneously with the consummation of the Mergers. Upon the closing of the Mergers, the Private
Placement Shares were automatically converted into shares of Akerna common stock on a one-for-one basis. Each PIPE Investor was
also granted an option for a period of sixty days to purchase additional shares of Akerna common stock at a price of $10.21 per
share. None of these options were exercised within sixty days.
The proceeds received from the Mergers totaled approximately $18 million, which is net of $4.4 million of underwriting discounts and commissions
and other expenses related to the Mergers.
Note 5 - Loss Per Share
Basic net loss per common share is calculated
based on the weighted-average number of common shares outstanding in accordance with ASC Topic 260, Earnings per Share. Diluted
net loss per common share is calculated based on the weighted-average number of common shares outstanding plus the effect of potentially
dilutive common shares. When the Company reports a net loss, the calculation of diluted net loss per common share excludes potential
common shares as the effect would be anti-dilutive. For the year ended June 30, 2019, 6,398,178 potentially
dilutive securities have been excluded from the computation of diluted weighted average shares outstanding because the effect
would be anti-dilutive. Of the total securities excluded, 6,183,115 were related to warrants issued (Note 6) and 215,063 were
related to the unvested Restricted Shares. For the year ended June 30, 2018, 5,993,750 potentially dilutive securities all related
to warrants issued have been excluded from the computation of diluted weighted average shares outstanding because the effect would
be anti-dilutive.
Note 6 - Stockholders’
Equity
Common and preferred stock
In conjunction with the Mergers in June
2019, Akerna’s certificate of incorporation was amended and restated to have one single class of common stock and 75,000,000
authorized shares of common stock, par value $0.0001 per share. Akerna will also have 5,000,000 authorized shares of preferred
stock, $0.0001 par value per share, of which none are issued and outstanding. The holders of common stock are entitled to one
vote per share on all matters submitted to a vote of stockholders of the Company. Subject to the prior rights of all classes or
series of stock at the time outstanding having prior rights as to dividends or other distributions, all stockholders are entitled
to share equally in dividends, if any, as may be declared from time to time by the Board of Directors out of funds legally available.
Subject to the prior rights of creditors of the Corporation and the holders of all classes or series of stock at the time outstanding
having prior rights as to distributions upon liquidation, dissolution or winding up of the Corporation, in the event of liquidation,
the holders of Common Stock are entitled to share ratably in all assets remaining after payment of all liabilities. The stockholders
do not have cumulative, preemptive rights, or subscription rights.
AKERNA CORP.
Notes to Consolidated Financial Statements
Issuances for Cash
In November 2017, MJF issued 515,570 Series
B Preferred Units (137,740 shares of common stock after retroactively applying the exchange ratio) for cash consideration of $1,000,000.
In August 2018, MJF issued 4,115,042 Series C Preferred Units (1,099,376 shares of common stock after retroactively applying the
exchange ratio) for cash consideration of $10,000,000. Following the Mergers, all the Units were converted into Akerna’s
common stock.
Restricted Shares
Prior to the Mergers, MJF had Profit Interest
Incentive Plan (the “Profits Interest Plan”) in place whereby it could grant PIUs to employees or consultants and
other independent advisors of the Company. PIUs granted under the Profits Interest Plan would generally vest once a year over
four years commencing on the date granted, or based on specified performance targets. MJF had the right, but not the obligation,
to repurchase vested PIUs from holders upon their termination of employment. Unvested PIUs were to be forfeited upon termination
of employment. If the holder was terminated for cause, as defined, all vested and unvested units would be forfeited. PIUs repurchased
or canceled or forfeited by the award recipient were available for reissuance. Upon completion of the Mergers, the non-vested
PIUs were exchanged for and became subject to restricted stock agreements (“Restricted Shares”) with varying vesting
terms that reflect the vesting conditions application to equity interests of the applicable MJF equity holders at the time of
the merger.
The management assessed whether its PIUs
represented share-based payments within the scope of ASC Topic 718 or were more akin to a profit-sharing compensation arrangement.
The management determined PIUs were more akin to a profit-sharing compensation arrangement. The management determined PIUs only
had value upon a defined liquidating event. Accordingly, no value had been accrued for the PIUs until the business combination
occurred on June 17, 2019, which met the definition of a liquidating event. As a result, MJF recorded a one-time charge of approximately
$3.4 million, which represented the charge associated with fully vested shares of common stock issued in exchange for the PIUs.
During the year ended June 30, 2018, 181,000 Restricted Shares were granted (677,500 PIUs before retroactively
applying the exchange ratio), 64,785 Restricted Shares were forfeited (242,500 PIUs before retroactively applying the exchange
ratio), and 75,406 Restricted Shares vested (282,250 PIUs before retroactively applying the exchange ratio). At June 30, 2018,
there were 294,944 Restricted Shares outstanding (1,104,000 PIUs before retroactively applying the exchange ratio).
During the year ended June 30, 2019, additional 107,618 Restricted Shares were granted (402,824 PIUs before
retroactively applying the exchange ratio), 68,794 Restricted Shares were forfeited (257,500 PIUs before retroactively applying
the exchange ratio), and 118,705 Restricted Shares vested (444,324 PIUs before retroactively applying the exchange ratio). At June
30, 2019, there were 215,063 unvested Restricted Shares outstanding (805,000 PIUs before retroactively applying the exchange ratio).
For the year ended June 30, 2019, stock-based compensation expenses related to the ratable amortization
of the unvested Restricted Shares was $0.5 million. Approximately, $2.1 million of total unrecognized costs related to Restricted
Shares will be ratably recognized over an estimated remaining vesting period of 3 years.
Warrants
In connection with MTech’s initial
public offering, the Company sold 5,750,000 units at a purchase price of $10.00 per unit, inclusive of 750,000 units sold to the
underwriters on February 8, 2018 upon the underwriters’ election to fully exercise their over-allotment option. Each unit
consisted of one share of MTech’s common stock and one warrant (“Public Warrant”). Each Public Warrant entitled
the holder to purchase one share of MTech’s common stock at an exercise price of $11.50. Upon the Mergers, the Public Warrants
were converted to those of Akerna at the exchange ratio of one-for-one.
AKERNA CORP.
Notes to Consolidated Financial Statements
Simultaneously with MTech’s initial
public offering, an affiliated party purchased an aggregate of 225,000 units at $10.00 per unit, for an aggregate purchase price
of $2,250,000. On February 8, 2018, the MTech consummated the sale of an additional 18,750 private units at a price of $10.00
per unit generating gross proceeds of $187,500. Each unit consists of one share of MTech’s common stock and one warrant
(“Private Warrants”). Each Private Warrant was exercisable to purchase one share of MTech’s common stock at
an exercise price of $11.50. Upon the Mergers, the Private Warrants were converted to those of Akerna at the exchange ratio of
one-for-one.
A summary of the status of common stock
warrants at June 30, 2019 and the changes during the two years then ended, is presented in the following table:
|
|
Shares under warrants
|
|
|
Weighted average exercise price
|
|
|
Weighted average remaining life
|
|
|
Aggregate intrinsic value
|
|
Outstanding at July 1, 2017
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued
|
|
|
5,993,750
|
|
|
$
|
11.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2018
|
|
|
5,993,750
|
|
|
|
11.50
|
|
|
|
4.61
|
|
|
|
|
|
Issued
|
|
|
189,365
|
|
|
|
11.50
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired/cancelled
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2019
|
|
|
6,183,115
|
|
|
$
|
11.50
|
|
|
|
3.72
|
|
|
$
|
2,473,000
|
|
Unit Purchase Option and Other Rights
In connection with MTech’s initial public
offering, there were also 250,000 options sold to an affiliate party to purchase up to 250,000 units exercisable at $10.00 per
unit (“Option Shares”). The unit purchase option could be exercised for cash or on a cashless basis, at the holder’s
option. Each unit consisted of one share of Company’s common stock, par value $0.0001 per share, and one warrant entitling
the holder to purchase one share of Company’s common stock. The unit purchase option was exercised on a cashless basis into
189,365 shares of common stock and 189,365 warrants, which were outstanding as of June 30, 2019.
In connection with the Private Placement, the
Company also provided each investor the ability to purchase additional shares of Akerna common stock at a price of $10.21 per share,
up to their pro rata share of the 901,074 Private Placement Shares purchased. No investor exercised this right during the year
ended June 30, 2019, which expired subsequently. The aggregate intrinsic value of the rights as of June 30, 2019, was $1,522,815.
2019 Incentive
plan
On June 17, 2019,
the MTech stockholders considered and approved the 2019 Long Term Incentive Plan (the “Equity Incentive Plan”) and
reserved 1,040,038 shares of common stock for issuance thereunder. The Equity Incentive Plan was previously approved, subject to
stockholder approval, by the board of directors of Akerna on January 23, 2019. The Equity Incentive Plan became effective
immediately upon the Closing of the Mergers.
Note 7 - Commitments and Contingencies
Operating Leases
The
Company leases facilities, equipment, and vehicles under non-cancelable operating leases. Rent expense for the years ended June
30, 2019 and 2018 was $151,458 and $140,946, respectively. Future minimum lease payments under these leases are approximately
$96,000 for the year ending June 30, 2020.
Letter-of-Credit
As
of June 30, 2018, the Company had a standby letter-of-credit with a bank in the amount of $1,000,000, which was classified as
restricted cash on the balance sheets. The beneficiary of the letter-of-credit is an insurance company. Upon its termination
on June 22, 2019, the letter-of-credit was renewed with the required balance reduced to $500,000. Accordingly, the restricted
cash on the balance sheets as of June 30, 2019 is $500,000.
AKERNA CORP.
Notes to Consolidated Financial Statements
Litigation
From time to time, the Company may be
involved in litigation relating to claims arising out of its operations in the normal course of business. The Company will accrue
a liability for such matters when it is probable that a liability has been incurred and the amount can be reasonably estimated.
When only a range of possible loss can be established, the most probable amount in the range is accrued. If no amount within this
range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for
a litigation loss contingency might include, for example, estimates of potential damages, outside legal fees and other directly
related costs expected to be incurred. As of June 30, 2019 and 2018, respectively, there were no legal proceedings requiring recognition
or disclosure in the financial statements.
Employment Agreement
In connection with the consummation of
the Mergers, Ms. Jessica Billingsley and Akerna entered into an employment agreement, dated June 17, 2019 (the “Billingsley
Employment Agreement”). Under the terms of the Billingsley Employment Agreement, Ms. Billingsley serves at the Chief Executive
Officer of Akerna, at will, and must devote substantially all of her working time, skill and attention to her position and to
the business and interests of Akerna (except for customary exclusions).
Akerna will pay Ms. Billingsley an annual
base salary in the amount of $250,000. The base salary subject to (i) review at least annually by board of directors of Akerna
for increase, but not decrease, and (ii) automatic increase by an amount equal to $50,000 from its then current level on
the date upon which Akerna’s aggregate, gross consolidated trailing twelve month (TTM) revenue equals the product of (x) two
multiplied by (y) Akerna’s aggregate, gross consolidated trailing twelve month (TTM) revenue as the Closing. Within
10 days of the Closing, Akerna also paid to Ms. Billingsley a single lump sum of $95,000.
Ms. Billingsley will be eligible for an annual
bonus (the “Annual Bonus”) with respect to each fiscal year ending during her employment. Her target annual cash bonus
shall be in the amount of one hundred percent (100%) of her base salary (the “Target Bonus”) with the opportunity to
earn greater than the Target Bonus upon achievement of above target performance. The amount of the Annual Bonus shall be determined
by the board of directors of Akerna on the basis of fulfillment of the objective performance criteria established in its reasonable
discretion. The performance criteria for any particular fiscal year shall be set no later than 90 days after the commencement of
the relevant fiscal year. As of June 30, 2019, Ms. Billingsley’s bonus accrual was approximately $215,000.
Ms. Billingsley is entitled to participate in annual equity awards and employee benefits.
The Billingsley Employment Agreement also
contains noncompetition and non-solicitation provisions that apply through her employment and for a term of 1 year thereafter,
and which are in addition to the noncompetition and non-solicitation provisions prescribed under the Non-Competition Agreements
below.
Employee Benefit Plan
The Company has a 401(k) Plan (the “Plan”)
to provide retirement benefits for its employees. Employees may contribute up to 100% of their annual compensation to the Plan,
limited to a maximum annual amount as updated annually by the IRS. The Company does not offer a match of employee contributions
nor any discretionary contributions.
Insurance Claim
In March 2018, the Company received approximately $940,000 in proceeds, net of legal fees, from an insurance
claim related to business interruption, which was included as a component of selling, general, and administrative operating expenses
on the statement of operations.
Note 8 - Income Taxes
Akerna Corporation
is the sole owner of MJF as of June 17, 2019, which is a disregarded entity for federal income taxes. Prior to June 17, 2019 MJF
was treated as a partnership for U.S income tax purposes. Accordingly, prior to the business combination, taxable income and losses
of the Company were reported on the income tax returns of MJF’s members. Therefore, no income tax provision is provided
prior to June 17, 2019.
AKERNA CORP.
Notes to Consolidated Financial Statements
The
following table sets forth the expense or (benefit) for income taxes:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Income tax expense
|
|
|
|
|
|
|
|
|
Current income taxes
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. state
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total current income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Deferred income taxes
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
-
|
|
|
$
|
-
|
|
U.S. state
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total deferred income tax benefit
|
|
$
|
-
|
|
|
$
|
-
|
|
The
following table sets forth reconciliations of the statutory federal income tax rate to actual rates based on income or loss before
income taxes:
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Income tax expense and rate attributable to:
|
|
|
|
|
|
|
Federal
|
|
$
|
(2,509,246
|
)
|
|
$
|
-
|
|
State, net of federal benefit
|
|
|
(13,452
|
)
|
|
|
-
|
|
Restricted stock awards
|
|
|
816,505
|
|
|
|
-
|
|
Changes in valuation allowance
|
|
|
85,455
|
|
|
|
-
|
|
Losses from flow-through entity not subject to tax
|
|
|
1,640,066
|
|
|
|
-
|
|
Other adjustments
|
|
|
(19,328
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effective income tax expense and rate
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
Noncurrent deferred tax assets:
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
22,226
|
|
|
$
|
-
|
|
Charitable contribution carryforward
|
|
|
147
|
|
|
|
-
|
|
Federal and state net operating loss
|
|
|
63,082
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
$
|
85,455
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
(85,455
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets after valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
During
the year ended June 30, 2019, valuation allowances on deferred tax assets that are not anticipated to be realized increased by
$85,455.
AKERNA CORP.
Notes to Consolidated Financial Statements
Deferred
tax valuation allowances are primarily the result of uncertainties regarding the future realization of recorded tax benefits on
tax loss. The measurement of deferred tax assets is reduced by a valuation allowance, if based upon available evidence, it is
more likely than not that the deferred tax assets will not be realized. The Company has evaluated the realizability of its deferred
tax assets in each jurisdiction by assessing the adequacy of expected taxable income, including the reversal of existing temporary
differences, historical and projected operating results and the availability
of prudent and feasible tax planning strategies. Based on this analysis, the Company has determined that the valuation allowances
recorded in the period presented are appropriate.
The Company’s aggregate U.S. federal
tax carryforwards for net operating losses which will not expire were $239,281. The Company recorded deferred tax assets related
to U.S. state tax net operating loss carryforwards, which expire at various dates beginning in 2039.
The
Company is not currently under examination for the major jurisdictions where it conducts business as of June 30, 2019. The management
does not believe that there are significant uncertain tax positions in 2019. There are no interest and penalties related to uncertain
tax positions in 2019.
Note 9 – Revisions of Financial
Statements for the Fiscal Quarters during Fiscal Years 2019 and 2018
During the course of preparing the annual
report on Form 10-K for the year ended June 30, 2019, the Company identified certain costs of revenue related to consulting
services previously being recorded in operating expenses, which resulted in the overstatement of the gross profit for each of
the quarters during the fiscal years ended June 30, 2019 and 2018, respectively. These reclassifications had no effect
on the reported net losses.
|
|
Fiscal 2019
|
|
|
Fiscal year 2018
|
|
|
|
As reported
|
|
|
Adjustment
|
|
|
As revised
|
|
|
As reported
|
|
|
Adjustment
|
|
|
As revised
|
|
Quarter Ended September 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
2,371,900
|
|
|
|
|
|
|
$
|
2,371,900
|
|
|
$
|
2,672,502
|
|
|
|
|
|
|
$
|
2,672,502
|
|
Cost of revenues
|
|
|
956,123
|
|
|
|
107,012
|
|
|
|
1,063,135
|
|
|
|
1,283,246
|
|
|
|
79,949
|
|
|
|
1,363,195
|
|
Gross profit
|
|
|
1,415,777
|
|
|
|
(107,012
|
)
|
|
|
1,308,765
|
|
|
|
1,389,256
|
|
|
|
(79,949
|
)
|
|
|
1,309,307
|
|
Operating expenses
|
|
|
3,055,976
|
|
|
|
(107,012
|
)
|
|
|
2,948,964
|
|
|
|
3,038,013
|
|
|
|
(79,949
|
)
|
|
|
2,958,064
|
|
Net less
|
|
|
(1,623,182
|
)
|
|
|
|
|
|
|
(1,623,182
|
)
|
|
|
(1,664,706
|
)
|
|
|
|
|
|
|
(1,664,706
|
)
|
Net loss per share
|
|
|
(0.15
|
)
|
|
|
|
|
|
|
(0.15
|
)
|
|
|
(0.21
|
)
|
|
|
|
|
|
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
2,598,079
|
|
|
|
|
|
|
|
2,598,079
|
|
|
|
2,859,582
|
|
|
|
|
|
|
|
2,859,582
|
|
Cost of revenues
|
|
|
1,198,911
|
|
|
|
122,084
|
|
|
|
1,320,995
|
|
|
|
1,068,828
|
|
|
|
79,949
|
|
|
|
1,148,777
|
|
Gross profit
|
|
|
1,399168
|
|
|
|
(122,084
|
)
|
|
|
1,277,084
|
|
|
|
1,790,754
|
|
|
|
(79,949
|
)
|
|
|
1,710,805
|
|
Operating expenses
|
|
|
3,826,539
|
|
|
|
(122,084
|
)
|
|
|
3,704,455
|
|
|
|
2,770,833
|
|
|
|
(79,949
|
)
|
|
|
2,690,884
|
|
Net loss
|
|
|
(2,370,204
|
)
|
|
|
|
|
|
|
(2,370,204
|
)
|
|
|
(992,463
|
)
|
|
|
|
|
|
|
(992,463
|
)
|
Net loss per share
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
(0.19
|
)
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended March 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
2,327,880
|
|
|
|
|
|
|
|
2,327,880
|
|
|
|
2,315,635
|
|
|
|
|
|
|
|
2,315,635
|
|
Cost of revenues
|
|
|
1,042,403
|
|
|
|
124,079
|
|
|
|
1,166,482
|
|
|
|
737,762
|
|
|
|
79,949
|
|
|
|
817,711
|
|
Gross profit
|
|
|
1,285,477
|
|
|
|
(124,079
|
)
|
|
|
1,161,398
|
|
|
|
1,577,873
|
|
|
|
(79,949
|
)
|
|
|
1,497,924
|
|
Operating expenses
|
|
|
3,788,644
|
|
|
|
(124,079
|
)
|
|
|
3,664,565
|
|
|
|
1,204,242
|
|
|
|
(79,949
|
)
|
|
|
1,124,293
|
|
Net loss
|
|
|
(2,490,103
|
)
|
|
|
|
|
|
|
(2,490,103
|
)
|
|
|
(364,227
|
)
|
|
|
|
|
|
|
(364,227
|
)
|
Net loss per share
|
|
|
(0.20
|
)
|
|
|
|
|
|
|
(0.20
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
(0.04
|
)
|
In accordance with SEC Staff Accounting Bulletin
No 108, the Company has evaluated these errors, based on an analysis of quantitative and qualitative factors, as to whether it
was material to the condensed statements of operations for the three months ended March 31, 2019 and 2018, December 31, 2018 and
2017, and September 30, 2018 and 2017, respectively, and if amendments of previously filed financial statements with the SEC are
required. The Company has determined that quantitatively and qualitatively, the errors have no material impact to the condensed
statement of operations for these periods.
Note 10 - Subsequent Events
Subsequent to June 30, 2019, the Company was
awarded a contract with the state of Utah following the submission of a response to a request for proposal for an interoperable
medical cannabis inventory control and electronic verification system.
In July 2019, the Company hired Mr. Scott Sozio,
at will, to serve as the Company’s Head of Corporate Development. Mr. Sozio is the former Chief Executive Officer of MTech
Acquisition Corp., is a current director of Akerna, and beneficially owns common stock of the Company. Mr. Sozio will receive an
annual base salary of $150,000, which is to be credited against certain variable bonus compensation to be paid in a combination
of cash and equity pursuant to the Equity Incentive Plan once every twelve month period. The terms of such bonus payment are still
being negotiated between the Company and Mr. Sozio.
Subsequent to June 30, 2019, 368,910 warrants were exercised at the price of $11.50 per warrant for the
total proceeds of $4,242,465.
INDEX TO AMPLE’S
FINANCIAL STATEMENTS
INDEX TO SOLO’S
FINANCIAL STATEMENTS
Ample Organics Inc.
Consolidated statements of financial
position
(expressed in Canadian dollars)
(unaudited)
As at December 31
|
|
2019
|
|
|
2018
|
|
|
|
CAD$
|
|
|
CAD$
|
|
Assets
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Cash
|
|
|
986,874
|
|
|
|
1,062,209
|
|
Trade and other receivables (note 4)
|
|
|
1,296,000
|
|
|
|
1,630,439
|
|
Inventories
|
|
|
39,438
|
|
|
|
210,507
|
|
Prepaid expenses
|
|
|
329,232
|
|
|
|
385,054
|
|
Total current assets
|
|
|
2,651,544
|
|
|
|
3,288,209
|
|
Property and equipment, net (note 5)
|
|
|
1,983,865
|
|
|
|
1,672,986
|
|
Right of use assets, net (note 6)
|
|
|
2,668,305
|
|
|
|
—
|
|
Other financial assets
|
|
|
—
|
|
|
|
25,000
|
|
Goodwill and other intangible assets (note 7)
|
|
|
5,856,821
|
|
|
|
6,188,661
|
|
|
|
|
13,160,535
|
|
|
|
11,174,856
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Trade and other payables (note 8)
|
|
|
1,333,029
|
|
|
|
1,200,860
|
|
Deferred revenue
|
|
|
510,567
|
|
|
|
731,977
|
|
Lease liabilities (note 9)
|
|
|
544,237
|
|
|
|
—
|
|
Short-term debt (note 10)
|
|
|
4,757,449
|
|
|
|
3,601,786
|
|
Total current liabilities
|
|
|
7,145,282
|
|
|
|
5,534,623
|
|
Lease liabilities (note 9)
|
|
|
3,096,631
|
|
|
|
—
|
|
Preferred share liabilities (note 11)
|
|
|
13,636,522
|
|
|
|
5,234,811
|
|
Deferred tax liability (note 13)
|
|
|
439,688
|
|
|
|
439,688
|
|
Total Liabilities
|
|
|
24,318,123
|
|
|
|
11,209,122
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
Share capital (note 12)
|
|
|
14,345,721
|
|
|
|
8,055,303
|
|
Warrants (note 12)
|
|
|
823,778
|
|
|
|
—
|
|
Contributed surplus
|
|
|
675,886
|
|
|
|
260,790
|
|
Deficit
|
|
|
(27,002,973
|
)
|
|
|
(8,350,359
|
)
|
Total shareholders’ equity
|
|
|
(11,157,588
|
)
|
|
|
(34,266
|
)
|
|
|
|
13,160,535
|
|
|
|
11,174,856
|
|
Commitments and contingencies (note 15)
The accompanying notes are an integral part of these consolidated
financial statements
On behalf of the Board:
/s/ John Prentice
|
/s/ Cal Millar
|
Director
|
Director
|
Ample Organics Inc.
Consolidated statements of loss and comprehensive loss
(expressed in Canadian dollars)
(unaudited)
Years ended December 31
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Revenue
|
|
|
7,419,932
|
|
|
|
6,436,876
|
|
Cost of sales
|
|
|
4,378,863
|
|
|
|
3,291,566
|
|
Gross profit
|
|
|
3,041,069
|
|
|
|
3,145,310
|
|
General and administrative expenses (note 14)
|
|
|
3,525,771
|
|
|
|
2,283,351
|
|
Sales and marketing (note 14)
|
|
|
2,079,045
|
|
|
|
1,616,103
|
|
Research and development (note 14)
|
|
|
4,947,648
|
|
|
|
4,737,175
|
|
Share-based compensation (note 12)
|
|
|
415,096
|
|
|
|
260,790
|
|
Depreciation and amortization (notes 5,6,7)
|
|
|
917,208
|
|
|
|
162,853
|
|
Finance costs
|
|
|
1,728,175
|
|
|
|
5,409
|
|
Loss on fair value of preferred share liabilities (note 11)
|
|
|
7,710,906
|
|
|
|
776,000
|
|
Other expense
|
|
|
25,000
|
|
|
|
—
|
|
Net loss and comprehensive loss for the year
|
|
|
(18,307,780
|
)
|
|
|
(6,696,371
|
)
|
The accompanying notes are an integral part of these consolidated
financial statements
Ample Organics Inc.
Consolidated statements of changes in shareholders’ equity
(expressed in Canadian dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contributed
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
Warrants
|
|
|
Surplus
|
|
|
Deficit
|
|
|
Total
|
|
|
|
#
|
|
|
$
|
|
|
#
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Balance, December 31, 2017
|
|
|
29,969,426
|
|
|
|
2,975,522
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,653,988
|
)
|
|
|
1,321,534
|
|
Issuance of shares, net of costs (note 12)
|
|
|
3,302,224
|
|
|
|
5,079,781
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,079,781
|
|
Share-based compensation (note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260,790
|
|
|
|
—
|
|
|
|
260,790
|
|
Net loss and comprehensive loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(6,696,371
|
)
|
|
|
(6,696,371
|
)
|
Balance, December 31, 2018
|
|
|
33,271,650
|
|
|
|
8,055,303
|
|
|
|
—
|
|
|
|
—
|
|
|
|
260,790
|
|
|
|
(8,350,359
|
)
|
|
|
(34,266
|
)
|
Impact of IFRS 16 adoption (note 3)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(344,834
|
)
|
|
|
(344,834
|
)
|
Issuances of shares and warrants, net of costs (note 12)
|
|
|
4,175,972
|
|
|
|
6,290,418
|
|
|
|
2,217,161
|
|
|
|
823,778
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,114,196
|
|
Share-based compensation (note 12)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
415,096
|
|
|
|
—
|
|
|
|
415,096
|
|
Net loss and comprehensive loss for the year
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(18,307,780
|
)
|
|
|
(18,307,780
|
)
|
Balance, December 31, 2019
|
|
|
37,447,622
|
|
|
|
14,345,721
|
|
|
|
2,217,161
|
|
|
|
823,778
|
|
|
|
675,886
|
|
|
|
(27,002,973
|
)
|
|
|
(11,157,588
|
)
|
The accompanying notes are an integral part of these consolidated
financial statements
Ample Organics Inc.
Consolidated statements of cash flows
(expressed in Canadian dollars)
(unaudited)
Year ended December 31
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
Net loss for the year
|
|
|
(18,307,780
|
)
|
|
|
(6,696,371
|
)
|
Add items not involving cash
|
|
|
|
|
|
|
|
|
Depreciation and amortization (notes 5,6,7)
|
|
|
917,208
|
|
|
|
162,853
|
|
Share-based compensation (note 12)
|
|
|
415,096
|
|
|
|
260,790
|
|
Loss on fair value of preferred share liabilities (note 11)
|
|
|
7,710,906
|
|
|
|
776,000
|
|
Finance costs
|
|
|
1,377,579
|
|
|
|
—
|
|
Impairment of financial asset
|
|
|
25,000
|
|
|
|
—
|
|
Loss on sale of fixed assets
|
|
|
161
|
|
|
|
1,070
|
|
|
|
|
(7,861,830
|
)
|
|
|
(5,495,658
|
)
|
Net changes in non-cash working capital balances related to operations
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
536,609
|
|
|
|
(1,180,641
|
)
|
Inventories
|
|
|
171,069
|
|
|
|
(161,945
|
)
|
Prepaid expenses
|
|
|
55,822
|
|
|
|
(157,854
|
)
|
Trade and other payables
|
|
|
132,171
|
|
|
|
468,942
|
|
Deferred revenue
|
|
|
(221,410
|
)
|
|
|
25,269
|
|
Cash used in operating activities
|
|
|
(7,187,569
|
)
|
|
|
(6,501,887
|
)
|
Investing activities
|
|
|
|
|
|
|
|
|
Acquisition
|
|
|
—
|
|
|
|
(3,525,627
|
)
|
Disposal of property and equipment (note 5)
|
|
|
1,075
|
|
|
|
8,988
|
|
Purchase of property and equipment (note 5)
|
|
|
(148,494
|
)
|
|
|
(981,901
|
)
|
Cash used in investing activities
|
|
|
(147,419
|
)
|
|
|
(4,498,540
|
)
|
Financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of shares and warrants, net of costs (note 12)
|
|
|
7,114,195
|
|
|
|
7,303,283
|
|
Repayment of short-term debt (note 10)
|
|
|
(5,601,786
|
)
|
|
|
—
|
|
Proceeds from issuance of short-term debt, net of costs (note 10)
|
|
|
6,292,066
|
|
|
|
3,601,786
|
|
Payments for lease obligations
|
|
|
(544,822
|
)
|
|
|
—
|
|
Cash provided by financing activities
|
|
|
7,259,653
|
|
|
|
10,905,069
|
|
Net decrease in cash during the year
|
|
|
(75,335
|
)
|
|
|
(95,358
|
)
|
Cash, beginning of the year
|
|
|
1,062,209
|
|
|
|
1,157,567
|
|
Cash, end of the year
|
|
|
986,874
|
|
|
|
1,062,209
|
|
The accompanying notes are an integral part of these consolidated
financial statements
Ample Organics Inc.
Notes to consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
1. Nature of business
and going concern uncertainty
Nature of business
Ample Organics Inc. (the “Company” or “Ample
Organics”) is Canada’s leading cannabis software company. The software is built for compliance with the Access to Cannabis
for Medical Purposes Regulations (“ACMPR”), which tracks everything from seed to sale of cannabis and beyond. Ample
Organics’ platform allows customers to run their licensed facilities from end-to-end while meeting the record keeping and
traceability requirements of ACMPR.
The Company was incorporated on August 1, 2014. The Company’s
head office is located at 629 Eastern Ave, Building B, Toronto, Ontario M4M 1E3.
Going concern uncertainty
The preparation of these consolidated financial statements requires
management to make judgments regarding the Company’s ability to continue as a going concern. Management has determined that
as at December 31, 2019, it does not have adequate working capital for the coming year based on current capital resources. The
Company has incurred a total comprehensive loss of CAD$18,307,780 for the year ended December 31, 2019, an accumulated deficit
of CAD$27,002,973 and, as of December 31, 2019, the Company’s current liabilities exceeded current assets by CAD$4,493,738.
These events or conditions indicate that a material uncertainty exists that may cast significant doubt on the Company’s ability
to continue as a going concern and therefore, that it may be unable to realize its assets or discharge its liabilities in the normal
course of business. The Company believes it will be able to complete a transaction that will provide the consolidated entity with
sufficient funding to meet its expenditure commitments and support its planned level of spending, and therefore it is appropriate
to prepare the consolidated financial statements on a going concern basis.
2. Basis of presentation
(a) Statement of compliance
These consolidated financial statements (the “financial
statements”) have been prepared by management on a going concern basis in accordance with generally accepted accounting principles
in Canada for publicly accountable enterprises, as set out in the CPA Canada Handbook – Accounting, which incorporates
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
The policies set out below have been consistently applied to all periods presented unless otherwise noted.
These financial statements were approved and authorized for
issuance by the Board of Directors of the Company on March 2, 2020.
(b) Basis of measurement
These financial statements have been prepared on a historical
cost basis. Historical costs are generally based upon the fair value of the consideration given in exchange for goods and services.
Fair value is the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether
that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a
liability, the Company takes into account the characteristics of the asset or liability if market participants would take those
characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure
purposes in these financial statements is determined on such a basis, except for share-based payment transactions that are within
the scope of IFRS 2 Share-based Payment (“IFRS 2”) and measurements that have some similarities to fair value, but
are not fair value, such as value in use in IAS 36 Impairment of Assets.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
(c) Basis of Presentation
These financial statements comprise the accounts of the Company,
and its wholly owned legal subsidiary, Last Call Analytics Inc. (“LCA”) and Ample Organics Australia PTY LTD, after
the elimination of all intercompany balances and transactions.
Subsidiary
The subsidiary is an entity over which the Company has exposure
to variable returns from its involvement and has the ability to use power over the investee to affect its returns. The existence
and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company
controls another entity. The subsidiary is fully consolidated from the date on which control is transferred to the Company until
the date on which control ceases. The accounts of the subsidiary are prepared for the same reporting period as the parent company,
using consistent accounting policies. Intercompany transactions, balances and unrealized gains or losses on transactions are eliminated
upon consolidation.
(d) Functional currency and presentation currency
These financial statements are presented in Canadian dollars,
which is the Company’s functional currency.
(e) Use of estimates and judgments
The preparation of these financial statements in conformity
with IFRS requires management to make estimates, judgments and assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from these estimates.
Estimates are based on management’s best knowledge of
current events and actions that the Company may undertake in the future. Estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision
affects only that reporting period, or in the period of the revision and future periods if the revision affects both current and
future periods.
The following are the critical judgments, apart from those involving
estimations, that management has made in the process of applying the Company’s accounting policies and that have the most
significant effect on the amounts recognized in the financial statements:
(i) Revenue recognition
Multi-element or bundled contracts require an estimate of the
relative fair value of separate elements. The Company assesses the criteria for the recognition of revenue related to arrangements
that have multiple components. These assessments require judgment by management to determine if there are separately identifiable
components as well as how to allocate the total price among the components. Deliverables are accounted for as separately identifiable
components if they can be understood without reference to the series of transactions as a whole. In concluding whether components
are separately identifiable, management considers the transaction from the customer’s perspective. Among other factors, management
assesses whether the service or product is sold separately by the Company in the normal course of business or whether the customer
could purchase the service or product separately.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
(ii) Estimated useful lives, residual values and depreciation
of property and equipment
Depreciation of property and equipment are dependent upon estimates
of useful lives and residual values, which are determined through the exercise of judgment. The assessment of any impairment of
these assets is dependent upon estimates of recoverable amounts that take into account factors such as economic and market conditions
and the useful lives of assets.
(iii) Estimated useful lives and amortization of intangible
assets
The Company employs significant estimates to determine the estimated
useful lives of intangible assets, considering technology trends, contractual rights, past experience, expected use and review
of asset useful lives. The Company reviews amortization methods and useful lives annually or when circumstances change and adjusts
its amortization methods and assumptions prospectively.
(iv) Valuation of share-based payments, warrants and
Class A-3 Preferred Shares
Management measures the fair value for share-based payments,
warrants and Class A-3 Preferred Shares using market-based option valuation techniques. Assumptions are made and estimates are
used in applying the valuation techniques. These include estimating the future volatility of the share price, expected dividend
yield, expected risk-free interest rate and the rate of forfeiture. Such estimates and assumptions are inherently uncertain. Changes
in these assumptions affect the fair value estimates of share-based payments, warrants and Class A-3 preferred shares.
3. Significant accounting
policies
(a) Cash
Cash includes cash deposits in financial institutions.
(b) Foreign currency translation
Foreign currency transactions are translated into Canadian dollars
at exchange rates in effect on the date of the transactions. At the end of each reporting period, monetary assets and liabilities
denominated in foreign currencies are translated into Canadian dollars at the foreign exchange rate applicable at that period-end
date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using
the exchange rate at the date of the transaction. Expenses are translated at the exchange rates that approximate those in effect
on the date of the transaction. Realized and unrealized exchange gains and losses are recognized in the consolidated statements
of loss and comprehensive loss.
(c) Business combinations
Business combinations are accounted for using the acquisition
method. In applying the acquisition method, the Company separately measures at their acquisition-date fair values, the identifiable
assets acquired, the liabilities assumed, and goodwill acquired and any non-controlling interest in the acquired entity. The consideration
transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former
owners of the acquiree and the equity interests issued by the Company. The consideration transferred includes the fair value of
any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
Acquisition costs in connection with a business combination
are expensed as incurred.
Goodwill is measured as the excess of the fair value of the
consideration transferred, less any non-controlling interest in the entity being acquired at the proportionate share of the recognized
net identifiable assets acquired. Goodwill acquired through a business combination is allocated to each cash-generating unit (“CGU”)
or group of CGUs that are expected to benefit from the related business combination. A group of CGUs represents the lowest level
within the entity at which the goodwill is monitored for internal management purposes, which is not higher than an operating segment.
Goodwill is tested for impairment annually or more frequently if certain indicators arise that indicate they are impaired.
(d) Inventories
Inventories are measured at the lower of cost and net realizable
value. The costs of inventories are determined on a weighted average cost basis. Net realizable value represents the estimated
selling price for inventories less estimated costs necessary to make the sale.
The cost of inventories, which consists of computer equipment,
comprises all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. The
cost of purchase comprises the purchase price, non-recoverable taxes, transport, handling, and other costs directly attributable
to the acquisition of goods.
Inventory allowances are recorded in the period in which management
determines the inventory to be obsolete.
(e) Revenue from contracts with customers
Revenue is recognized upon transfer of control of the promised
goods or services to customers in an amount that reflects the consideration the Company expects to receive in exchange for those
goods or services. Performance obligations related to a contract are satisfied through the transfer of a promised good or service
(i.e., an asset) to a customer, either over time or at a point in time. An asset is transferred when (or as) the customer obtains
control of that asset, which refers to the ability to use and obtain substantially all of the remaining benefits from the asset,
such as by:
|
[i]
|
using the asset to produce goods or provide services (including
public services);
|
|
[ii]
|
using the asset to enhance the value of other assets;
|
|
[iii]
|
using the asset to settle liabilities or reduce expenses;
|
|
[iv]
|
selling or exchanging the asset;
|
|
[v]
|
pledging the asset to secure a loan; and
|
Payment terms are typically 30 days with a CAD$20,000 credit limit
on services. Deferred revenue, classified as contract liabilities under International Financial Reporting Standards (“IFRS”)
15, relates to payments received in advance of performance under contracts with customers. Contract liabilities are recognized
as (or when) the Company satisfies its performance obligation under the contracts.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
Software licenses and services
The Company provides software licenses for contract terms of
generally one year, along with implementation (professional) services to provide support and training for customers. These are
considered to be one performance obligation under IFRS 15 and are satisfied over the contract term. Revenue is recognized rateably
on the basis of time remaining from the start of the contract to its conclusion, on a contract-by-contract basis.
The first three months of a contract are typically pre-billed
upon scheduling of an onsite implementation date, resulting in contract liabilities. The remaining payments under the contract
are billed on a monthly basis, subsequent to revenue recognition and resulting in contract assets.
Hardware and third – party licenses
The Company provides its software pre-installed and configured
on its own dedicated device/hardware and can also install third-party licenses necessary for the operation of the hardware network.
These are considered distinct, separate performance obligations under IFRS 15, and are satisfied at a point in time once the setup
is complete. Hardware purchases by new customers must be paid for upfront prior to installation, resulting in contract liabilities
until the setup is complete. Hardware purchases by existing customers are billed once the devices have been shipped and configured,
resulting in contract assets.
The Company measures revenue at the fair value of consideration
received or receivable, taking into account any contractually defined terms for volume discounts or refunds. As contracts are generally
one year in length, performance obligations related to existing contract liabilities are expected to be satisfied by the end of
the next fiscal year-end.
(f) Property and equipment
The Company’s property and equipment are measured at cost
less accumulated depreciation and impairment losses.
The cost of an item of property and equipment includes expenditures
that are directly attributable to the acquisition or construction of the asset.
Depreciation is recorded over the estimated useful lives as
outlined below:
Computer hardware
|
3–5 years
|
|
|
Furniture and equipment
|
3–5 years
|
|
|
Leasehold improvements
|
Lesser of useful life or term of lease
|
The Company assesses an asset’s residual value, useful
life and depreciation method on a regular basis and if any events have indicated a change and makes adjustments if appropriate.
Gains and losses on disposal of property and equipment are determined
by comparing the proceeds from disposal with the carrying amount of the property and equipment and are recognized in the consolidated
statement of loss and comprehensive loss.
(g) Intangible assets
The Company’s intangible assets relate to customer relationships
and technology. The cost of an intangible asset acquired in a business combination is its fair value at the acquisition date.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
Research costs are expensed as incurred.
The useful lives of intangible assets are assessed as either
finite or indefinite. Intangible assets with a finite life are amortized over the estimated useful life. Intangible assets are
amortized on a straight-line basis as follows:
Customer relationships
|
5 years
|
|
|
Technology
|
5 years
|
The amortization period and the amortization method for an intangible
asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life
or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortization
period or method, as appropriate, and are treated as changes in accounting estimates.
(h) Impairment of non-financial assets
The carrying amounts of the Company’s non-financial assets
are reviewed for impairment as at each consolidated statement of financial position date or whenever events or changes in circumstances
indicate that the carrying amount of an asset exceeds its recoverable amount. For the purpose of impairment testing, assets that
cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing
use that are largely independent of the cash inflows of other assets or groups of assets. The recoverable amount of an asset or
a cash-generating unit is the higher of its fair value, less cost to sell, and its value in use. If the carrying amount of an asset
exceeds its recoverable amount, an impairment charge is recognized immediately in profit or loss by the amount by which the carrying
amount of the asset exceeds the recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of the
asset is increased to the lesser of the revised estimate of recoverable amount and the carrying amount that would have been recorded
had no impairment loss been recognized previously.
(i) Leases
At inception of a contract, the Company assesses whether a contract
is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period
of time in exchange for consideration.
The Company recognizes a right-of-use asset and a lease liability
at the lease commencement date. The right-of-use asset is initially measured based on the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate
of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less
any lease incentives received. The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset
or the lease term using the straight-line method as this most closely reflects the expected pattern of consumption of the future
economic benefits. The lease term includes periods covered by an option to extend if the Company is reasonably certain to exercise
that option. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain
remeasurements of the lease liability.
The lease liability is initially measured at the present value
of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or,
if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental
borrowing rate as the discount rate. Variable lease payments that do not depend on an index or rate are not included in the measurement
of the lease liability. The lease liability is measured at amortized cost using the effective interest method. It is remeasured
when there is a change in future lease payments arising from a change in an index or rate, or if the Company changes its assessment
of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a
corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying
amount of the right-of-use asset has been reduced to zero.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
The Company has elected to apply the practical expedient to
account for each lease component and any non-lease components as a single lease component. The Company has also elected to apply
the practical expedient not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term
of 12 months or less and leases of low-value assets.
(j) Share-based compensation
The Company grants stock options to certain employees. When
stock options are exercised, the Company issues new common shares. The consideration received on the exercise of stock options
is credited to share capital at the time of exercise. The Company's stock option compensation plan is described in note 12(c).
Stock options generally vest over three years in a tiered manner and expire after ten years. Each tranche in an award is considered
a separate award with its own vesting period and grant date fair value. Fair value of each tranche is measured at the date of grant
using the Black-Scholes option pricing model. Compensation expense is recognized over the tranche’s vesting period on a straight-line
basis based on the number of awards expected to vest, with a corresponding credit to contributed surplus. The number of awards
expected to vest is reviewed at least annually, with any impact being recognized immediately. The stock options recognized is also
determined based on management’s grant date estimate of the forfeitures that are expected to occur over the life of the stock
options. The number of stock options that actually vest could differ from the estimated number of awards expected to vest and any
differences between the actual and estimated forfeitures are recognized prospectively as they occur.
(k) Income taxes
The income taxes currently payable is based on taxable profit
for the year. Taxable profit differs from “income before income taxes” as reported in the consolidated statement of
loss and comprehensive loss because of items of income or expenses that are taxable or deductible in other years and items that
are never taxable or deductible. The Company’s current income taxes are calculated using tax rates that have been enacted
or substantively enacted by the end of the year.
Deferred income taxes are recognized on temporary differences
between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred income tax liabilities are generally recognized for all taxable temporary differences.
Deferred income tax assets are generally recognized for all deductible temporary differences to the extent that it is probable
that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred income
tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a
business combination) of assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.
In addition, deferred income tax liabilities are not recognized if the temporary difference arises from the initial recognition
of goodwill.
The carrying amount of deferred income tax assets is reviewed
at the end of each year and reduced to the extent that it is no longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered. Deferred income tax liabilities and assets are measured at the tax rates that
are expected to apply in the year in which the liability is settled or the asset realized, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the year.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
The measurement of deferred income tax liabilities and assets
reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the year, to recover
or settle the carrying amount of its assets and liabilities.
Current and deferred income taxes are recognized in profit or
loss, except when they relate to items that are recognized in other comprehensive loss or directly in equity, in which case the
current and deferred income taxes are also recognized in other comprehensive loss or directly in equity, respectively. Where current
income taxes or deferred income taxes arise from the initial accounting for a business combination, the tax effect is included
in the accounting for the business combination.
(l) Government assistance
Government assistance, which mainly consists of refundable investment
tax credits for research and development expenses, is recognized when there is reasonable assurance that the government assistance
will be received, and all attached conditions will be complied with. When the government assistance relates to an expense item,
it is recognized as a reduction in the related expense on a systematic basis over the period necessary to match the government
assistance to the costs it is intended to subsidize.
(m) Financial instruments
Financial assets and financial liabilities are recognized when
the Company becomes a party to the contractual provisions of the instruments.
Financial assets and financial liabilities are initially measured
at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities
(other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the
fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly
attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized
immediately in profit or loss.
Financial assets
The Company initially recognizes financial assets at fair value
on the date at which the Company becomes a party to the contractual provisions of the instrument.
The Company classifies its financial assets on initial recognition
and subsequent measurement as amortized cost, fair value through other comprehensive income (“FVTOCI”), or fair value
through profit or loss (“FVTPL”).
Financial assets are subsequently measured at amortized cost
if both the following conditions are met and they are not designated as FVTPL:
|
●
|
the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and
|
|
●
|
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.
|
These assets are subsequently measured at amortized cost using
the effective interest method and are subject to impairment. Gains and losses are recognized in the statement of loss and comprehensive
loss when the asset is derecognized, modified or impaired.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
The Company derecognizes a financial asset when the contractual
rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial
asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any
interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability.
Financial liabilities
The Company initially recognizes financial liabilities at fair
value on the date at which the Company becomes a party to the contractual provisions of the instrument.
The Company classifies its financial liabilities as either financial
liabilities at amortized cost or FVTPL on initial recognition and subsequent measurement. Financial liabilities are classified
as FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination, (ii) held for trading,
or (iii) it is designated as FVTPL.
Financial liabilities that are not (i) contingent consideration
of an acquirer in a business combination, (ii) held for trading, or (iii) designated as FVTPL are subsequently measured at amortized
cost using the effective interest rate method. Interest paid from these financial liabilities is included in finance costs using
the effective interest rate method.
The Company derecognizes a financial liability when its contractual
obligations are discharged or cancelled or expire.
Financial liabilities and equity instruments
|
●
|
Classification as debt or equity
|
Debt and equity instruments issued by the Company are classified
as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions
of a financial liability and an equity instrument.
An equity instrument is any contract that evidences a residual
interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by a group entity are recognized
at the proceeds received, net of direct issue costs.
Classification of financial instruments
The Company classifies its financial assets and liabilities
depending on the purpose for which the financial instruments were acquired, their characteristics, and management intent as outlined
below:
Cash
|
Fair value through profit and loss
|
Trade and other receivables
|
Amortized cost
|
Other financial assets
|
Fair value through profit and loss
|
Trade and other payables
|
Amortized cost
|
Short-term debt
|
Amortized cost
|
Preferred share liabilities
|
Fair value through profit and loss
|
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
Impairment of financial assets
As the Company’s financial assets are substantially made
up of trade receivables, which are measured at amortized cost, the Company has elected to apply the simplified approach for measuring
the loss allowance at an amount equal to lifetime expected credit losses (“ECL”). ECLs are based on the difference
between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive.
The shortfall is then discounted at an approximation to the asset's original effective interest rate. The Company measures expected
credit loss by considering the risk of default over the contract period and incorporates forward-looking information into its measurement.
An impairment loss is reversed in subsequent periods if the amount of the expected loss decreases and the decrease can be objectively
related to an event occurring after the initial impairment was recognized.
Preferred share liabilities
The preferred share and the warrants issued in 2018 met the
definition of financial liabilities subject to measurement at fair value at each reporting period-end with changes in fair value
to be reflected in the Company’s consolidated statements of loss and comprehensive loss. The Company determined that the
preferred share liabilities did not meet the IFRS definition of equity due to the variability of the conversion ratio to common
shares.
The warrants are convertible into preferred shares which are
a financial liability, therefore, the warrants are measured at financial liability through profit or loss.
(n) New standards adopted in the current period
The Company applied IFRS 16, Leases and IFRIC Interpretation 23,
Uncertainty over Income Tax Treatments for the first-time effective January 1, 2019. The nature and effect of the changes as a
result of adoption of these new accounting standards are described below.
IFRS 16, Leases (“IFRS 16”)
IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of
leases and requires lessees to recognise most leases on the balance sheet.
The Company, as a lessee, has applied IFRS 16 using the modified
retrospective approach and recognized right-of-use assets representing the rights to use the underlying assets, equal to the lease
liabilities representing the obligation to make lease payments effective January 1, 2019. In accordance with the practical expedients
permitted under the standard, comparative information for 2018 has not been restated. In applying IFRS 16 for the first time, the
Company used the following practical expedients permitted by the standard:
|
●
|
Reliance on previous assessments on whether leases are onerous
|
|
●
|
Use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease
|
|
●
|
Account for leases for which the lease term ends within 12 months of the date of initial application as short-term leases
|
|
●
|
Record right-of-use assets based on the corresponding lease liability, with no net impact on deficit
|
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
As a result of the adoption of IFRS 16, the Company recognized
an increase to both assets and liabilities on the consolidated statement of financial position. The Company also recognized a decrease
in general and administrative expenses for the removal of rent expense for operating leases partially offset by accretion of lease
liabilities and an increase in depreciation and amortization related to the right-of-use assets in the consolidated statement of
loss and comprehensive loss. The weighted average incremental borrowing rate applied to the lease liabilities on January 1, 2019
was 6.5%. The following table illustrates the impact of IFRS 16 on the consolidated statements of financial position on the date
of initial application:
|
|
December 31,
2018
|
|
|
Increase January 1,
2019
|
|
Consolidated statement of financial position
|
|
CAD$
|
|
|
CAD$
|
|
|
CAD$
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
1,630,439
|
|
|
|
202,170
|
|
|
|
1,832,609
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
1,672,986
|
|
|
|
383,294
|
|
|
|
2,056,280
|
|
Right-of-use-assets, net
|
|
|
—
|
|
|
|
3,034,001
|
|
|
|
3,034,001
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
—
|
|
|
|
544,822
|
|
|
|
544,822
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease liabilities
|
|
|
—
|
|
|
|
3,419,477
|
|
|
|
3,419,477
|
|
Shareholders’ equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
(7,574,359
|
)
|
|
|
(344,834
|
)
|
|
|
(7,919,193
|
)
|
The adjustments to trade and other receivables and property
and equipment, net relate to tenant inducements.
[ii] IFRIC 23, Uncertainty over Income Tax Treatment (“IFRIC
23”)
In June 2017, the IASB issued IFRIC 23, which clarifies the
accounting for uncertainties in income taxes. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The
requirements are applied by recognizing the cumulative effect of initially applying them in retained earnings, or in other appropriate
components of equity, at the start of the reporting period in which the Company first applies them, without adjusting comparative
information. Full retrospective application is permitted, if the Company can do so without using hindsight. The Company has adopted
the new Interpretation beginning January 1, 2019. The adoption of IFRIC 23 did not have any impact on the Company’s financial
statements.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
4. Trade and other
receivables
The Company’s trade and other receivables include the
following:
|
|
2019
|
|
|
2018
|
|
|
|
CAD$
|
|
|
CAD$
|
|
Trade receivable, net of allowance of $70,953 (2018-$22,348)
|
|
|
921,000
|
|
|
|
1,533,285
|
|
Input tax receivable
|
|
|
—
|
|
|
|
97,154
|
|
Investment tax credit receivable
|
|
|
375,000
|
|
|
|
—
|
|
|
|
|
1,296,000
|
|
|
|
1,630,439
|
|
5. Property and
equipment
|
|
Leasehold
improvements
CAD$
|
|
|
Furniture
and equipment
CAD$
|
|
|
Computer
hardware
CAD$
|
|
|
Total
CAD$
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2017
|
|
|
665,466
|
|
|
|
85,292
|
|
|
|
115,241
|
|
|
|
865,999
|
|
Additions
|
|
|
649,624
|
|
|
|
119,172
|
|
|
|
213,105
|
|
|
|
981,901
|
|
Disposals
|
|
|
—
|
|
|
|
(545
|
)
|
|
|
(10,639
|
)
|
|
|
(11,184
|
)
|
As at December 31, 2018
|
|
|
1,315,090
|
|
|
|
203,919
|
|
|
|
317,707
|
|
|
|
1,836,716
|
|
Impact of IFRS 16 adoption
|
|
|
408,570
|
|
|
|
—
|
|
|
|
—
|
|
|
|
408,570
|
|
Additions
|
|
|
100,167
|
|
|
|
17,183
|
|
|
|
31,143
|
|
|
|
148,493
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,232
|
)
|
|
|
(2,232
|
)
|
As at December 31, 2019
|
|
|
1,823,827
|
|
|
|
221,102
|
|
|
|
346,618
|
|
|
|
2,391,547
|
|
Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2017
|
|
|
—
|
|
|
|
3,627
|
|
|
|
11,139
|
|
|
|
14,766
|
|
Depreciation
|
|
|
44,334
|
|
|
|
29,265
|
|
|
|
76,491
|
|
|
|
150,090
|
|
Disposals
|
|
|
—
|
|
|
|
(38
|
)
|
|
|
(1,088
|
)
|
|
|
(1,126
|
)
|
As at December 31, 2018
|
|
|
44,334
|
|
|
|
32,854
|
|
|
|
86,542
|
|
|
|
163,730
|
|
Impact of IFRS 16 adoption
|
|
|
25,276
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,276
|
|
Depreciation
|
|
|
63,630
|
|
|
|
42,822
|
|
|
|
113,220
|
|
|
|
219,672
|
|
Disposals
|
|
|
—
|
|
|
|
—
|
|
|
|
(996
|
)
|
|
|
(996
|
)
|
As at December 31, 2018
|
|
|
133,240
|
|
|
|
75,676
|
|
|
|
198,766
|
|
|
|
407,682
|
|
Net book value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2018
|
|
|
1,270,756
|
|
|
|
171,065
|
|
|
|
231,165
|
|
|
|
1,672,986
|
|
As at December 31, 2019
|
|
|
1,690,587
|
|
|
|
145,426
|
|
|
|
147,852
|
|
|
|
1,983,865
|
|
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
6. Right-of-use
assets
The Company has lease contracts for office space, vehicles and
equipment with remaining terms up to eight years in length. The following is a summary of the changes in the Company’s right-of-use
assets during the year:
|
|
CAD$
|
|
As at January 1, 2019
|
|
|
3,034,001
|
|
Depreciation
|
|
|
(365,696
|
)
|
As at December 31, 2019
|
|
|
2,668,305
|
|
7. Goodwill and
other intangible assets
The Company’s intangible assets consist of customer relationships
and technology, both of which are being amortized over their useful lives of five years.
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Goodwill
|
|
|
4,542,224
|
|
|
|
4,542,224
|
|
Intangible assets
|
|
|
1,314,597
|
|
|
|
1,646,437
|
|
|
|
|
5,856,821
|
|
|
|
6,188,661
|
|
Intangible assets
|
|
|
|
|
|
CAD$
|
|
|
Cost
|
|
|
|
|
|
|
|
|
As at December 31, 2018
|
|
|
|
|
|
|
1,659,200
|
|
As at December 31, 2019
|
|
|
|
|
|
|
1,659,200
|
|
Accumulated amortization
|
|
|
|
|
|
|
|
|
As at December 31, 2018
|
|
|
|
|
|
|
12,763
|
|
Amortization
|
|
|
|
|
|
|
331,840
|
|
As at December 31, 2019
|
|
|
|
|
|
|
344,603
|
|
Net book value
|
|
|
|
|
|
|
|
|
As at December 31, 2018
|
|
|
|
|
|
|
1,646,437
|
|
As at December 31, 2019
|
|
|
|
|
|
|
1,314,597
|
|
8. Trade and other
payables
The Company’s trade and other payables include the following:
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Trade payables
|
|
|
1,224,789
|
|
|
|
1,190,701
|
|
Sales tax payable
|
|
|
108,240
|
|
|
|
10,159
|
|
|
|
|
1,333,029
|
|
|
|
1,200,860
|
|
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
9. Lease liabilities
The following is a summary of the changes in the Company’s
lease liabilities during the period:
|
|
CAD$
|
|
As at January 1, 2019
|
|
|
3,964,299
|
|
Interest accretion
|
|
|
221,391
|
|
Lease repayments
|
|
|
(544,822
|
)
|
As at December 31, 2019
|
|
|
3,640,868
|
|
Current
|
|
|
544,237
|
|
Non-current
|
|
|
3,096,631
|
|
10. Short-term debt
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Promissory note due in February 2019
|
|
|
—
|
|
|
|
3,601,786
|
|
Short-term debt due in September 2020
|
|
|
2,097,335
|
|
|
|
—
|
|
Short-term debt due in October 2020
|
|
|
2,660,114
|
|
|
|
—
|
|
|
|
|
4,757,449
|
|
|
|
3,601,786
|
|
In December 2018, the Company obtained a promissory note in the
amount of CAD$3,601,786 to finance its acquisition of LCA, payable in 60 days with no interest. In February 2019, the Company paid
this note in full. Due to late payment, CAD$13,254 in interest was incurred and paid.
On February 15, 2019, in order to repay the promissory note for
the acquisition of LCA, the Company entered into a CAD$2,000,000 loan bearing interest of 15% per annum, maturing in six months.
At inception, the Company recognized the loan at its fair value plus transaction costs directly attributable to its issuance of
CAD$87,165. Subsequent to initial recognition, the loan was carried at amortized cost. Financing costs of CAD$87,165 related to
this loan were recorded in the consolidated statement of loss and comprehensive loss for the year ended December 31, 2019.
On September 25, 2019, the loan was amended to extend the maturity
date to September 25, 2020 and the interest rate to 12% per annum. In addition, 600,000 warrants convertible into Class A-3 Preferred
Shares of the Company were issued to the lender (see note 11). On entering into the amended loan, the Company completed an assessment
that showed that the present value of the cash flows under the amended loan facility, including the financing costs and cost of
warrants issued, differed more than 10% from the present value of the remaining cash flows of the loan. The amendment was treated
as an extinguishment of the original loan and the establishment of a new loan at its fair value plus transaction costs of CAD$211,567
directly attributable to its issuance. A loss on extinguishment of CAD$603,660 was recorded within finance costs related to the
amendment. In December 2019, upon announcement of the Akerna Transaction (see note 11), the carrying value of the amended loan
was adjusted for a revised estimate of future expected cash flows discounted over the remaining estimated life of the amended loan.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
On October 1, 2019, the Company entered into a CAD$2,500,000 loan
bearing interest of 12% per annum maturing on October 1, 2020. In addition, 204,000 warrants convertible into Class A-3 Preferred
Shares of the Company were issued to the lender (see note 12). At inception, the Company recognized the loan at its fair value
plus transaction costs directly attributable to its issuance of CAD$246,368. Subsequent to initial recognition, the loan was carried
at amortized cost. In December 2019, upon announcement of the Akerna Transaction (see note 11), the carrying value of the amended
loan was adjusted for a revised estimate of future expected cash flows discounted over the remaining estimated life of the amended
loan.
At December 31, 2019, the Company was in compliance with all
covenants for its short-term debt.
11. Preferred share
liabilities
The following is a summary of the changes in the Company’s
preferred liabilities
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
As at January 1
|
|
|
5,234,811
|
|
|
|
—
|
|
Additions
|
|
|
690,805
|
|
|
|
4,458,811
|
|
Change in fair value of preferred share liabilities
|
|
|
7,710,906
|
|
|
|
776,000
|
|
As at December 31
|
|
|
13,636,522
|
|
|
|
5,234,811
|
|
In June 2018, the Company issued 3,000,000 preferred share units
at CAD$1.50 per unit, consisting of 3,000,000 Class A-1 Preferred Shares and 1,500,000 warrants convertible into Class A-2 Preferred
Shares at an exercise price of CAD$2.25 per share for gross proceeds of CAD$4,500,000. As the Class A-1 Preferred Shares and Class
A-2 Preferred Shares are convertible into a variable number of common shares depending on subsequent issuances of common shares,
these preferred shares and the warrants convertible to the preferred shares are considered financial liabilities. The net proceeds
were allocated to the preferred shares and warrants based on the relative fair value of each instrument.
In October 2019, the Company issued 804,000 warrants convertible
into Class A-3 Preferred Shares at an exercise price of CAD$1.80 to lenders in connection with loans received (see note 10). As
the Class A-3 Preferred Shares are convertible into a variable number of common shares depending on subsequent issuances of common
shares, these preferred shares and the warrants convertible to the preferred shares are considered financial liabilities.
The Company determined that each of the Company’s Class
A-1 Preferred Shares, Class A-2 Preferred Shares and Class A-3 Preferred Shares (collectively the “Class A Preferred Shares”)
and warrants that are convertible into Class A Preferred Shares, did not meet the IFRS definition of equity due to the variability
of the conversion price. Accordingly, the Class A Preferred Shares and the related warrants are treated as financial liabilities
measured at fair value through profit or loss. The fair values of the convertible notes are classified as Level 3 in the fair value
hierarchy.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
In determining the fair values of the warrants issued, the Company
used the Black-Scholes pricing model applying the following inputs:
|
|
October 1,
2019
|
|
|
June 25,
2018
|
|
Risk-free interest rate
|
|
|
1.47
|
%
|
|
|
1.46
|
%
|
Term (years)
|
|
|
3
|
|
|
|
3
|
|
Estimated volatility
|
|
|
70
|
%
|
|
|
70
|
%
|
Expected dividend yield
|
|
|
Nil
|
|
|
|
Nil
|
|
Warrant value
|
|
CAD$
|
0.88
|
|
|
CAD$
|
0.41
|
|
Share price
|
|
CAD$
|
1.61
|
|
|
CAD$
|
1.30
|
|
Exercise price
|
|
CAD$
|
1.20
|
|
|
CAD$
|
2.25
|
|
In December 2019, 1,500,000 warrants convertible into Class
A-2 Preferred Shares were converted into 777,637 Class A-2 Preferred Shares and 492,000 warrants convertible into Class A-3 Preferred
Shares were converted into 283,721 Class A-3 Preferred Shares.
For the year ended December 31, 2019, a CAD$7,710,906 loss on fair
value of preferred share liabilities (2018 – CAD$776,000 loss) was recorded in the statement of loss and comprehensive loss.
12. Share capital
(a) Authorized
The authorized share capital of the Company consists of an unlimited
number of common shares and 5,304,000 Class A Preferred Shares, issuable in series, of which 3,000,000 are designated as Class
A-1 Preferred Shares, 1,500,000 are designated as Class A-2 Preferred Shares and 804,000 are designated as Class A-3 Preferred
Shares.
Class A Preferred Shares are convertible, at the option of the holder,
into a number of fully paid and non-assessable common shares as determined by dividing the original issue price of the series of
Class A Preferred Shares by the then effective conversion price and adjustments to the conversion price in the event the Company
issues additional common shares and amounts less than the original conversion price. The conversion and original issue price is
CAD$1.50 for Class A-1 Preferred Shares, CAD$2.25 for Class A-2 Preferred Shares, and CAD$1.20 for Class A-3 Preferred Shares,
subject to anti-dilution provisions. Preferred shares automatically convert to common shares upon: (i) an amalgamation, arrangement,
consolidation, merger, reorganization or similar transaction of the Company, (ii) the sale, lease, transfer, exclusive license
or disposition of substantially all of the Company’s assets, (iii) the closing of a public offering of the Company’s
common shares provided the offering price per share is not less than CAD$4.50 and aggregate gross proceeds are greater than CAD$20,000,000,
or (iv) the vote of the majority of holders of Class A Preferred Shares to convert.
(b) Issued and outstanding
On February 22, 2019, the Company issued 2,436,207 common share
units at $1.80 per unit, consisting of 2,436,207 common shares and 1,218,100 warrants convertible into common shares at an exercise
price of CAD$2.70 until February 22, 2021. In connection with this transaction, the Company issued 27,698 broker warrants convertible
into common shares at an exercise price of CAD$1.80 until February 22, 2021 and paid CAD$96,278 in transaction costs.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
On April 25, 2019, the Company issued 1,358,052 common share units
at CAD$1.80 per unit, consisting of 1,358,052 common shares and 679,024 warrants convertible into common shares at an exercise
price of CAD$2.70 until April 25, 2021. In connection with this transaction, the Company issued 81,483 broker warrants convertible
into common shares at an exercise price of CAD$1.80 until April 25, 2021 and paid CAD$246,389 in transaction costs.
On May 2, 2019, the Company issued 309,200 common share units at
CAD$1.80 per unit, consisting of 309,200 common shares and 154,600 warrants convertible into common shares at an exercise price
of CAD$2.70 until May 2, 2021. In connection with this transaction, the Company issued 20,000 advisory warrants convertible into
common shares at an exercise price of CAD$1.80 until May 2, 2021 and paid CAD$29,944 in transaction costs.
On May 15, 2019, the Company issued 72,513 common share units at
CAD$1.80 per unit, consisting of 72,513 common shares and 36,256 warrants convertible into common shares at an exercise price of
CAD$2.70 until May 15, 2021. In connection with this transaction, the Company paid CAD$29,944 in transaction costs.
All of the warrants convertible to common shares for these transactions
are convertible into common shares at a 1:1 ratio. The warrants were valued using the Black-Scholes pricing model with the following
inputs:
|
|
2019
|
|
Risk-free interest rate
|
|
|
1.54% – 1.79%
|
|
Term (years)
|
|
|
2
|
|
Volatility
|
|
|
70%
|
|
Dividend yield
|
|
|
Nil
|
|
Warrant value
|
|
|
CAD$0.38 – $0.57
|
|
Share price
|
|
|
$1.61
|
|
Exercise price
|
|
|
CAD$1.80– $2.70
|
|
(c) Employee stock option plan
The Company has an Employee Stock Option Plan (the “Plan”)
that is administered by the Board of Directors of the Company who establishes exercise prices, at not less than market price at
the date of grant, and expiry dates, which have been set at ten years from issuance. Options under the Plan remain exercisable
in increments with 1/4 being exercisable on each of the first and second anniversary and 2/4 being exercisable on the third anniversary
from the date of grant, except as otherwise approved by the Board of Directors. The maximum number of common shares reserved for
issuance for options that may be granted under the Plan is 10% of the common shares outstanding, which amounts to 3,744,762 at
December 31, 2019 (2018 – 3,327,165).
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
The following is a summary of the changes in the Company’s
stock options:
|
|
Number of
options
|
|
|
2019
Average exercise
price per option
|
|
|
Number of
options
|
|
|
2018
Average
exercise
price per option
|
|
Options outstanding, as at January 1
|
|
|
1,070,500
|
|
|
CAD$
|
1.50
|
|
|
|
—
|
|
|
|
|
|
Granted
|
|
|
888,500
|
|
|
CAD$
|
1.80
|
|
|
|
1,180,500
|
|
|
CAD$
|
1.50
|
|
Forfeited
|
|
|
(634,250
|
)
|
|
CAD$
|
1.53
|
|
|
|
(110,000
|
)
|
|
CAD$
|
1.50
|
|
Options outstanding, as at December 31
|
|
|
1,324,750
|
|
|
CAD$
|
1.69
|
|
|
|
1,070,500
|
|
|
CAD$
|
1.50
|
|
Exercisable options, as at December 31
|
|
|
125,438
|
|
|
CAD$
|
1.50
|
|
|
|
—
|
|
|
|
|
|
The weighted average remaining contractual life per option outstanding
as of December 31, 2019 was 9.1 years (2018 – 9.6 years).
The Company recorded CAD$415,096 (2018 – CAD$260,970) in share-based
compensation expense related to options, which are measured at the fair value at the date of grant and expensed over the option’s
vesting period.
In determining the amount of share-based compensation, the Company
used the Black-Scholes option pricing model to establish the fair value of options granted during the years ended December 31,
2019 and 2018 by applying the following assumptions:
|
|
2019
|
|
|
2018
|
|
Risk-free interest rate
|
|
|
1.49% – 1.76%
|
|
|
|
1.46
|
%
|
Expected life of options (years)
|
|
|
10
|
|
|
|
10
|
|
Estimated volatility
|
|
|
70
|
%
|
|
|
70
|
%
|
Expected dividend yield
|
|
|
Nil
|
|
|
|
Nil
|
|
Weighted average Black-Scholes option pricing model value of each option
|
|
CAD$
|
1.19
|
|
|
CAD$
|
1.13
|
|
Share price
|
|
CAD$
|
1.61
|
|
|
CAD$
|
1.50
|
|
13. Income taxes
A reconciliation of income taxes at statutory rates to actual
income taxes are as follows:
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Loss before income taxes
|
|
|
(18,307,780
|
)
|
|
|
(6,696,371
|
)
|
Statutory federal and provincial tax rate
|
|
|
26.5
|
%
|
|
|
26.5
|
%
|
Income tax recovery at the statutory tax rate
|
|
|
(4,851,562
|
)
|
|
|
(1,774,538
|
)
|
Permanent differences
|
|
|
2,623,756
|
|
|
|
317,905
|
|
Deferred income tax asset not recognized
|
|
|
2,227,806
|
|
|
|
1,456,633
|
|
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
Deferred income tax assets have not been recognized in respect
of tax losses, because it is not probable that future taxable profit will be available against which the Company can utilize the
benefits therefrom.
As at December 31, 2019, The Company’s estimated non-capital
losses that can be applied against future taxable profit amount to CAD$15,446,541. These non-capital losses expire in the years
ended:
|
|
CAD$
|
|
2035
|
|
|
111,000
|
|
2036
|
|
|
469,000
|
|
2037
|
|
|
963,000
|
|
2038
|
|
|
5,496,728
|
|
2039
|
|
|
8,406,813
|
|
|
|
|
15,446,541
|
|
14. Expenses by
nature
Components of general and administrative expenses, sales and
marketing and research and development expenses for the year ended December 31, 2019 were as follows:
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Salaries and wages
|
|
|
5,676,760
|
|
|
|
5,342,674
|
|
Professional fees (include outsourced software development)
|
|
|
4,064,498
|
|
|
|
2,444,456
|
|
Other
|
|
|
811,205
|
|
|
|
854,908
|
|
|
|
|
10,552,463
|
|
|
|
8,642,038
|
|
The salaries and wages for research and development are presented
net of CAD$375,000 investment tax credit expected and CAD$366,280 grant received for research and development activities conducted in
2019 (see note 4).
15. Commitments
and contingencies
In the ordinary course of business, from time to time, the Company
is involved in various claims related to operations, rights, commercial, employment or other claims. Although such matters cannot
be predicted with certainty, management does not consider the Company’s exposure to these claims to be material to these
financial statements.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
16. Acquisition
of LCA
On December 14, 2018, the Company completed the acquisition of Last
Call Analytics Inc. (“LCA”), an alcohol and beverage data analytics company. The total consideration paid was CAD$5,837,896,
consisting of CAD$2,236,110 in the Company’s common shares, valued at $1.61 per share, based on the fair value of the common
shares at the date of acquisition, and CAD$3,601,786 in promissory notes. There were no changes to the preliminary fair values
of the assets acquired and liabilities assumed of the acquisition of LCA presented in the 2018 Annual Consolidated Financial Statements
as follows:
|
|
CAD$
|
|
Purchase price
|
|
|
5,837,896
|
|
Assets acquired:
|
|
|
|
|
Net working capital
|
|
|
51,924
|
|
Cash acquired
|
|
|
24,236
|
|
Intangible assets
|
|
|
1,659,200
|
|
Goodwill
|
|
|
4,542,204
|
|
Deferred tax liability
|
|
|
(439,668
|
)
|
Total assets
|
|
|
5,837,896
|
|
17. Related party transactions
Key management personnel are those persons having the authority
and responsibility for planning, directing and controlling activities of the entity, directly or indirectly, including the Chief
Executive Officer, Chief Financial Officer, Chief Operating Officer, Chief Technology Officer and equivalent, and Directors.
Compensation expense for the Company’s key management
personnel are as follows:
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Salaries and benefits
|
|
|
689,903
|
|
|
|
624,347
|
|
Share-based compensation
|
|
|
145,583
|
|
|
|
90,625
|
|
|
|
|
835,486
|
|
|
|
714,972
|
|
18. Capital management
Ample Organics is an early stage company that is dependent on
raising further capital to fund its capital and operating expenses in excess of revenue until such time that it reaches cash break-even.
The Company’s capital structure as at December 31, 2019 primarily consists of shareholders’ equity from common shares
and warrants, preferred share liabilities from preferred shares and warrants for preferred shares, and short-term debt.
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
On December 18, 2019, the Company entered into a definitive agreement
to be acquired by Akerna Corp. (“Akerna”) whereby Akerna will acquire all issued and outstanding shares of the Company
for up to CAD$60 million (US$45 million) (the “Akerna Transaction”). The purchase consideration consists of CAD$7.5
million in cash (US$5.7 million) and CAD$42.5 million (US$32.3 million) in Akerna shares on close, as well as contingent consideration
of up to CAD$10 million (US$7.6 million) in deferred share-based consideration upon the Company’s achievement of certain
revenue targets in 2020. The transaction is expected to close in mid-2020. The Company expects the Akerna Transaction to provide
sufficient funding to meet its objectives stated above.
In the event that the Akerna Transaction does not close, the Company
is dependent on raising further capital in the form of equity, debt, or instruments convertible into equity to fund its capital
and operating expenses in excess of revenue until such time that it reaches cash break-even. While the Company raised CAD$4,500,000
in gross proceeds for short-term debt and CAD$7,516,750 in gross proceeds for common shares as well as warrants for common shares
and preferred shares during the year ended December 31, 2019, there can be no assurance that the Company will be successful in
raising additional funds in the future.
19. Financial instruments
and risk management
Credit risk
Credit risk is the risk of financial loss to the Company if
a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from deposits
with banks and outstanding receivables. The Company trades only with recognized, creditworthy third parties. The Company performs
credit checks for all customers who wish to trade on credit terms. As at December 31, 2019, no customers represented greater than
10% of the outstanding receivable balance (2018 – one customer represented 10%).
The Company does not hold any collateral as security, but mitigates
this risk by dealing only with what management believes to be financially sound counterparties and, accordingly, does not anticipate
significant loss for non-performance.
The aging of trade receivables is as follows:
|
|
2019
CAD$
|
|
|
2018
CAD$
|
|
Current
|
|
|
626,262
|
|
|
|
1,373,663
|
|
1 to 30 days
|
|
|
206,074
|
|
|
|
57,777
|
|
30 to 60 days
|
|
|
22,130
|
|
|
|
9,369
|
|
> 60 days
|
|
|
137,487
|
|
|
|
114,824
|
|
Total gross trade receivables
|
|
|
991,953
|
|
|
|
1,555,633
|
|
Less allowance for doubtful accounts
|
|
|
70,953
|
|
|
|
22,348
|
|
Total trade receivables, net
|
|
|
921,000
|
|
|
|
1,533,285
|
|
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
Liquidity risk
Liquidity risk is the risk that the Company will not be able
to meet its financial obligations as they become due. The Company’s exposure to liquidity risk is dependent on the Company’s
ability to raise additional financing to meet its commitments and sustain operations. The Company mitigates liquidity risk through
management of working capital, cash flows and the issuance of share capital.
Market risk
Market risk is the risk that the fair value or future cash flows
of a financial instrument will fluctuate because of changes in market prices. Market risk comprises three types of risk: currency
risk, interest rate risk and other price risk.
Currency risk
Currency risk is the risk to the Company’s earnings that
arise from fluctuations of foreign exchange rates. The Company is not exposed to foreign currency exchange risk as it has minimal
financial instruments denominated in foreign currencies. Substantially all of the Company’s transactions are in Canadian
dollars, which is the Company’s functional currency.
Interest rate risk
Interest rate risk is the risk that the fair value or future
cash flows of a financial instrument will fluctuate because of changes in market interest rates. Given that the Company holds short-term
debt at fixed interest rates, it is not exposed to interest rate risk as at December 31, 2019.
Other price risk
Other price risk is the risk that the fair value or future cash
flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate
risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer,
or factors affecting all similar financial instruments traded in the market. The Company is not exposed to significant other price
risks as at December 31, 2019.
Fair values
The carrying values of cash, trade and other receivables, and
trade and other payables approximate their fair values due to the short-term nature of these items. The risk of material change
in fair value is not considered to be significant due to a relatively short-term nature. The Company does not use derivative financial
instruments to manage this risk.
Financial instruments recorded at fair value on the consolidated
statement of financial position are classified using a fair value hierarchy that reflects the significance of the inputs used in
making the measurements. The Company categorizes its fair value measurements according to a three-level hierarchy. The hierarchy
prioritizes the inputs used by the Company’s valuation techniques. A level is assigned to each fair value measurement based
on the lowest level input significant to the fair value measurement in its entirety. The three levels of the fair value hierarchy
are defined as follows:
|
●
|
Level 1 – Unadjusted quoted prices as at the measurement date for identical assets or liabilities in active markets.
|
Ample Organics Inc.
Notes to
consolidated financial statements
(Expressed in Canadian dollars, except share amounts)
(unaudited)
December 31, 2019
|
●
|
Level 2 – Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
|
|
●
|
Level 3 – Significant unobservable inputs that are supported by little or no market activity. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
|
The fair value hierarchy requires the use of observable market
inputs whenever such inputs exist. A financial instrument is classified to the lowest level of the hierarchy for which a significant
input has been considered in measuring fair value.
The fair value hierarchy for the Company’s financial instruments
measured at fair value are as follows:
|
|
Level 1
CAD$
|
|
|
Level 2
CAD$
|
|
|
Level 3
CAD$
|
|
|
Total
CAD$
|
|
Preferred share liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
As at December 31, 2018
|
|
|
—
|
|
|
|
5,234,811
|
|
|
|
—
|
|
|
|
5,234,811
|
|
As at December 31, 2019
|
|
|
—
|
|
|
|
13,636,522
|
|
|
|
—
|
|
|
|
13,636,522
|
|
The fair values of the Company’s preferred share liabilities
as at December 31, 2019 was determined using the purchase price of the Akerna Transaction.
There were no transfers between fair value measurement hierarchy
levels during the year ended December 31, 2019.
SOLO SCIENCES, INC.
Balance Sheets
(Unaudited)
|
|
As of
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
101,341
|
|
|
$
|
76,608
|
|
Restricted cash
|
|
|
124,970
|
|
|
|
—
|
|
Accounts receivable
|
|
|
73,048
|
|
|
|
299
|
|
Prepaid expenses
|
|
|
22,135
|
|
|
|
38,105
|
|
Total current assets
|
|
|
321,494
|
|
|
|
115,012
|
|
Fixed assets, net
|
|
|
2,954,870
|
|
|
|
777,496
|
|
Intangible assets, net
|
|
|
3,184,000
|
|
|
|
3,184,000
|
|
Total assets
|
|
$
|
6,460,364
|
|
|
$
|
4,076,508
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
197,320
|
|
|
$
|
31,067
|
|
Accrued expenses
|
|
|
243,174
|
|
|
|
—
|
|
Total current liabilities
|
|
|
440,494
|
|
|
|
31,067
|
|
Deferred purchase price
|
|
|
3,000,000
|
|
|
|
3,000,000
|
|
Total liabilities
|
|
|
3,440,494
|
|
|
|
3,031,067
|
|
Commitments and Contingencies (Note 7)
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
|
|
|
|
|
|
Preferred Stock AA, par value $.00001; 10,000,00 and 10,000,000 shares authorized at December 31, 2019 and 2018; and 4,322,188 and 1,738,688 shares issued and outstanding at December 31, 2019 and 2018, respectively
|
|
|
3,457,690
|
|
|
|
1,390,950
|
|
Common stock, par value $0.00001, 20,000,000 and 20,000,000 shares authorized and 10,000,000 and 6,380,000 issued and outstanding as of December 31, 2019 and 2018, respectively
|
|
|
100
|
|
|
|
64
|
|
Additional paid-in capital
|
|
|
5,664,723
|
|
|
|
1,066,949
|
|
Accumulated deficit
|
|
|
(6,102,643
|
)
|
|
|
(1,412,522
|
)
|
Total stockholders’ equity
|
|
|
3,019,870
|
|
|
|
1,045,441
|
|
Total liabilities and stockholders’ equity
|
|
$
|
6,460,364
|
|
|
$
|
4,076,508
|
|
The accompanying notes are an integral
part of these financial statements
SOLO SCIENCES, INC.
Statements of Operations
(Unaudited)
|
|
For the Year Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Revenues
|
|
|
|
|
|
|
Tag sales
|
|
$
|
90,000
|
|
|
$
|
—
|
|
Certificate sales
|
|
|
13,250
|
|
|
|
—
|
|
Membership application fees
|
|
|
1,520
|
|
|
|
299
|
|
Total revenues
|
|
|
104,770
|
|
|
|
299
|
|
Cost of revenues
|
|
|
4,234
|
|
|
|
—
|
|
Gross profit
|
|
|
100,536
|
|
|
|
299
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
Product development
|
|
|
49,975
|
|
|
|
27,000
|
|
Selling, general and administrative
|
|
|
4,745,551
|
|
|
|
1,389,019
|
|
Total operating expenses
|
|
|
4,795,526
|
|
|
|
1,413,019
|
|
Loss from operations
|
|
|
(4,694,990
|
)
|
|
|
(1,412,720
|
)
|
Other income
|
|
|
|
|
|
|
|
|
Interest
|
|
|
4,869
|
|
|
|
198
|
|
Total other income
|
|
|
4,869
|
|
|
|
198
|
|
Net loss
|
|
$
|
(4,690,121
|
)
|
|
$
|
(1,412,522
|
)
|
The accompanying notes are an integral
part of these financial statements
SOLO SCIENCES, INC.
Statements of Changes in Stockholders’
Equity
For the years ended December 31, 2019
and 2018
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
|
|
Common Stock
|
|
|
Preferred Stock
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Shares
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance at December 31, 2017
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Common shares issued
|
|
|
6,150,000
|
|
|
|
62
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(62
|
)
|
|
|
—
|
|
|
|
—
|
|
Common shares issued to acquire intangible assets
|
|
|
230,000
|
|
|
|
2
|
|
|
|
—
|
|
|
|
—
|
|
|
|
183,998
|
|
|
|
—
|
|
|
|
184,000
|
|
Series AA Preferred shares issued
|
|
|
—
|
|
|
|
—
|
|
|
|
1,738,688
|
|
|
|
1,390,950
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,390,950
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
883,013
|
|
|
|
—
|
|
|
|
883,013
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,412,522
|
)
|
|
|
(1,412,522
|
)
|
Balance at December 31, 2018
|
|
|
6,380,000
|
|
|
|
64
|
|
|
|
1,738,688
|
|
|
|
1,390,950
|
|
|
|
1,066,949
|
|
|
|
(1,412,522
|
)
|
|
|
1,045,441
|
|
Common shares issued upon vesting of restricted stock
|
|
|
3,620,000
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(36
|
)
|
|
|
—
|
|
|
|
—
|
|
Series AA Preferred shares issued
|
|
|
—
|
|
|
|
—
|
|
|
|
2,583,500
|
|
|
|
2,066,800
|
|
|
|
—
|
|
|
|
|
|
|
|
2,066,800
|
|
Stock-based compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,597,750
|
|
|
|
—
|
|
|
|
4,597,750
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(4,690,121
|
)
|
|
|
(4,690,121
|
)
|
Balance at December 31, 2019
|
|
|
10,000,000
|
|
|
$
|
100
|
|
|
|
4,322,188
|
|
|
$
|
3,457,750
|
|
|
|
5,664,663
|
|
|
$
|
(6,102,643
|
)
|
|
$
|
3,019,870
|
|
The accompanying notes are an integral
part of these financial statements
SOLO SCIENCES, INC.
Statements of Cash Flows
(Unaudited)
|
|
For the Year Ended
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,690,121
|
)
|
|
$
|
(1,412,522
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
454,970
|
|
|
|
249,468
|
|
Stock-based compensation expense
|
|
|
3,244,708
|
|
|
|
582,501
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(72,749
|
)
|
|
|
(299
|
)
|
Prepaid expenses
|
|
|
15,970
|
|
|
|
(38,105
|
)
|
Accounts payable
|
|
|
166,253
|
|
|
|
31,067
|
|
Accrued expenses
|
|
|
243,174
|
|
|
|
—
|
|
Net cash used in operating activities
|
|
|
(637,795
|
)
|
|
|
(587,890
|
)
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of fixed assets
|
|
|
—
|
|
|
|
(46,228
|
)
|
Software development
|
|
|
(1,279,302
|
)
|
|
|
(680,224
|
)
|
Net cash used in investing activities
|
|
|
(1,279,302
|
)
|
|
|
(726,452
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Cash received in connection with issuance of shares
|
|
|
2,066,800
|
|
|
|
1,390,950
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
2,066,800
|
|
|
|
1,390,950
|
|
Net increase in cash and cash equivalents
|
|
|
149,703
|
|
|
|
76,608
|
|
Cash and cash equivalents, cash equivalents, and restricted cash at beginning of year
|
|
|
76,608
|
|
|
|
—
|
|
Cash and cash equivalents, cash equivalents, and restricted cash at end of year
|
|
$
|
226,311
|
|
|
$
|
76,608
|
|
Supplemental disclosures of noncash investing and financing activities:
|
|
|
|
|
|
|
|
|
Share based compensation for software development
|
|
$
|
1,353,042
|
|
|
$
|
300,512
|
|
Common stock issued to acquire intangible assets
|
|
$
|
—
|
|
|
$
|
184,000
|
|
Deferred purchase obligation for intangible assets acquired
|
|
$
|
—
|
|
|
$
|
3,000,000
|
|
The accompanying notes are an integral
part of these financial statements
SOLO SCIENCES, INC.
Notes to Financial Statements
(Unaudited)
Note 1 - Description of Business,
Liquidity and Capital Resources
Description of Business
Solo Sciences, Inc. (the “Company” or “Solo”) matches
product to demand, helping companies and consumers transact with transparency. The Company holds patented anti-counterfeiting and
consumer engagement technologies. The Company’s technology platform drives consumer safety through its anti-counterfeiting
technology and alert functionality. Manufacturers who use the Company’s proprietary graphic trust mark on their product packaging
enable consumers to scan products with the Company’s phone application to determine if a product is real or counterfeit and
receive real-time notifications to determine if a product is real or fake, providing detailed product information and promoting
loyalty for brands and manufacturers.
Liquidity and Capital Resources
Since its inception in 2018, the Company has incurred recurring
operating losses, has not generated cash from operations and has relied on capital raising transactions to continue ongoing operations.
However, based on the funds the Company has available as of the date these financial statements, the Company believes that
it has access to sufficient capital to fund its anticipated operating expenses for at least next twelve months from the date these
financial statements are issued. Please see additional discussion in Note 2.
Note 2 - Summary of Significant Accounting Policies
Basis of presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles in the United States, (“GAAP”).
Need for Additional Capital
The Company has incurred operating losses and has an accumulated
deficit as a result of providing product development and general and administrative support for these operations. The Company had
an accumulated deficit of $6.1 million as of December 31, 2019. During the year ended December 31, 2019, the Company incurred a
net loss of $4.7 million and used $0.6 million of cash in operating activities and generated revenue from customers of $0.1 million.
The Company has financed its operations primarily through private placements of preferred stock and will continue to be dependent
upon equity or debt financing until it is able to generate cash flows from its operations.
The Company had cash, cash equivalents of $0.1 million as of
December 31, 2019. The Company has evaluated this and the factors described below and concluded that when considered in the aggregate,
these raise substantial doubt about the Company’s ability to continue as a going concern for a period of 12 months following
the date that these financial statements are issued. Management expects operating losses to continue for the foreseeable future.
As a result, the Company will need to raise additional capital. If sufficient funds on acceptable terms are not available when
needed, the Company could be required to significantly reduce its operating expenses and delay, reduce the scope of, or eliminate
one or more of its development programs. Failure to manage discretionary spending or raise additional financing, as needed, may
adversely impact the Company’s ability to achieve its intended business objectives.
SOLO SCIENCES, INC.
Notes to Financial Statements
(Unaudited)
Use of estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Significant estimates for the years ended December 31, 2019 and 2018 were the Company’s the
estimated useful lives of long-lived assets and value of stock-based compensation. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid instruments purchased
with an original maturity of three months or less to be cash equivalents. There were no cash equivalents as of December 31, 2019
and 2018. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which
it invests. As of the balance sheet dates, and periodically throughout the year, the Company has maintained balances in various
operating accounts in excess of federally insured limits. The Company has not experienced any losses on such accounts.
Restricted Cash
Restricted cash and restricted cash equivalents are recorded at
fair value and consist of cash.
Prepaid Expenses
Prepaid expenses consist primarily of third-party technology
and software used by in the Company in its day-to-day operations paid in advance. (See Note 3).
Accounts Receivable, Net
The Company provides an allowance for doubtful accounts equal
to the estimated uncollectible amounts. The Company’s estimate is based on historical collection experience and a review
of the current status of trade accounts receivable. It is reasonably possible that the Company’s estimate of the allowance
for doubtful accounts will change and that losses ultimately incurred could differ materially from the amounts estimated in determining
the allowance. The Company did not record an allowance for doubtful accounts as of December 31, 2019 or 2018.
Concentrations of Credit Risk
The Company grants credit in the normal course of business to
customers in the United States. The Company periodically performs credit analysis and monitors the financial condition of its customers
to reduce credit risk.
During the year ended December 31, 2019, one customer accounted
for 82% of total revenues. At December 31, 2019, two customers accounted for 82% and 17% of net accounts receivable, respectively.
During the year ended December 31, 2018, the Company did not have significant operations.
Intangible Assets
Finite-lived intangible assets resulting from the acquisition
of intellectual property, trademarks and patents are recorded at the estimated fair value on the date of acquisition. The fair
value of acquired intangible assets is determined using appropriate valuation techniques. Amortization expense is computed using
the straight-line basis of accounting over their estimated useful lives. Costs incurred to renew or extend the term of recognized
intangible assets are capitalized and amortized over the estimated useful life of the asset.
SOLO SCIENCES, INC.
Notes to Financial Statements
(Unaudited)
Fixed Assets
Fixed assets are stated at cost. Depreciation is provided utilizing
the straight-line method over the estimated useful lives for owned assets, ranging from three to ten years The Company’s
purchases of property and equipment have historically been immaterial.
Impairment of Long-Lived Assets
Long-lived assets, other than goodwill, are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and are grouped
with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups
of assets and liabilities. If the sum of the projected undiscounted cash flow (excluding interest charges) is less than the carrying
value of the assets, the assets will be written down to the estimated fair value and such loss is recognized in income from continuing
operations in the period in which the determination is made. The Company has not recognized any long-lived asset impairment losses
for the period ended December 31, 2019.
Fair Value of Financial Instruments
The carrying amounts of financial instruments, including cash,
restricted cash, accounts receivable, prepaid expenses, accounts payable and accrued liabilities approximated their fair value
as of December 31, 2019 and 2018 because of the relatively short-term nature of these instruments. The Company accounts for fair
value measurements in accordance with GAAP, which defines fair value, establishes a framework for measuring fair value and expands
disclosures about fair value measurements.
GAAP establishes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level
3 measurements). The three levels of the fair value hierarchy under GAAP are described below:
Level 1: Unadjusted quoted prices
in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Applies to assets or liabilities
for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such
as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets
with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs
are observable or can be derived principally from, or corroborated by, observable market data.
Level 3: Prices or valuation techniques
that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market
activity).
Software Development Costs
Costs incurred in the application development stage are subject
to capitalization and subsequent amortization and impairment. Application development stage costs were $2.6 million and $1.0 million
during the years ended December 31, 2019 and 2018, respectively. Product development costs are primarily comprised of personnel
costs incurred related to activities for evaluating future changes to the software, testing, bug fixes, and other maintenance activities.
Product development costs are expensed as incurred.
Revenue Recognition
The Company recognizes revenue when its customer obtains control
of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for
those goods or services. To determine revenue recognition contracts with its customers, the Company performs the following five
step assessment: (i) identify the contract or contracts with a customer; (ii) identify the performance obligations in each contract;
(iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and
(v) recognize revenue when, or as, the entity satisfies a performance obligation. The Company only applies the five-step model
to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or
services it transfers to the customer. At contract inception and once the contract is determined to be a contract with a customer,
the Company assesses the goods or services promised within each contract, determines which goods and services are performance obligations,
and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction
price that is allocated to the respective performance obligation when, or as, the performance obligation is satisfied.
SOLO SCIENCES, INC.
Notes to Financial Statements
(Unaudited)
Income Taxes
Income taxes are accounted for using the asset and liability
method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of other assets and liabilities. The Company provides for income taxes
at the current and future enacted tax rates and laws applicable in each taxing jurisdiction. The Company uses a two-step approach
for recognizing and measuring tax benefits taken or expected to be taken in a tax return and disclosures regarding uncertainties
in income tax positions. The Company recognizes interest and penalties related to income tax matters in selling, general, and administrative
expense in the statement of operations.
The Company recognizes deferred tax assets to the extent that
its assets are more likely than not to be realized. In making such a determination, the Company considers all available positive
and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax
planning strategies, and results of recent operations. If the Company determines that it would be able to realize its deferred
tax assets in the future in excess of their net recorded amount, it will make an adjustment to the deferred tax asset valuation
allowance, which would reduce the provision for income taxes. The Company has recorded a full valuation allowance against its deferred
tax assets as of December 31, 2019 and 2018.
Non-Employee Stock-Based Compensation
The Company makes share based payments to non-employees in exchange
for goods and services rendered. These transactions are accounted for based on the fair value of the consideration received or
the fair value of the shares issued, whichever is more reliably measurable. Generally, the fair value of the shares will be used.
For transactions that require continued service are typically measured upon completion of the requisite service, prior to completion
of the service, the Company records estimated costs based on the percentage of the service completed and value of shares expected
to be transferred at their fair value on the reporting date.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”)
issued guidance for measuring credit losses on financial instruments. Among other things, this guidance will require the measurement
of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions,
and reasonable and supportable forecasts. Businesses will now use forward-looking information to better inform their credit loss
estimates. The new guidance is effective for the Company beginning January 1, 2021. The Company is evaluating the impact of adoption
of the new standard on its financial statements.
In November 2016, the FASB issued guidance requires that the
statements of cash flows explain the change during the reporting period of the totals of cash, cash equivalents, restricted cash
and restricted cash equivalents. Therefore, amounts for restricted cash and restricted cash equivalents are to be included with
cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the Statements of cash
flows. The Company adopted this guidance during fiscal 2019.
In June 2018, the FASB issued new guidance for stock-based compensation
paid to nonemployees. The new guidance conforms the measurement of stock-based compensation for both employees and nonemployees.
This guidance is effective for the Company on January 1, 2020 and will result in measurement of stock-based compensation paid to
nonemployees for services to be provided over a period of time as of the date of the agreement. The Company currently measures
the value of shares transferred upon completion of the service requirement, had this new guidance been effective in 2019, the Company’s
net loss would have been $1.8 million less than as reported.
SOLO SCIENCES, INC.
Notes to Financial Statements
(Unaudited)
In August 2018, the FASB issued new guidance for implementation
costs incurred by customers in cloud computing arrangements, which broadens the scope of existing guidance applicable to internal-use
software development costs. The update requires costs to be capitalized or expensed based on the nature of the costs and the project
stage in which they are incurred subject to amortization and impairment guidance consistent with existing internal-use software
development cost guidance. The guidance is applicable for the Company beginning January 1, 2020. The Company is evaluating the
impact of adoption of the new standard on its financial statements.
Note 3 - Balance Sheet Disclosures
Fixed assets consist of the following:
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Web application
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Computer equipment
|
|
|
6,228
|
|
|
|
6,228
|
|
Artwork
|
|
|
15,000
|
|
|
|
15,000
|
|
Capitalized software development
|
|
|
3,613,080
|
|
|
|
980,736
|
|
|
|
|
3,659,308
|
|
|
|
1026,964
|
|
Less accumulated depreciation
|
|
|
(704,438
|
)
|
|
|
(249,468
|
)
|
|
|
$
|
2,954,870
|
|
|
$
|
777,496
|
|
Depreciation expense for the year ended
December 31, 2019 and 2018 was $3,576 and $2,867.
Prepaid expenses consist of the following:
|
|
As of December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
$
|
|
|
|
$
|
|
|
Software license
|
|
|
22,135
|
|
|
|
24,105
|
|
Contractor services
|
|
|
-
|
|
|
|
14,000
|
|
|
|
$
|
22,135
|
|
|
$
|
38,105
|
|
SOLO SCIENCES, INC.
Notes to Financial Statements
(Unaudited)
Note 4 – Acquisition
On February 2, 2018, the Company entered into an intellectual
property purchase agreement for intellectual property assets, trademarks and domain names owned by Get Solo, LLC. At closing, the
Company exchanged 230,000 shares of common stock for the worldwide rights to the intellectual property. In addition to the shares
the agreement provides for deferred purchase payments in two tranches, first, following a qualified financing transaction within
180 days of closing, the Company was required to pay $1.0 million in cash or shares of common stock; second on or prior to the
fifth anniversary of closing, the Company was required to pay $2.0 million, or $3.0 million if a qualified financing transaction
did not occur, also in cash or shares of common stock at the Company’s option. The qualified financing did not occur during
2018, therefore the deferred purchase price liability as of December 31, 2019 and 2018 was $3.0 million. Subsequent to year end,
the Company’s shareholders sold 80.4% of their interests in the Company to Akerna Corp. (“Akerna”), as further
discussed in Note 8. In connection with this transaction, Akerna issued 375,000 shares of common stock, contractually valued at
$8 per share to Get Solo in full satisfaction of the deferred purchase price liability.
Note 5- Stockholders’ Equity
The Company’s equity structure includes common and preferred
shares.
The different classes of shares carry different transfer rights
and distribution rights as described in the Company’s articles of association. Transfer of the preferred shares is conditioned
on obtaining written approval from the Company.
Voting
Preferred shares and common shares vote as a single class. Each
holder of the preferred stock is entitled to the number of votes equal to the number of shares that the preferred shares may be
converted. The conversion price is $0.80 per share.
Dividends
The preferred shareholders are entitled to dividends out of
asset legally available in preference to common shareholders at $0.48 per share when and if declared by the board of directors
of the Company. Dividends are not cumulative.
Liquidation
In the event of liquidation, dissolution or windup, the preferred
shareholders are entitled to receive the amount equal to the conversion price of $0.80 per share. In the event the legally assets
of the Company are insufficient, then the asset will be distributed pro rata based on the amount the preferred shareholders’
are entitled.
Conversion
Each share of preferred stock may be converted at any time at
the option of the holder at the conversion rate. Each share of preferred stock is automatically converted immediately prior to
a firm commitment of an initial public offering or a written request from 60% of the preferred stock shareholder then outstanding.
SOLO SCIENCES, INC.
Notes to Financial Statements
(Unaudited)
Note 6 - Commitments and Contingencies
Litigation
From time to time, the Company may be involved in litigation
relating to claims arising out of its operations in the normal course of business. The Company will accrue a liability for such
matters when it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of
possible loss can be established, the most probable amount in the range is accrued. If no amount within this range is a better
estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss
contingency might include, for example, estimates of potential damages, outside legal fees and other directly related costs expected
to be incurred. As of December 31, 2019, and through the date these financial statements were issued, there were no legal proceedings
requiring recognition or disclosure in the financial statements.
Note 7 – Stock-Based Compensation
From time to time, the Company grants stock-based payments to
nonemployee contractors. The Company may grant both restricted stock awards and stock options.
During the year ended December 31, 2018, the Company granted
3.6 million restricted stock awards to nonemployees. These awards have a three-year vesting period, with one-third vesting after
twelve months and the remainder vesting ratably over the remaining twenty-four-month period. There were no restricted stock awards
granted in 2019. During the year ended December 31, 2019, the Company’s directors accelerated vesting of these awards, as
a result the nonemployees had fulfilled their service requirements and the Company recognized stock-based compensation costs of
$4.5 million, of which $0.6 million was capitalized as software development costs. During the year ended December 31, 2018, the
Company recognized stock-based compensation costs related to these awards of $0.9 million, of which $0.3 million was capitalized
as software development costs.
During the years ended December 31, 2019 and 2018, the Company
granted 237,000 and 256,000 stock options, respectively, to nonemployees. These awards have a three-year vesting period, one-third
vests after 12 months and the remainder vest ratably over the remaining twenty-four-month period. The Company recognized stock-based
compensation costs related to these options of $0.1 million during the year ended December 31, 2019 and a nominal amount during
the year ended December 31, 2018.
Note 8 - Subsequent Events
The Company has evaluated subsequent events for financial statement
purposes occurring through March 26, 2020, the date these financial statements were ready to be issued.
On January 15, 2020, the Company’s shareholders sold 80.4%
of their interests to Akerna in exchange for shares of Akerna’s common stock. Pursuant to the agreement, Akerna will provide
$2.4 million of additional capital infusion to the Company during the 12 months following the closing date. Akerna has a 12-month
option to acquire the remaining 19.6% interest in the Company. If Akerna does not exercise this option, the shareholders have a
three-month option to repurchase between 40% and 55% of the interest in the Company. Immediately prior to the transaction, the
Company’s directors elected to accelerate the vesting of all unvested stock options issued to nonemployees effected a cashless
exercise of these options, resulting in the issuance of 178,124 common shares.
Annex A
ARRANGEMENT
AGREEMENT
AMONG
AKERNA
CORP.
AND
2732805
Ontario INC.
AND
ample
organics inc.
AND
john
prentice, solely in its capacity as shareholder representative
Dated
as of DECEMBER 18, 2019
TABLE
OF CONTENTS
SCHEDULES
Schedule “A” – Arrangement Resolution
Schedule “B” – Plan of Arrangement
Schedule “C” – Form of Exchangeable Share Support Agreement
Schedule “D” – Form of Escrow Agreement
Schedule “E” – Form of Voting and Exchange Trust Agreement
Schedule “F” – Form of Rights Indenture
Schedule “G” – Form of Ample Shareholder Support Agreement
Schedule “H” – Form of Akerna Shareholder Support Agreement
Schedule “I” – Exchangeable Share Provisions
ARRANGEMENT
AGREEMENT
THIS
ARRANGEMENT AGREEMENT is made as of December 18, 2019
AKERNA
CORP., a company existing under the laws of the State of Delaware (“Akerna”)
2732805
ONTARIO INC., a company existing under the laws of the Province of Ontario (“Purchaser”)
AMPLE
ORGANICS INC., a corporation existing under the laws of the Province of Ontario (“Ample”)
JOHN
PRENTICE, an individual resident in the Province of Ontario (hereinafter referred to as the “Shareholder Representative”)
|
A.
|
Akerna
through its wholly owned subsidiary, Purchaser, proposes to acquire all of the issued
and outstanding Ample Shares;
|
|
B.
|
the
Parties intend to carry out the transactions contemplated herein by way of an arrangement
under Section 182 of the OBCA; and
|
|
C.
|
the
Parties have entered into this Agreement to provide for the matters referred to in the
foregoing recitals and for other matters relating to such transaction.
|
NOW
THEREFORE, in consideration of the covenants and agreements herein contained and other good and valuable consideration (the receipt
and sufficiency of which are hereby acknowledged), the Parties hereto do hereby covenant and agree as follows:
Article
1
INTERPRETATION
In
this Agreement, including the recitals hereto, the following defined terms have the meanings hereinafter set forth:
“Acquisition
Proposal” means any offer, proposal or inquiry to Ample or, of which Ample is aware, to the Ample Shareholders from any
Person, or group of Persons Acting Jointly or in Concert, whether or not subject to due diligence or other conditions and whether
made orally or in writing, relating to:
|
(a)
|
any
direct or indirect sale, issuance or acquisition from Ample, an Ample Subsidiary or the
Ample Shareholders of shares or other equity interests (or securities convertible into
or exercisable for such shares or interests) in Ample or an Ample Subsidiary that, when
taken together with the securities of Ample or an Ample Subsidiary held by the proposed
acquiror and any Person Acting Jointly or in Concert with such acquiror, represent: (i)
20% or more of the voting securities of Ample or an Ample Subsidiary or rights or interests
therein or thereto; or (ii) 20% or more of the consolidated revenue of Ample or an Ample
Subsidiary, taken as a whole; or 20% or more of the consolidated assets of Ample or an
Ample Subsidiary, taken as a whole;
|
|
(b)
|
an
amalgamation, arrangement, merger, business combination, consolidation or other similar
transaction involving Ample or an Ample Subsidiary;
|
|
(c)
|
a
take-over bid, tender offer, issuer bid, exchange offer, share exchange, recapitalization,
liquidation, dissolution, reorganization or other similar transaction involving Ample
or an Ample Subsidiary; or
|
|
(d)
|
any
transactions or arrangements similar to or having the same effect or consequences as
the foregoing,
|
except
that the term Acquisition Proposal shall exclude the Arrangement and the transactions contemplated by this Agreement;
“Acting
Jointly or in Concert” has the meaning ascribed thereto under Applicable Securities Laws of Canada;
“Affiliate”
has the meaning ascribed thereto under the Securities Act;
“Agreed
Amount” means part, but not all, of a Claimed Amount;
“Agreement”,
“herein”, “hereof”, “hereto”, “hereunder” and similar expressions
mean and refer to this arrangement agreement (including the schedules hereto) as supplemented, modified or amended, and not to
any particular Article, Section, Schedule or other portion hereof;
“Akerna
Board” means the board of directors of Akerna as it may be comprised from time to time, including any duly constituted
and acting committee thereof;
“Akerna
Bridge Loan” means any loan provided by Akerna to Ample prior to the Effective Time on such terms and conditions as may
be agreed between Akerna and Ample, each acting reasonably;
“Akerna
Circular” means the notice of the Akerna Meeting and accompanying information circular of Akerna, together with all appendices,
schedules and exhibits thereto, to be sent by Akerna to the Akerna Shareholders in connection with the Akerna Meeting, as amended,
supplemented or otherwise modified;
“Akerna
Disclosure Letter” means the disclosure letter dated as of the date hereof from Akerna and Purchaser to Ample;
“Akerna
Financial Statements” has the meaning ascribed thereto in Section 4.1(m)(i);
“Akerna
Fundamental Representations and Warranties” means the representations of Akerna and Purchaser in Sections 4.1(a), 4.1(b),
4.1(d), 4.1(g), 4.1(p) and 4.1(t);
“Akerna
Information” means the information contained in the files, reports, data, documents, agreements and other information
relating to Akerna and each Akerna Subsidiary, as provided by Akerna, Purchaser or their respective Representatives to Ample or
its Representatives in connection with the transactions contemplated hereby, in writing, including information contained in data
rooms or provided in electronic form;
“Akerna
Material Adverse Change” or “Akerna Material Adverse Effect” means any event, change, occurrence, effect
or state of facts that, individually or in the aggregate with other events, changes, occurrences, effects or states of facts is,
or would reasonably be expected to be, material and adverse to the business, operations, results of operations, capital, property,
assets, liabilities, obligations (whether absolute, accrued, conditional or otherwise) or condition (financial or otherwise) of
Akerna and its Subsidiaries taken as a whole, except any such event, change, occurrence, effect or state of facts resulting from
or arising in connection with:
|
(a)
|
any
change or development generally affecting the industries in which Akerna and its Subsidiaries
operate;
|
|
(b)
|
any
change or development in global, national or regional political conditions (including
any act of terrorism or any outbreak of hostilities or war or any escalation or worsening
thereof) or any natural disaster;
|
|
(c)
|
any
change in general economic, business or regulatory conditions or in global financial,
credit, currency or securities markets in Canada or the United States;
|
|
(d)
|
any
adoption, proposed implementation or change in Applicable Law or any interpretation thereof
by any Governmental Entity;
|
|
(e)
|
any
change in U.S. GAAP or changes in applicable regulatory accounting requirements applicable
to the industries in which it conducts business;
|
|
(f)
|
changes
or developments in or relating to currency exchange or interest rates;
|
|
(g)
|
the
negotiation, execution, announcement, performance or pendency of this Agreement or the
consummation of the transactions contemplated herein;
|
|
(h)
|
actions
or inactions expressly required by this Agreement or that are taken with the prior written
consent of Ample;
|
|
(i)
|
any
change in the market price or trading volume of any securities of Akerna (it being understood,
without limiting the applicability of subsections (a) through (h), that the causes underlying
such changes in market price or trading volume may be taken into account in determining
whether an Akerna Material Adverse Effect has occurred), or any suspension of trading
in securities generally or on any securities exchange on which any securities of Akerna
trade; or
|
|
(j)
|
the
failure, in and of itself, of Akerna to meet any internal or public projections, forecasts
or estimates of revenues, earnings or other financial operating metrics before, on or
after the date of this Agreement (it being understood, without limiting the applicability
of subsections (a) through (h), that the causes underlying such failure may be taken
into account in determining whether an Akerna Material Adverse Effect has occurred),
|
provided,
however, that any such event, change, occurrence, effect or state of facts referred to in subsections (a) to and including (f)
above does not primarily relate only to (or have the effect of primarily relating only to) Akerna and its Subsidiaries taken as
a whole, or materially disproportionately affect Akerna and its Subsidiaries, taken as a whole, compared to other companies operating
in the business or industries in which Akerna and its Subsidiaries operate; references in this Agreement to dollar amounts are
not intended to be and shall not be deemed to be illustrative or interpretative for purposes of determining whether an Akerna
Material Adverse Effect has occurred. Notwithstanding any other provision of this definition, no action of any kind taken by a
Governmental Entity, nor the commencement by a Governmental Entity of any Proceeding seeking a law or Order which would have the
effect of making the Arrangement illegal or otherwise preventing or prohibiting consummation of the Arrangement, will, in any
such case, constitute an Akerna Material Adverse Effect;
“Akerna
Meeting” means the special meeting of the Akerna Shareholders, including any adjournment or postponement thereof, to
be called and held in accordance with this Agreement to consider, among other matters, the Akerna Shareholder Matters;
“Akerna
Public Record” means all information filed by Akerna with the U.S. Securities and Exchange Commission and made available
to the public on the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system;
“Akerna
Shareholder Approval” shall mean the approval of the Akerna Shareholder Matters by the Akerna Shareholders;
“Akerna
Shareholder Matters” means the approval of (i) the issuance of such number of Akerna Shares as are required to be issued
hereunder, (ii) the Arrangement and (iii) such other matters required for the completion of the Arrangement in accordance with
Applicable Laws;
“Akerna
Shareholder Support Agreements” means the voting support agreements, substantially in the form attached as Schedule
“H” hereto, entered into between Ample and the directors and officers of Akerna, in their capacity as holders of Akerna
Shares;
“Akerna
Shareholders” means the holders of Akerna Shares;
“Akerna
Shares” means the shares of common stock in the authorized share capital of Akerna;
“Akerna
Subsidiaries” means the Purchaser and Callco and “Akerna Subsidiary” means any one of them;
“Akerna
Transactions” means the transactions described in the Akerna Disclosure Letter with the details of such transactions
and materials relating thereto being in all material respects the same as such details and materials that were disclosed to or
provided to Ample prior to the date hereof;
“Ample”
means Ample Organics Inc., a corporation existing under the OBCA, and where the context permits includes the Ample Subsidiaries;
“Ample
Articles” means the certificate and articles of amendment of Ample dated October 1, 2019;
“Ample
Board” means the board of directors of Ample as it may be comprised from time to time, including any duly constituted
and acting committee thereof;
“Ample
Board Recommendation” has the meaning ascribed thereto in Section 2.8(c);
“Ample
Change in Recommendation” has the meaning ascribed thereto in Section 8.1(a)(vi)(A);
“Ample
Circular” means the notice of the Ample Meeting and accompanying information circular of Ample, together with all appendices,
schedules and exhibits thereto, to be sent by Ample to the Ample Shareholders in connection with the Ample Meeting, as amended,
supplemented or otherwise modified;
“Ample
Circular Disclosure” means all information regarding Ample provided by Ample for inclusion in the Akerna Circular;
“Ample
Common Shareholders” means the holders of Ample Common Shares immediately prior to the Effective Time;
“Ample
Common Shares” means the Common Shares in the authorized capital of Ample;
“Ample
Common Warrants” means all outstanding and unexpired warrants to acquire Ample Common Shares;
“Ample
Disclosure Letter” means the disclosure letter dated as of the date hereof from Ample to Purchaser;
“Ample
Financial Statements” means the audited consolidated financial statements for the year ended December 31, 2017 and the
year ended December 31, 2018, including the notes thereto;
“Ample
Fundamental Representations and Warranties” means the representations of Ample in Sections 4.2(a), 4.2(b), 4.2(d), 4.2(e),
4.2(h), 4.2(q), 4.2(r), 4.2(s), 4.2(w), 4.2(z), 4.2(aa) and 4.2(dd);
“Ample
Information” means the information contained in the files, reports, data, documents, agreements and other information
relating to Ample and each Ample Subsidiary, as provided by Ample or its Representatives to Akerna, Purchaser or their Representatives
in connection with the transactions contemplated hereby, in writing, including information contained in data rooms or provided
in electronic form;
“Ample
Material Adverse Change” or “Ample Material Adverse Effect” means any event, change, occurrence, effect
or state of facts that, individually or in the aggregate with other events, changes, occurrences, effects or states of facts is,
or would reasonably be expected to be, material and adverse to the business, operations, results of operations, capital, property,
assets, liabilities, obligations (whether absolute, accrued, conditional or otherwise) or condition (financial or otherwise) of
Ample and its Subsidiaries taken as a whole, except any such event, change, occurrence, effect or state of facts resulting from
or arising in connection with:
|
(a)
|
any
change or development generally affecting the industries in which Ample and its Subsidiaries
operate;
|
|
(b)
|
any
change or development in global, national or regional political conditions (including
any act of terrorism or any outbreak of hostilities or war or any escalation or worsening
thereof) or any natural disaster;
|
|
(c)
|
any
change in general economic, business or regulatory conditions or in global financial,
credit, currency or securities markets in Canada or the United States;
|
|
(d)
|
any
adoption, proposed implementation or change in Applicable Law or any interpretation thereof
by any Governmental Entity;
|
|
(e)
|
any
change in IFRS or changes in applicable regulatory accounting requirements applicable
to the industries in which it conducts business;
|
|
(f)
|
changes
or developments in or relating to currency exchange or interest rates;
|
|
(g)
|
the
negotiation, execution, announcement, performance or pendency of this Agreement or the
consummation of the transactions contemplated herein;
|
|
(h)
|
actions
or inactions expressly required by this Agreement or that are taken with the prior written
consent of Akerna; or
|
|
(i)
|
the
failure, in and of itself, of Ample to meet any internal or public projections, forecasts
or estimates of revenues, earnings or other financial operating metrics before, on or
after the date of this Agreement (it being understood, without limiting the applicability
of subsections (a) through (i), that the causes underlying such failure may be taken
into account in determining whether an Ample Material Adverse Effect has occurred);
|
provided,
however, that any such event, change, occurrence, effect or state of facts referred to in subsections (a) to and including (f)
above does not primarily relate only to (or have the effect of primarily relating only to) Ample and its Subsidiaries taken as
a whole, or materially disproportionately affect Ample and its Subsidiaries, taken as a whole, compared to other companies operating
in the business or industries in which Ample and its Subsidiaries operate; references in this Agreement to dollar amounts are
not intended to be and shall not be deemed to be illustrative or interpretative for purposes of determining whether an Ample Material
Adverse Effect has occurred. Notwithstanding any other provision of this definition, no action of any kind taken by a Governmental
Entity, nor the commencement by a Governmental Entity of any Proceeding seeking a law or Order which would have the effect of
making the Arrangement illegal or otherwise preventing or prohibiting consummation of the Arrangement, will, in any such case,
constitute an Ample Material Adverse Effect;
“Ample
Material Contract” means in respect of Ample or any of its Subsidiaries, any Contract:
|
(a)
|
that
if terminated or modified or if it ceased to be in effect, would reasonably be expected
to have an Ample Material Adverse Effect;
|
|
(b)
|
under
which Ample or any of its Subsidiaries has directly or indirectly guaranteed any liabilities
or obligations of a third party in excess of $100,000 in the aggregate;
|
|
(c)
|
that
is a lease, sublease, license or right of way or occupancy agreement for real property
which is material to the business of Ample and its Subsidiaries, taken as a whole;
|
|
(d)
|
that
provides of the establishment of, investment in or formation of any partnership or joint
venture with an arm’s length Person in which the interest of Ample or any of its Subsidiaries
exceeds book value of $100,000;
|
|
(e)
|
relating
to indebtedness for borrowed money, whether incurred, assumed, guaranteed or secured
by any asset, with an outstanding principal amount in excess of $100,000;
|
|
(f)
|
under
which Ample or any of its Subsidiaries is obligated to make or expects to receive payments
in excess of $100,000 over the remaining term of the contract;
|
|
(g)
|
that
limits or restricts Ample or any of its affiliates from engaging in any line of business
or in any geographic area; or
|
|
(h)
|
that
is a collective bargaining agreement, a labour union contract or any other memorandum
of understanding or other agreement with a union;
|
“Ample
Meeting” means the special meeting of the Ample Shareholders, including any adjournment or postponement thereof, to be
called and held in accordance with this Agreement and the Interim Order to consider, among other matters, the Arrangement Resolution;
“Ample
Options” means the outstanding and unexpired stock options of Ample, whether or not vested, to acquire Ample Common Shares
from treasury pursuant to the Option Plan;
“Ample
Preferred Shareholders” means the holders of Ample Preferred Shares immediately prior to the Effective Time;
“Ample
Preferred Shares” means each issued and outstanding Class A Preferred Share in the capital of Ample, being all issued
and outstanding Class A-1 Preferred Shares, Class A-2 Preferred Shares and Class A-3 Preferred Shares;
“Ample
Preferred Warrants” means all outstanding and unexpired warrants to acquire Ample Preferred Shares;
“Ample
Securities” means collectively, the Ample Shares, Ample Options and Ample Warrants;
“Ample
Shareholder Approval” shall mean the approval of the Arrangement Resolution by the Ample Shareholders;
“Ample
Shareholder Support Agreements” means the voting support agreements, substantially in the form attached as Schedule
“G” hereto, entered into between Akerna and the Ample Supporting Securityholders, in their capacity as holders of
Ample Securities;
“Ample
Shareholders” means collectively the Ample Common Shareholders and the Ample Preferred Shareholders;
“Ample
Shares” means collectively the Ample Common Shares and Ample Preferred Shares;
“Ample
Subsidiaries” means collectively Last Call Analytics Inc. and Ample Organics Australia PTY Ltd. and “Ample Subsidiary”
means any one of them;
“Ample
Supporting Securityholders” means each of the directors and officers of Ample and certain other holders of Ample Securities
that enter into Ample Shareholder Support Agreements;
“Ample
Warrants” means collectively the Ample Common Warrants and the Ample Preferred Warrants;
“Applicable
Laws” (in the context that refers to one or more Persons) means any domestic or foreign, federal, state, provincial or
local law (statutory, common or otherwise, and including Applicable Securities Laws), constitution, treaty, convention, ordinance,
code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted, promulgated
or applied by a Governmental Entity, and any terms and conditions of any grant of approval, permission, authority or license of
any Governmental Entity, that is binding upon or applicable to such Person or Persons or its or their business, undertaking, property
or securities and emanate from a Person having jurisdiction over the Person or Persons or its or their business, undertaking,
property or securities, as the same may be amended from time to time prior to the Effective Date;
“Applicable
Securities Laws” means, collectively, and as the context may require: (a) the applicable securities legislation of each
of the provinces and territories of Canada, and the rules, regulations, instruments, orders and policies published and/or promulgated
thereunder; (b) the polices and rules of the NASDAQ; and (b) U.S. Securities Laws, as the foregoing may be amended from time to
time prior to the Effective Date;
“Arrangement”
means the arrangement under the provisions of Section 182 of the OBCA on the terms and conditions set forth in the Plan of Arrangement,
as supplemented, modified or amended in accordance with Article 8 of the Plan of Arrangement;
“Arrangement
Resolution” means the special resolution to approve the Arrangement to be considered at the Ample Meeting by the Ample
Shareholders substantially in the form attached as Schedule “A” hereto;
“Authorization”
means, with respect to any Person, any authorization, order, permit, approval, grant, licence, registration, consent, right, notification,
condition, franchise, privilege, certificate, judgment, writ, injunction, award, determination, direction, decision, decree, by-law,
rule or regulation, of, from or required by any Governmental Entity having jurisdiction over the Person;
“Business
Day” means a day on which banks are generally open for the transaction of commercial business in Toronto, Ontario, or
Denver, Colorado but does not in any event include a Saturday or Sunday or statutory holiday in Ontario or Colorado;
“Callco”
means a direct or indirect wholly-owned Subsidiary of Akerna to be incorporated under the laws of Ontario prior to the Effective
Time;
“Claim”
means any claim by an Indemnified Party for indemnification in accordance with Article 6;
“Claim
Notice” means written notification containing:
|
(a)
|
a
description of Damages incurred or reasonably expected to be incurred by an Indemnified
Party and the Claimed Amount of such Damages; and
|
|
(b)
|
a
statement that an Indemnified Party is entitled to indemnification under Article 6 for
such Damages and a reasonable explanation of the basis therefor;
|
“Claimed
Amount” means the amount of any Damages incurred or reasonably expected to be incurred by an Indemnified Party in connection
with a claim for indemnification pursuant to Article 6;
“Closing
Cash Amount” means an amount equal to $7,500,000, minus the Closing Indebtedness Amount and the amount of the Transaction
Expenses;
“Closing
Indebtedness Agreements” means each of the following Contracts entered into by Ample:
|
(a)
|
Loan
promissory note dated December 14, 2018 issued by Ample to FirePower Gap Debt Limited
Partnership;
|
|
(b)
|
Share
promissory note dated December 14, 2018 issued by Ample to FirePower Gap Debt Limited
Partnership;
|
|
(c)
|
Loan
agreement dated as of October 1, 2019 between Ample (as debtor), Last Call Analytics
Inc. (as initial guarantor), Evergreen Gap Debt GP Inc. (as agent), Evergreen Gap Debt
LP (as lender) and Firepower Gap Debt LP (as lender); and
|
|
(d)
|
Amended
and restated loan agreement dated as of September 25, 2019 between Ample (as debtor),
Last Call Analytics Inc. (as guarantor), Ample Organics Australia PTY Ltd (as guarantor),
Green Acre Capital Fund I LP (as lender) and Osmington Capital Corporation (as lender);
|
“Closing
Indebtedness Amount” means an amount equal to the aggregate indebtedness (including the principal amount and any interest
incurred thereon) of Ample at the Effective Time pursuant to the Closing Indebtedness Agreements, the Akerna Bridge Loan (if any)
and any indebtedness incurred pursuant to Schedule 3.1(b)(xiv) of the Ample Disclosure Letter.
“Closing
Shares” means the Up-front Shares, less the Effective Time Shares, and less the Escrowed Shares;
“Competition
Act” means the Competition Act, R.S.C. 1985, c. C 34, as amended including regulations passed under the Competition
Act;
“Confidentiality
Agreement” means the mutual non-disclosure agreement between Akerna and Ample dated July 29, 2019;
“Consideration”
means the Up-front Consideration, plus the Deferred Consideration;
“Consideration
Shares” means the Up-front Shares, plus the number of Exchangeable Shares to be issued in satisfaction of the Deferred
Consideration pursuant to the Arrangement;
“Contract”
means any contract, agreement, license, franchise, lease, arrangement, commitment, understanding or other right or obligation
(written or oral) to which a Party is a party or by which a Party is bound or to which any of their respective assets are subject;
“Controlling
Party” has the meaning ascribed thereto in Section 6.3(b);
“Court”
means the Ontario Superior Court of Justice;
“CVR”
means a contingent value right of Akerna issued pursuant to the Rights Indenture and entitling the holder thereof to a specified
portion of the Deferred Consideration, if any, on the Deferred Consideration Payment Date, which entitlement shall be evidenced
by a certificate issued by Akerna to each holder of a CVR;
“Damages”
means any and all claims, debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise,
or whether known or unknown, or due to become due or otherwise), diminution in value, monetary damages, fines, fees, penalties,
interest obligations, deficiencies, losses and expenses (including amounts paid in settlement, interest, court costs, reasonable
fees and expenses of attorneys, accountants, financial advisors, investigators, and other experts, and other reasonable expenses
of litigation, arbitration or other dispute resolution procedures);
“Deemed
Escrow Value” has the meaning ascribed thereto in Section 6.6(a);
“Deemed
Value Amount” means an amount equal to $12.90;
“Deferred
Consideration” means $10,000,000, payable in Exchangeable Shares; provided that in the event the Recurring Revenue recognized
during the Deferred Consideration Period is less than $9,000,000, the Deferred Consideration amount of $10,000,000 shall be reduced
by an amount equal to the product of $6.67 multiplied by the difference between $9,000,000 and the amount of Recurring Revenue
realized during the Deferred Consideration Period (up to a maximum reduction of $10,000,000), as calculated in the Deferred Consideration
Statement;
“Deferred
Consideration Payment Date” has the meaning ascribed thereto in Section 2.19(e);
“Deferred
Consideration Period” means the period of time beginning on the Effective Date, and ending on the date that is 12 months
after the Effective Date;
“Deferred
Consideration Statement” means a statement prepared by Akerna setting forth in reasonable detail the:
|
(a)
|
amount
of Recurring Revenue;
|
|
(b)
|
the
amount Deferred Consideration payable to the holders of the CVRs; and
|
|
(c)
|
the
expected Deferred Consideration Payment Date;
|
“Depositary”
means such Person as Ample may appoint to act as depositary for the Ample Shares in relation to the Arrangement, with the approval
of Akerna, acting reasonably;
“Dispute”
means the dispute resulting if an Indemnifying Party in a response to any Claim Notice, disputes the liability of such Indemnifying
Party for all or part of a Claimed Amount;
“Dissent
Rights” means the rights of dissent granted in favour of registered Ample Shareholders in respect of the Arrangement
described in the Plan of Arrangement and the Interim Order;
“Economic
Sanctions” has the meaning ascribed thereto in subsection 4.1(v)(iii) and 4.2(ee)(iii);
“Effective
Date” means the date the Arrangement becomes effective pursuant to the OBCA;
“Effective
Date Register” has the meaning ascribed thereto in Section 2.20(i);
“Effective
Time” means the time at which the Arrangement becomes effective on the Effective Date pursuant to the OBCA;
“Effective
Time Shares” means that number of Exchangeable Shares that is equal to ten percent (10%) of the total aggregate number
of Up-front Shares that are to be delivered by Akerna and Purchaser to the Ample Shareholders pursuant to the Arrangement Agreement;
“Eligible
Holder” means an Ample Shareholder that is: (a) a resident of Canada for the purposes of the Tax Act and not exempt from
tax under Part I of the Tax Act; or (b) a partnership, any member of which is a resident of Canada for the purposes of the Tax
Act and not exempt from tax under Part I of the Tax Act;
“Employee
Plans” means all health, welfare, supplemental unemployment benefit, bonus, profit sharing, option, stock appreciation,
savings, insurance, incentive, incentive compensation, deferred compensation, share purchase, share compensation, disability,
pension or supplemental retirement plans and other similar or material employee or director compensation or benefit plans, policies,
trusts, funds, agreements or arrangements for the benefit of directors or former directors of a Party or any of its Subsidiaries,
or such Party or its Subsidiaries’ Employees or former Employees, which are maintained by, contributed to or binding upon
a Party or any of its Subsidiaries or in respect of which a Party or any of its Subsidiaries has any actual or potential liability,
but excluding any statutory benefit plans that any Party is required to participate in or comply with in accordance with Applicable
Laws, including the Canada Pension Plan and plans administered pursuant to applicable health, Tax, workplace safety insurance
and employment insurance legislation;
“Employees”
means, as applicable, all of the employees of: (a) Ample or any Ample Subsidiary; and (b) Akerna or any Akerna Subsidiary, as
at the Effective Date;
“Employment
Agreements” means the separate employment agreements to be entered into between Ample and each of the Retained Personnel,
in a form satisfactory to Akerna and each of the Retained Personnel, in each case, acting reasonably;
“Environmental
Law” means all Applicable Laws relating to pollution or the protection or quality of the environment or to the release
of hazardous substances to the environment and all Authorizations issued pursuant to such laws;
“Escrow
Agent” means Continental Stock Transfer & Trust Company, Inc.;
“Escrow
Agreement” means the Escrow Agreement to be entered into among Akerna, the Purchaser, the Shareholder Representative
and the Escrow Agent, in the form or substantially in the form as set out in Schedule “D”;
“Escrowed
Shares” means that number of Exchangeable Shares that is equal to ten percent (10%) of the total aggregate number of
Up-front Shares that are to be delivered by Akerna and Purchaser to the Ample Shareholders pursuant to the Arrangement Agreement;
“Exchange
Rate” means, on any date of determination, the CAD/USD daily exchange rate quoted by the Bank of Canada three Business
Days prior to such date;
“Exchange
Ratio” means 0.0524 of an Akerna Share;
“Exchangeable
Share Support Agreement” means the agreement to be made between Akerna, Purchaser, Callco and the Shareholder Representative
in the form or substantially in the form as set out in Schedule “C”;
“Exchangeable
Shares” means the redeemable preferred shares in the capital of Purchaser, having the rights, privileges, restrictions
and conditions set out in the Plan of Arrangement;
“Expected
Claim Notice” means a notice that, as a result of a legal proceeding instituted by or written claim made by a third party,
an Indemnified Party reasonably expects to incur Damages for which it is entitled to indemnification under Article 6;
“Final
Order” means the final order of the Court approving the Arrangement pursuant to subsection 182(5) of the OBCA, in a form
acceptable to both Ample and Akerna, each acting reasonably, as such order may be amended by the Court (with the consent of both
Ample and Akerna, each acting reasonably) at any time prior to the Effective Time or, if appealed, then, unless such appeal is
withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to both Ample and Akerna, each
acting reasonably) on appeal;
“Governmental
Entity” means any:
|
(a)
|
national,
international, multinational, federal, provincial, state, regional, municipal, local
or other government or any governmental or public department, central bank, court, tribunal,
arbitral body, commission, board, bureau ministry or agency, domestic or foreign, including
the Securities Authorities;
|
|
(b)
|
any
subdivision, agent, commission, board or authority of any of the foregoing; or
|
|
(c)
|
any
quasi-governmental or private body exercising any regulatory, expropriation or Taxing
Authority under or for the account of any of the foregoing;
|
“IFRS”
means Canadian generally accepted accounting principles for publicly accountable enterprises, being International Financial Reporting
Standards as adopted by the Canadian Accounting Standards Board effective for periods beginning on or after January 1, 2011;
“Indebtedness”
means, with respect to any Person, without duplication:
|
(a)
|
indebtedness
of such Person for borrowed money, secured or unsecured;
|
|
(b)
|
every
obligation of such Person evidenced by bonds, debentures, notes, derived obligations
or other similar instruments
|
|
(c)
|
every
obligation of such Person under purchase money mortgages, conditional sale agreements
or other similar instruments relating to purchased property or assets;
|
|
(d)
|
every
capitalized or non-consolidated lease obligation of such Person;
|
|
(e)
|
every
obligation of such Person under swaps (valued at the termination value thereof); and
|
|
(f)
|
every
obligation of the type referred to above of any other Person, the payment of which such
Person has guaranteed or for which such Person is otherwise responsible or liable;
|
“Indemnified
Party” has the meaning ascribed thereto in Section 6.3(a);
“Indemnifying
Party” has the meaning ascribed thereto in Section 6.3(a);
“Intellectual
Property” means collectively, all rights in or affecting intellectual or industrial property or other proprietary rights
existing in any jurisdiction, including with respect to the following: (i) patents and applications therefor, and patents issuing
thereon, including continuations, divisionals, continuations-in-part, reissues, reexaminations, renewals and extensions, and the
right to file other or further applications and claim priority thereto; (ii) trademarks, service marks, trade names, service names,
brand names and trade dress rights, and all applications, registrations and renewals thereof; (iii) copyrights and registrations
and applications therefor, works of authorship, “moral” rights and mask work rights; (iv) domain names, uniform resource
locators and social media accounts or handles, including applications and registrations thereof; (v) telephone numbers; (vi) trade
secrets; and (vii) the right to file applications and obtain registrations for any of the foregoing, as applicable;
“Interim
Order” means an interim order of the Court concerning the Arrangement pursuant to the OBCA in a form acceptable to both
Ample and Akerna, each acting reasonably, containing declarations and directions with respect to the Arrangement and the holding
of the Ample Meeting, as such order may be affirmed, amended or modified by the Court;
“Investment
Canada Act” means the Investment Canada Act, R.S.C. 1985, c.28 (1st Supp.), as amended including regulations
passed under the Investment Canada Act;
“Liabilities”
means any and all debts, liabilities and obligations of any nature whatsoever, whether accrued or fixed, including those arising
under any law, Contract, Permit, license or other undertaking and as a result of any act or omission;
“Lien”
means any lien, mortgage, pledge, security interest, charge or encumbrance of any kind, whether voluntary or involuntary, (including
any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security
interest but excluding any present or future lease that is or would have been characterized as an operating lease under US GAAP
or IFRS, as applicable as in effect on the date hereof);
“Misrepresentation”,
“material change” and “material fact” have the meanings ascribed thereto under Applicable Securities
Laws of Canada;
“NASDAQ”
means the National Association of Securities Dealers Automated Quotations exchange;
“Non-Controlling
Party” has the meaning ascribed thereto in Section 6.3(b);
“OBCA”
means the Business Corporations Act, R.S.O. 1900, c. B.16, as amended, including the regulations promulgated thereunder;
“Option
Plan” means the stock option plan of Ample, in effect as at the date hereof;
“Optionholders”
means the holders of Ample Options;
“Order”
means all judicial, arbitral, administrative, ministerial, departmental or regulatory judgments, injunctions, orders, decisions,
rulings, determinations, awards, or decrees of any Governmental Entity (in each case, whether temporary, preliminary or permanent);
“Out-of-Money
Option” means each Ample Option having an aggregate exercise price for any Ample Share in excess of the total value
of all Up-front Consideration that would be payable hereunder in respect of such Ample Share if such Ample Share were issued and
outstanding at the Effective Time;
“Out-of-Money
Warrant” means each Ample Warrant having an aggregate exercise price for any Ample Share in excess of the total value
of all Up-front Consideration that would be payable hereunder in respect of such Ample Share if such Ample Share were issued and
outstanding at the Effective Time;
“Outside
Date” means June 30, 2020 or such later date as may be agreed to in writing by Akerna and Ample;
“Parties”
means, collectively, the parties to this Agreement, and “Party” means any one of them;
“Paying
Agent” means Continental Stock Transfer & Trust Company, Inc.;
“Payout
Letters” has the meaning ascribed thereto in Section 2.16(a);
“Permit”
means any license, permit, certificate, franchise, consent, order, grant, easement, covenant, approval, classification, registration
or other authorization of and from any Person, including any Governmental Entity;
“Permitted
Liens” means:
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(a)
|
Liens
for taxes, assessments and governmental charges, the payment of which is not yet due
and payable or which are being contested in good faith by, as applicable: (i) Ample or
an Ample Subsidiary and by appropriate proceedings promptly initiated and diligently
conducted, and a reserve or other appropriate provision, if any, as shall be required
by US GAAP or IFRS, as applicable shall have been made therefor in the books of account
of the applicable Person; and (ii) Akerna or an Akerna Subsidiary and by appropriate
proceedings promptly initiated and diligently conducted, and a reserve or other appropriate
provision, if any, as shall be required by US GAAP or IFRS, as applicable shall have
been made therefor in the books of account of the applicable Person;
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(b)
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Liens
imposed by law, such as carrier’s, warehousemen’s, mechanic’s, materialmen’s and other
similar Liens securing obligations (other than Indebtedness for borrowed money) that
are not due or delinquent or that are being contested in good faith and by appropriate
proceedings promptly initiated and diligently conducted, and a reserve or other appropriate
provision, if any, as shall be required by US GAAP or IFRS, as applicable shall have
been made therefor in the books of account of the applicable Person;
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|
(c)
|
Liens
securing purchase money Indebtedness or of purchase money mortgages and any other Lien
on equipment acquired, leased or held with a fair market value less than or equal to
$100,000, on an aggregate basis at any time (including equipment held as lessee under
a capital lease) in the ordinary course of business to secure the purchase price of or
rental payments with respect to such equipment or to secure Indebtedness incurred for
the purpose of financing the acquisition (including acquisition as lessee under capital
leases), construction or improvement of any such equipment to be subject to such Liens
existing on any such equipment at the time of such acquisition, or extensions, renewals
or replacements of any of the foregoing for the same or a lesser amount, provided that
(x) no such Lien shall extend to or cover any equipment other than the equipment being
acquired, constructed or improved, and no such extension, renewal or replacement shall
extend to or cover any property not theretofore subject to the Lien being extended, renewed
or replaced; and (y) the principal amount of the Indebtedness secured by any such Lien,
or any extension, renewal or replacement thereof, shall not exceed the greater of the
fair market value or the cost of the property so held or acquired;
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(d)
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deposits
and pledges of cash or securities securing (i) the performance of bids, tenders, leases,
contracts (other than for the payment of money) or statutory obligations that arise in
the ordinary course of business or (ii) obligations on surety or appeal or performance
bonds, including those to support or secure reclamation in accordance with Applicable
Laws that are incurred or arise in the ordinary course of business or (iii) obligations
incurred in the ordinary course of business that do not involve the incurrence of Indebtedness
and, in each case, only to the extent such deposits or pledges secure obligations that
are not past due or that are being contested in good faith and by appropriate proceedings
promptly initiated and diligently conducted, and a reserve or other appropriate provision,
if any, as shall be required by US GAAP or IFRS, as applicable shall have been made therefor
in the books of account of the applicable Person;
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|
(e)
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pledges,
deposits and Liens in connection with workers’ compensation, employment insurance and
other similar legislation and deposits securing liability to insurance carriers under
insurance or self-insurance arrangements to the extent required by law;
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(f)
|
rights
of set-off or bankers’ Liens upon deposits of cash or broker’s Liens upon securities
in favour of financial institutions, banks or other depositary institutions;
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(g)
|
survey
exceptions, title defects, easements, zoning restrictions and similar encumbrances on
real property and minor irregularities in the title thereto that do not (i) secure obligations
for the payment of money; or (ii) materially adversely impair the value of such property
or its use by Ample or any Ample Subsidiary in the normal conduct of their business;
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(h)
|
Liens
given in the ordinary course of business to a public utility or any municipality or governmental
or other public authority when required by such utility or municipality or governmental
or other authority in connection with the operations of Ample or any Ample Subsidiary;
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(i)
|
with
respect to Liens set forth in subsection (c), replacement liens in respect of any refinancing
or the replacement of the underlying Indebtedness provided such refinancing or replacement
does not increase the then-outstanding principal balance of such Indebtedness being refinanced
or replaced;
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(j)
|
Liens
which could not be reasonably expected to cause an Ample Material Adverse Effect or Akerna
Material Adverse Effect, arising or potentially arising under statutory provisions (other
than Environmental Laws) which have not at the time been filed or registered in accordance
with Applicable Laws or of which written notice has not been duly given in accordance
with Applicable Laws or which, although filed or registered, relate to obligations that
are not due or delinquent or that are being contested in good faith and by appropriate
proceedings promptly initiated and diligently conducted, and a reserve or other appropriate
provision, if any, as shall be required by US GAAP or IFRS, as applicable shall have
been made therefor in the books of account of the applicable Person;
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(k)
|
the
right reserved to or vested in any government or Governmental Entity by any statutory
provision or by the terms of any lease, production sharing contract, licence, franchise,
grant or permit of, to terminate any such lease, license, franchise, grant or permit,
or to require annual or other payments as a condition to the continuance thereof; and
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(l)
|
Liens
arising from the right of distress enjoyed by landlords or Liens otherwise granted to
landlords, in either case, to secure the payment of arrears of rent in respect of leased
properties.
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“Person”
includes any individual, firm, partnership, joint venture, venture capital fund, association, trust, trustee, executor, administrator,
legal personal representative, estate group, body corporate, corporation, unincorporated association or organization, Governmental
Entity, syndicate or other entity, whether or not having legal status;
“Plan
of Arrangement” means the plan of arrangement set forth in Schedule “B” to this Agreement, as such plan of
arrangement may be amended or supplemented from time to time in accordance with the terms thereof and hereof;
“Proceeding”
means any suit, claim, action, charge, complaint, litigation, arbitration, proceeding (including any civil, criminal, administrative,
investigative or appellate proceeding), hearing, audit, examination or investigation commenced, brought, conducted or heard by
or before, any court or other Governmental Entity;
“Purchaser”
means 2732805 Ontario Inc., a company existing under the laws of the Province of Ontario;
“Purchaser
Circular Disclosure” means all information regarding Purchaser and Akerna provided by Purchaser and Akerna for inclusion
in the Ample Circular;
“Purchaser
Indemnified Person” has the meaning ascribed thereto in Section 6.1;
“Recurring
Revenue” means all recurring revenue that is derived from or that is associated with license revenue from Ample’s
core seed-to-sale, AmpleCentral and “Last Call Analytics” products;
“Regulatory
Approvals” means, collectively, the following: (a) acceptance of the NASDAQ; (b) the Final Order; and (c) such other
sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without objection, of a prescribed
time under any Applicable Laws that states that a transaction may be implemented if a prescribed time lapses following the giving
of notice without an objection being made) of Governmental Entities required in connection with the Plan of Arrangement except
for those sanctions, rulings, consents, orders, exemptions, permits and other approvals, the failure of which to obtain individually
or in the aggregate, would not reasonably be expected to have an Akerna Material Adverse Effect, taken as a whole, or an Ample
Material Adverse Effect, taken as a whole (either before or after giving effect to the Arrangement) or would not materially impede
or delay the completion of the Arrangement;
“Replacement
Option” means an option or right to purchase Akerna Shares granted by Akerna in replacement of Ample Options on the
basis set forth in subsection 2.15;
“Representatives”
means, with respect to any Person and its Subsidiaries, collectively, the officers, directors, employees, consultants, advisors
(including financial advisors and legal counsel), representatives, agents or other parties acting on its behalf;
“Retained
Personnel” means John Prentice, Evan McEwen and Tom Ritchie.
“Rights
Indenture” means the rights indenture to be entered into between Akerna, Purchaser, the Shareholder Representative and
a trust company acceptable to Ample and Purchaser, as rights agent, providing for the creation and issuance of the CVRs, in the
form or substantially in the form attached as Schedule “F”;
“Securities
Act” means the Securities Act (Ontario) and the rules, regulations and published policies made thereunder;
“Securities
Authorities” means, collectively, the securities commissions or similar securities regulatory authorities in each of
the provinces of Canada;
“Shareholder
Representative” means John Prentice;
“Significant
Shareholder” has the meaning ascribed thereto in Section 4.2(i);
“Special
Voting Share” means the special voting share in the capital of Akerna to be issued by Akerna and deposited with the
trustee appointed under the Voting and Exchange Trust Agreement, which, at any time entitles the holder of record to that number
of votes at meetings of holders of Akerna Shares equal to the number of Exchangeable Shares outstanding at such time (excluding
any Exchangeable Shares held by Akerna or any Affiliate);
“Subsidiary”
has the meaning ascribed thereto in the Securities Act, which for certainty shall include any indirect subsidiaries;
“Tax”
or “Taxes” means any and all taxes, duties, fees, excises, premiums, assessments, imposts, levies and other charges
or assessments of any kind whatsoever however denominated, including any interest, penalties or other additions that may become
payable in respect thereof, imposed by any Taxing Authority, whether computed on a separate, consolidated, unitary, combined or
other basis, which taxes will include, without limiting the generality of the foregoing, all income or profits taxes (including,
but not limited to, federal income taxes and provincial income taxes), payroll and employee withholding taxes, employment insurance
premiums, unemployment insurance, social insurance taxes, Canada Pension Plan contributions, sales and use taxes (including goods
and services and provincial sales taxes), value added taxes, excise taxes, fuel taxes, franchise taxes, gross receipts taxes,
carbon taxes, capital taxes, production taxes, recapture, withholding taxes, employee health taxes, surtaxes, customs, import
and export taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes,
transfer taxes, workers compensation and other governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which Ample or any Ample Subsidiary is required to pay, withhold, remit or collect;
“Tax
Act” means the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended, including the regulations promulgated
thereunder;
“Tax
Returns” means all reports, estimates, elections, notices, filings, designations, forms, declarations of estimated tax,
information statements and returns relating to, or required to be supplied to any Taxing Authority in connection with, any Taxes
(including any attached schedules, estimated tax returns, withholding tax returns, and information returns and reports);
“Taxing
Authority” means any Governmental Entity responsible for the imposition of any Tax (domestic or foreign);
“Third
Party Action” means any suit or proceeding by a Person other than a Party for which indemnification may be sought by
an Indemnified Party pursuant to Article 6;
“Third
Party Beneficiaries” has the meaning ascribed thereto in Section 10.12;
“Transaction
Expenses” means all legal, advisory, accounting fees and expenses of Ample arising as a result of the Arrangement that
are incurred prior to, and remain unpaid as of, the Effective Time;
“United
States” means the United States of America, its territories and possessions, any state of the United States, and the
District of Columbia;
“Up-front
Consideration” means the Up-front Shares to be issued and the Closing Cash Amount to be delivered by Akerna and Purchaser
at the Effective Time in accordance with this Agreement;
“Up-front
Share Consideration Amount” means an amount equal to $42,500,000, plus the aggregate exercise prices of all Replacement
Options to be granted in exchange for Ample Options (other than Out-of-Money Options) pursuant to the Arrangement and Ample Warrants
(other than Out-of-Money Warrants);
“Up-front
Shares” means an aggregate number of Exchangeable Shares that is equal to the Up-front Share Consideration Amount, divided
by the Deemed Value Amount, less (i) the aggregate number of Exchangeable Shares and/or Akerna Shares that the Optionholders would
be entitled to receive exclusively as a result of the exercise immediately following the Effective Time of all Replacement Options
granted in exchange for Ample Options (other than Out-of-Money Options) pursuant to the Arrangement, and less (ii) the aggregate
number of Exchangeable Shares and/or Akerna Shares that the Warrantholders would be entitled to receive exclusively as a result
of the exercise of all Ample Warrants (other than Out-of-Money Warrants) immediately following to the Effective Time;
“U.S.
Exchange Act” means the United States Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder;
“U.S.
GAAP” means generally accepted accounting principles in the United States of America in effect from time to time;
“U.S.
Securities Act” means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated
thereunder;
“U.S.
Securities Laws” means the U.S. Securities Act, the U.S. Exchange Act and applicable state securities legislation of
the United States and all rules, regulations and orders promulgated thereunder, as amended from time to time; and
“Voting
and Exchange Trust Agreement” means an agreement to be made between Akerna, Purchaser, Callco, the Shareholder Representative
and the trustee to be chosen by Akerna to act as trustee under the Voting and Exchange Trust Agreement, substantially in the form
attached hereto as Schedule “E”; and
“Warrantholders”
means holders of Ample Warrants.
1.2
|
Interpretation Not Affected by Headings, etc.
|
The
division of this Agreement into Articles, Sections, subsections and other portions and the insertion of headings are for convenience
of reference only and will not affect the construction or interpretation hereof. Unless otherwise indicated, all references to
an “Article”, “Section” or “subsections” followed by a number and/or a letter refer to the specified
Article, Section or subsections of this Agreement.
1.3
|
Number and Gender; Derivatives
|
Unless
the context otherwise requires, in this Agreement, words importing the singular number include the plural and vice versa,
and words importing the use of any gender include all genders. If a word is defined in this Agreement a grammatical derivative
of that word will have a corresponding meaning. The words “include”, “includes” and “including”
shall be deemed to be followed by the words “without limitation”.
If
any date on which any action is required to be taken hereunder by any of the Parties is not a Business Day, such action is required
to be taken on the next succeeding day which is a Business Day.
1.5
|
Statute and Agreement References
|
Any
reference in this Agreement to any statute or any Section thereof will, unless otherwise expressly stated, be deemed to be a reference
to such statute or Section as amended, restated or re-enacted from time to time. References to any agreement or document will
be to such agreement or document (together with all appendices, schedules and exhibits thereto), as it may have been or may hereafter
be amended, supplemented, replaced or restated from time to time.
All
sums of money that are referred to in this Agreement are expressed in lawful money of Canada unless otherwise noted.
Unless
otherwise stated, all accounting terms used in this Agreement in respect of: (a) Akerna shall have the meanings attributable thereto
under U.S. GAAP and all determinations of an accounting nature in respect of Akerna required to be made shall be made in accordance
with U.S. GAAP consistently applied; and (b) Ample shall have the meanings attributable thereto under IFRS and all determinations
of an accounting nature in respect of Ample required to be made shall be made in accordance with IFRS consistently applied.
1.8
|
Interpretation Not Affected by Party Drafting
|
The
Parties hereto acknowledge that their respective legal counsel have reviewed and participated in settling the terms of this Agreement,
and the Parties agree that any rule of construction to the effect that any ambiguity is to be resolved against the drafting party
will not be applicable in the interpretation of this Agreement.
Where
any representation or warranty is expressly qualified by reference to the knowledge of a Party, it is deemed to refer to the actual
knowledge of the Executive Officers of Akerna or Ample, as the case may be, after reasonable inquiry. For purposes of this Section
1.9, “Executive Officers” (a) in the case of the Akerna, means Jessica Billingsley, Ray Thompson and Ruth Ann
Kraemer; and (b) in the case of Ample, means John Prentice and Peter Slater.
1.10
|
Disclosure in Writing
|
References
herein to disclosure in writing shall, in the case of disclosure to Purchaser be references exclusively to the Ample Disclosure
Letter or this Agreement.
The
following schedules attached hereto are incorporated into and form an integral part of this Agreement:
Schedule
“A” – Arrangement Resolution
Schedule
“B” – Plan of Arrangement
Schedule
“C” – Form of Exchangeable Share Support Agreement
Schedule “D” – Form of Escrow Agreement
Schedule
“E” – Form of Voting and Exchange Trust Agreement
Schedule
“F” – Form of Rights Indenture
Schedule
“G” – Form of Ample Shareholder Support Agreement
Schedule
“H” – Form of Akerna Shareholder Support Agreement
Schedule
“I” – Exchangeable Share Provisions
Article
2
THE ARRANGEMENT
Ample
and Akerna agree that the Arrangement will be implemented in accordance with the terms and subject to the conditions contained
in this Agreement and the Plan of Arrangement. In the event of any conflict between the terms of this Agreement and the Plan of
Arrangement, the Plan of Arrangement shall govern.
Akerna
represents and warrants to Ample that the Akerna Board has unanimously determined that:
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(a)
|
the
Arrangement and entry into this Agreement are, as of the date of this Agreement, in the
best interests of Akerna; and
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|
(b)
|
it
will unanimously recommend that the Akerna Shareholders vote in favour of the Akerna
Shareholder Matters.
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Ample
represents and warrants to Akerna and Purchaser that the Ample Board has unanimously determined that:
|
(a)
|
the
Arrangement is fair to the Ample Shareholders (other than Akerna) from a financial point
of view;
|
|
(b)
|
the
Arrangement and entry into this Agreement are, as of the date of this Agreement, in the
best interests of Ample; and
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(c)
|
subject
to Section 3.8(e), it will unanimously recommend that the Ample Shareholders vote in
favour of the Arrangement Resolution.
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As
soon as reasonably practicable following the execution of this Agreement, but in any event no later than February 20, 2020, Ample
shall apply to the Court in a manner acceptable to Akerna, acting reasonably, pursuant to the OBCA and prepare, file and diligently
pursue an application to the Court of the Interim Order, which shall provide, among other things:
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(a)
|
for
the class of Persons to whom notice is to be provided in respect of the Arrangement and
the Ample Meeting and for the manner in which such notice is to be provided;
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(b)
|
that
the requisite approval for the Arrangement Resolution shall be 66 2/3% of the votes cast
on the Arrangement Resolution by Ample Shareholders present in person or represented
by proxy at the Ample Meeting voting together as a single class, together with the affirmative
vote of the holders holding not less than a majority of the Ample Preferred Shares;
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(c)
|
that
it is the intention of Akerna and Purchaser to rely upon Section 3(a)(10) of the U.S.
Securities Act in connection with the offer and sale of Consideration Shares and Akerna
Shares to be issued pursuant to the exchange of Exchangeable Shares, in each case in
accordance with the Arrangement, based on the Court’s approval of the Arrangement,
which approval through the issuance of the Final Order will constitute its determination
of the fairness of the Arrangement;
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(d)
|
that
the Ample Meeting may be adjourned or postponed from time to time by the Ample Board
subject to the terms of this Agreement without the need for additional approval of the
Court;
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(e)
|
that
the record date for Ample Shareholders entitled to notice of and to vote at the Ample
Meeting will not change in respect of any adjournment(s) or postponements of the Ample
Meeting;
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(f)
|
that,
in all other respects, other than as ordered by the Court, the terms, conditions and
restrictions of the constating documents of Ample, including quorum requirements and
other matters, shall apply in respect of the Ample Meeting;
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(g)
|
for
the grant of the Dissent Rights to registered holders of Ample Shares as set forth in
the Plan of Arrangement;
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(h)
|
for
the notice requirements with respect to the presentation of the application to the Court
for the Final Order; and
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(i)
|
for
such other matters as Akerna may reasonably require, subject to obtaining the prior consent
of Ample, such consent not to be unreasonably withheld, conditioned or delayed.
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2.5
|
Akerna Shareholder Meeting
|
Subject
to the terms of this Agreement and receipt of the Interim Order, Akerna shall:
|
(a)
|
convene
and conduct the Akerna Meeting in accordance with its constating documents and Applicable
Laws, as soon as reasonably practicable, and in any event on or before February 26, 2020;
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(b)
|
in
consultation with Ample, fix and publish a record date for the purposes of determining
Akerna Shareholders entitled to receive notice of and vote at the Akerna Meeting and
give notice to Ample of the Akerna Meeting;
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(c)
|
allow
Ample’s Representatives and counsel to attend the Akerna Meeting;
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(d)
|
not
adjourn, postpone or cancel (or propose or permit the adjournment, postponement or cancellation
of) the Akerna Meeting without Ample’s prior written consent (such consent not be unreasonably
withheld, conditioned or delayed), except:
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(i)
|
as
required for quorum purposes (in which case the meeting shall be adjourned and not cancelled),
by Applicable Law or by a Governmental Entity or by valid Akerna Shareholder action (which
action is not solicited or proposed by Akerna or the Akerna Board); or
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(ii)
|
as
otherwise expressly permitted under this Agreement;
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(e)
|
provide
Ample with copies of or access to information regarding the Akerna Meeting generated
by any dealer or proxy solicitation firm engaged by Akerna, as requested from time to
time by Ample;
|
|
(f)
|
use
commercially reasonable efforts to solicit proxies in favour of the Akerna Shareholder
Matters;
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|
(g)
|
promptly
advise Ample, at such times as Ample may reasonably request, as to the aggregate tally
of the proxies received by Akerna in respect of the Akerna Shareholder Matters;
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|
(h)
|
unless
otherwise agreed to in writing by Ample or this Agreement is terminated in accordance
with its terms or except as required by Applicable Law or by a Governmental Entity, Akerna
shall continue to take all steps reasonably necessary to hold the Akerna Meeting and
to cause the Akerna Shareholder Matters to be voted on at such meeting and shall not
propose to adjourn or postpone the Ample Meeting other than as contemplated by Section
2.5(d); and
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(i)
|
not
change the record date for the Akerna Shareholders entitled to vote at the Akerna Meeting
in connection with any adjournment or postponement of the Akerna Meeting unless required
by Applicable Law or with the written consent of Ample, such consent not to be unreasonably
withheld, conditioned or delayed.
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2.6
|
Ample Shareholder Meeting
|
Subject
to the terms of this Agreement and receipt of the Interim Order, Ample shall:
|
(a)
|
convene
and conduct the Ample Meeting in accordance with its constating documents, the Interim
Order and Applicable Laws, as soon as reasonably practicable, and in any event on or
before February 26, 2020;
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|
(b)
|
in
consultation with Akerna, fix and publish a record date for the purposes of determining
Ample Shareholders entitled to receive notice of and vote at the Ample Meeting and give
notice to Akerna of the Ample Meeting;
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|
(c)
|
allow
Akerna’s Representatives and counsel to attend the Ample Meeting;
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|
(d)
|
not
adjourn, postpone or cancel (or propose or permit the adjournment, postponement or cancellation
of) the Ample Meeting without Akerna’s prior written consent (such consent not be unreasonably
withheld, conditioned or delayed), except:
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|
(i)
|
as
required for quorum purposes (in which case the meeting shall be adjourned and not cancelled),
by Applicable Law or by a Governmental Entity or by valid Ample Shareholder action (which
action is not solicited or proposed by Ample or the Ample Board); or
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(ii)
|
as
otherwise expressly permitted under this Agreement;
|
|
(e)
|
provide
Akerna with copies of or access to information regarding the Ample Meeting generated
by any dealer or proxy solicitation firm engaged by Ample, as requested from time to
time by Akerna;
|
|
(f)
|
use
commercially reasonable efforts to solicit proxies in favour of the Arrangement Resolution;
|
|
(g)
|
promptly
advise Akerna, at such times as Akerna may reasonably request, as to the aggregate tally
of the proxies received by Ample in respect of the Arrangement Resolution;
|
|
(h)
|
promptly
advise Akerna of any written communication from any Ample Shareholder in opposition to
the Arrangement, written notice of dissent, purported exercise or withdrawal of Dissent
Rights, and written communications sent by or on behalf of Ample to any Ample Shareholder
exercising or purporting to exercise Dissent Rights;
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|
(i)
|
not
make any payment or settlement offer, or agree to any payment or settlement prior to
the Effective Time with respect to Dissent Rights without the prior written consent of
Akerna;
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(j)
|
notwithstanding
the receipt of an Acquisition Proposal or an Ample Change in Recommendation, unless otherwise
agreed to in writing by Akerna or this Agreement is terminated in accordance with its
terms or except as required by Applicable Law or by a Governmental Entity, Ample shall
continue to take all steps reasonably necessary to hold the Ample Meeting and to cause
the Arrangement Resolution to be voted on at such meeting and shall not propose to adjourn
or postpone the Ample Meeting other than as contemplated by Section 2.6(d); and
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(k)
|
not
change the record date for the Ample Shareholders entitled to vote at the Ample Meeting
in connection with any adjournment or postponement of the Ample Meeting unless required
by Applicable Law or with the written consent of Akerna, such consent not to be unreasonably
withheld, conditioned or delayed.
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(a)
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Akerna
shall as soon as reasonably practicable following the date of this Agreement (but taking
into account the need for Ample to provide the Ample Circular Disclosure) prepare and
complete, in consultation with Ample, the Akerna Circular together with any other documents
required by Applicable Laws in connection with the Akerna Meeting and the Akerna Shareholder
Matters, and Akerna shall, after receipt of Ample of the Interim Order, cause the Akerna
Circular and such other documents to be sent to each Akerna Shareholder (if applicable)
and any other Person as required by Applicable Laws, in each case so as to permit the
Akerna Meeting to be held by the date specified in Section 2.5(a).
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(b)
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On
the date of mailing thereof, Akerna shall ensure that the Akerna Circular complies in
all material respects with all Applicable Laws and shall contain sufficient detail to
permit Akerna Shareholders to form a reasoned judgment concerning the matters to be placed
before them at the Akerna Meeting, and, without limiting the generality of the foregoing,
shall ensure that the Akerna Circular will not contain any misrepresentation (except
that Akerna shall not be responsible for the accuracy of any Ample Circular Disclosure).
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(c)
|
The
Akerna Circular shall contain the unanimous recommendation of the Akerna Board to Akerna
Shareholders that they vote in favour of the Akerna Shareholder Matters.
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|
(d)
|
Ample
shall provide to Akerna in writing the Ample Circular Disclosure to be included by Akerna
in the Akerna Circular not less than ten Business Days before the mailing date of the
Akerna Circular and shall ensure that at the time of the mailing, such information does
not contain any misrepresentation and complies in all material respects with Applicable
Laws.
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(e)
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Ample
hereby indemnifies and saves harmless Akerna, its Subsidiaries and their respective Representatives
from and against any and all liabilities, claims, demands, losses, costs, damages and
expenses to which Akerna, any Subsidiary or any of their respective Representatives may
be subject or may suffer as a result of, or arising from, any misrepresentation or alleged
misrepresentation contained in the Ample Circular Disclosure included in the Akerna Circular
that was provided by Ample in writing for inclusion in the Akerna Circular pursuant to
Section 2.7(d), including as a result of any order made, or any inquiry, investigation
or proceeding instituted by any Securities Authority or other Governmental Entity based
on such a misrepresentation or alleged misrepresentation.
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|
(f)
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Ample
and its legal counsel shall be given a reasonable opportunity to review and comment on
drafts of the Akerna Circular and related documents prior to the Akerna Circular being
printed and mailed to the Akerna Shareholders, and reasonable consideration shall be
given to any comments made by Ample and its legal counsel, provided that all information
relating solely to Ample and its Affiliates included in the Akerna Circular shall be
in form and content approved in writing by Ample, acting reasonably. Akerna shall provide
Ample with final copies of the Akerna Circular prior to the mailing to Akerna Shareholders.
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(g)
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Each
Party shall promptly notify the other Party if it becomes aware that the Akerna Circular
contains a misrepresentation or otherwise requires an amendment or supplement and the
Parties shall co-operate in the preparation of any amendment or supplement to the Akerna
Circular as required or appropriate and Akerna shall promptly mail or otherwise publicly
disseminate (if required under Applicable Law) any amendment or supplement to the Akerna
Circular to the Akerna Shareholders.
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|
(a)
|
Ample
shall as soon as reasonably practicable following the date of this Agreement (but taking
into account the need for Akerna to provide the Purchaser Circular Disclosure) prepare
and complete, in consultation with Akerna, the Ample Circular together with any other
documents required by Applicable Laws in connection with the Ample Meeting and the Arrangement,
and Ample shall, after obtaining the Interim Order, cause the Ample Circular and such
other documents to be sent to each Ample Shareholder (if applicable) and any other Person
as required by the Interim Order and Applicable Laws, in each case so as to permit the
Ample Meeting to be held by the date specified in Section 2.6(a).
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|
(b)
|
On
the date of mailing thereof, Ample shall ensure that the Ample Circular complies in all
material respects with all Applicable Laws and the Interim Order and shall contain sufficient
detail to permit Ample Shareholders to form a reasoned judgment concerning the matters
to be placed before them at the Ample Meeting, and, without limiting the generality of
the foregoing, shall ensure that the Ample Circular will not contain any misrepresentation
(except that Ample shall not be responsible for the accuracy of any Purchaser Circular
Disclosure). The Ample Circular shall also contain such information as may be required
to allow Akerna and Purchaser to rely upon the exemption from registration provided under
Section 3(a)(10) of the U.S. Securities Act with respect to the offer and sale of the
Consideration Shares and the Akerna Shares to be issued pursuant to the exchange of the
Exchangeable Shares, in each case pursuant to the Arrangement.
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|
(c)
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Subject
to Section 3.8(e) and any Ample Change in Recommendation, the Ample Circular shall: (i)
state that the Ample Board has unanimously determined that the Arrangement is fair to
the Ample Shareholders and that the Arrangement and entry into this Agreement are in
the best interests of Ample; and (ii) contain the unanimous recommendation of the Ample
Board to Ample Shareholders that they vote in favour of the Arrangement Resolution (the
“Ample Board Recommendation”).
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|
(d)
|
Akerna
shall provide to Ample in writing the Purchaser Circular Disclosure to be included by
Ample in the Ample Circular not less than ten Business Days before the mailing date of
the Ample Circular and shall ensure that at the time of the mailing, such information
does not contain any misrepresentation and complies in all material respects with Applicable
Laws.
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(e)
|
Akerna
hereby indemnifies and saves harmless Ample, its Subsidiaries and their respective Representatives
from and against any and all liabilities, claims, demands, losses, costs, damages and
expenses to which Ample, any Subsidiary or any of their respective Representatives may
be subject or may suffer as a result of, or arising from, any misrepresentation or alleged
misrepresentation contained in the Purchaser Circular Disclosure included in the Ample
Circular that was provided by Akerna in writing for inclusion in the Ample Circular pursuant
to Section 2.8(d), including as a result of any order made, or any inquiry, investigation
or proceeding instituted by any Securities Authority or other Governmental Entity based
on such a misrepresentation or alleged misrepresentation.
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|
(f)
|
At
the reasonable request of Akerna from time to time, Ample shall, or shall direct its
registrar and transfer agent to, provide Akerna with a list (in both written and electronic
form) of: (i) the registered Ample Shareholders, together with their addresses and respective
holdings of Ample Shares; and (ii) the names and addresses and holdings of all Persons
having rights issued by Ample to acquire Ample Shares. Ample shall from time to time
require that its registrar and transfer agent furnish Akerna with such additional information,
including updated or additional lists of Ample Shareholders and lists of holdings and
other assistance as Akerna may reasonably request.
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(g)
|
Akerna
and its legal counsel shall be given a reasonable opportunity to review and comment on
drafts of the Ample Circular and related documents prior to the Ample Circular being
printed and mailed to the Ample Shareholders, and reasonable consideration shall be given
to any comments made by Akerna and its legal counsel, provided that all information relating
solely to Akerna and its Affiliates included in the Ample Circular shall be in form and
content approved in writing by Akerna, acting reasonably. Ample shall provide Akerna
with final copies of the Ample Circular prior to the mailing to Ample Shareholders.
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|
(h)
|
Each
Party shall promptly notify the other Party if it becomes aware that the Ample Circular
contains a misrepresentation or otherwise requires an amendment or supplement and the
Parties shall co-operate in the preparation of any amendment or supplement to the Ample
Circular as required or appropriate and Ample shall promptly mail or otherwise publicly
disseminate (if required under Applicable Law) any amendment or supplement to the Ample
Circular to the Ample Shareholders.
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If:
(a) the Interim Order is obtained; and (b) the Arrangement Resolution is passed at the Ample Meeting by Ample Shareholders as
provided for in the Interim Order and as required by Applicable Law, subject to the terms of this Agreement, Ample shall take
all steps necessary or desirable to submit the Arrangement to the Court and diligently pursue an application for the Final Order
pursuant to the OBCA as soon as reasonably practicable, but in any event not later than three Business Days after the Ample Shareholder
Approval is obtained.
Subject
to the terms of this Agreement, Akerna shall cooperate with and assist Ample in seeking the Interim Order and the Final Order,
including by providing to Ample, on a timely basis, any information reasonably required to be supplied by Akerna in connection
therewith. Ample shall provide Akerna’s legal counsel with reasonable opportunity to review and comment upon drafts of all material
to be filed with the Court in connection with the Arrangement, and will give reasonable consideration to all such comments. Subject
to Applicable Law, Ample shall not file any material with the Court in connection with the Arrangement or serve any such material,
and shall not agree to modify or amend materials so filed or served, except as contemplated by this Section 2.10 or with Akerna’s
prior written consent, such consent not to be unreasonably withheld, conditioned or delayed; provided that, nothing herein
shall require Akerna to agree or consent to any increase in or variation in the form of Consideration or other modification or
amendment to such filed or served materials that expands or increases Akerna’s obligations, or diminishes or limits Akerna’s
rights, set forth in any such filed or served materials or under this Agreement or the Arrangement. Ample shall also provide to
Akerna’s legal counsel on a timely basis, copies of any notice of appearance, evidence or other Court documents served on
Ample in respect of the application for the Interim Order or the Final Order or any appeal therefrom and of any notice, whether
written or oral, received by Ample indicating any intention to oppose the granting of the Interim Order or the Final Order or
to appeal the Interim Order or the Final Order. Ample shall ensure that all materials filed with the Court in connection with
the Arrangement are consistent with the terms of this Agreement and the Plan of Arrangement. In addition, Ample shall not object
to Akerna’s legal counsel making such submissions on the hearing of the motion for the Interim Order and the application
for the Final Order as such counsel considers appropriate, provided that Ample is advised of the nature of any submissions prior
to the hearing and such submissions are consistent in all material respects with this Agreement and the Plan of Arrangement. Ample
shall also oppose any proposal from any party that the Final Order contain any provision inconsistent with this Agreement, and,
if at any time after the issuance of the Final Order and prior to the Effective Date, Ample is required by the terms of the Final
Order or by Applicable Law to return to Court with respect to the Final Order, it shall do so after notice to, and in consultation
and cooperation with, Akerna.
2.11
|
U.S. Securities Law Matters
|
The
Parties agree that the Arrangement will be carried out with the intention that all Consideration Shares and Akerna Shares to be
issued pursuant to the exchange of Exchangeable Shares, in each case issued under the Arrangement, will be offered and sold by
Akerna and Purchaser, whether in the United States, Canada or any other country, in reliance on the exemption from the registration
requirements of the U.S. Securities Act provided by section 3(a)(10) thereunder. In order to ensure the availability of the exemption
under section 3(a)(10) of the U.S. Securities Act and to facilitate Akerna’s compliance with other U.S. Securities Laws,
the Parties agree that the Arrangement will be carried out on the following basis:
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(a)
|
the
Court will be asked to approve the procedural and substantive fairness of the terms and
conditions of the Arrangement;
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|
(b)
|
prior
to the issuance of the Interim Order, the Court will be advised of the intention of Akerna
and Purchaser to rely on the exemption provided by Section 3(a)(10) of the U.S. Securities
Act with respect to the issuance of Consideration Shares and Akerna Shares to be issued
pursuant to the exchange of Exchangeable Shares, in each case pursuant to the Arrangement,
based on the Court’s approval of the Arrangement;
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|
(c)
|
prior
to the issuance of the Interim Order, Ample will file with the Court a draft copy of
the proposed text of the Ample Circular together with any other documents required by
Applicable Law in connection with the Ample Meeting;
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|
(d)
|
the
Court will be advised that its approval of the Arrangement will be relied upon as a determination
that the Court has satisfied itself as to the procedural and substantive fairness of
the terms and conditions of the Arrangement to all Persons who are entitled to receive
Consideration Shares and Akerna Shares to be issued pursuant to the exchange of Exchangeable
Shares, in each case pursuant to the Arrangement;
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|
(e)
|
Ample
will ensure that each Ample Shareholder and any other Person entitled to receive Consideration
Shares and Akerna Shares to be issued pursuant to the exchange of Exchangeable Shares,
in each case pursuant to the Arrangement, will be given adequate and appropriate notice
advising them of their right to attend the hearing of the Court to approve the procedural
and substantive fairness of the terms and conditions of the Arrangement and providing
them with sufficient information necessary for them to exercise that right;
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(f)
|
the
Final Order will expressly state that the Arrangement is approved by the Court as being
procedurally and substantively fair to all Persons entitled to receive Consideration
Shares and Akerna Shares to be issued pursuant to the exchange of Exchangeable Shares,
in each case pursuant to the Arrangement;
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(g)
|
the
Interim Order will specify that each Person entitled to receive Consideration Shares
and Akerna Shares to be issued pursuant to the exchange of Exchangeable Shares, in each
case pursuant to the Arrangement, will have the right to appear before the Court at the
hearing of the Court to give approval of the Arrangement;
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|
(h)
|
the
Court will hold a hearing before approving the fairness of the terms and conditions of
the Arrangement and issuing the Final Order; and
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(i)
|
all
Consideration Shares and Akerna Shares to be issued pursuant to the exchange of Exchangeable
Shares, in each case issued to Persons in the United States, will be registered or qualified
under the securities laws of each state, territory or possession of the United States
in which any Person receiving such securities is located, unless an exemption from such
state securities law registration or qualification requirements is available. In addition,
the issuer of any Consideration Shares or Akerna Shares to be issued pursuant to the
exchange of Exchangeable Shares, in each case issued to a Person in any state, territory
or possession of the United States, shall comply with any issuer broker-dealer registration
requirement applicable in that state, territory or possession, unless an exemption from
such issuer broker-dealer registration requirement is available.
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The
Arrangement shall become effective at the Effective Time on the Effective Date. The certificate of arrangement shall be conclusive
evidence that the Arrangement has become effective as of the Effective Time. The Parties shall use their commercially reasonable
efforts to cause the Effective Date to occur on or about February 28, 2020 or as soon thereafter as reasonably practicable and,
in any event, by the Outside Date.
The
closing of the Arrangement will take place at the offices of legal counsel to Ample, or at such other location as may be agreed
upon by the Parties.
2.14
|
Payment and Allocation of Up-front Consideration
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(a)
|
Akerna
and Purchaser will, following receipt by Ample of the Final Order and prior to the Effective
Time, deposit in escrow with the Depositary (the terms and conditions of such escrow
to be satisfactory to the Parties, acting reasonably) the Effective Time Shares, sufficient
funds to satisfy the Closing Cash Amount and CVRs evidencing Akerna’s and Purchaser’s
obligations with respect to the Deferred Consideration.
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|
(b)
|
Akerna
and Purchaser will, following receipt by Ample of the Final Order and at or prior to
the Effective Time, deposit in escrow with the Escrow Agent (the terms and conditions
of such escrow to be satisfactory to the Parties, acting reasonably) the Closing Shares
to be held in escrow and distributed in accordance with the terms of this Agreement and
the Escrow Agreement.
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(c)
|
Akerna
and Purchaser will, following receipt by Ample of the Final Order and at or prior to
the Effective Time, deposit in escrow with the Escrow Agent (the terms and conditions
of such escrow to be satisfactory to the Parties, acting reasonably) the Escrowed Shares
to be held in escrow and distributed in accordance with the terms of this Agreement and
the Escrow Agreement.
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|
(d)
|
The
entitlement of each Ample Shareholder to the Up-front Consideration (or any portion thereof)
shall be as prescribed by the Ample Articles, as determined by the Shareholder Representative
acting reasonably and with reference to the Effective Date Register.
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|
(e)
|
In
no event shall Purchaser be required to issue a fractional Exchangeable Share. Where
the aggregate number of Exchangeable Shares to be issued as Up-front Consideration under
the Arrangement would result in a fraction of an Exchangeable Share being issuable, the
number of Exchangeable Shares to be issued shall be rounded to the nearest whole Exchangeable
Share (with fractions equal to or greater than 0.5 being rounded up and fractions less
than 0.5 being rounded down).
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2.15
|
Ample Options and Warrants
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(a)
|
Subject
to Applicable Laws and to the receipt of the approval of NASDAQ:
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|
(i)
|
Each
Ample Warrant outstanding at the Effective Time shall be continued on the same terms
and conditions as were applicable immediately prior to the Effective Time;
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|
(ii)
|
Each
Ample Option outstanding at the Effective Time (whether vested or unvested) will be exchanged
for a Replacement Option to acquire, on the same terms and conditions as were applicable
under such Ample Option immediately prior to the Effective Time, such number of Akerna
Shares as is equal to (A) that number of Ample Shares that were issuable upon exercise
of such Ample Option immediately prior to the Effective Time, multiplied by (B) the Exchange
Ratio, rounded down to the nearest whole number of Akerna Shares, at an exercise price
per Akerna Share equal to the greater of the quotient determined by dividing (X) the
exercise price per Ample Share at which such Ample Option was exercisable immediately
prior to the Effective Time, by (Y) the Exchange Ratio, rounded up to the nearest whole
cent, and such minimum amount that meets the requirements of paragraph 7(1.4)(c) of the
Tax Act.
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|
(b)
|
Pursuant
to the terms of the Ample Options, Ample may facilitate the acceleration of the vesting
of any unvested Ample Options subject to accelerated vesting on a change of control of
Ample as may be necessary or desirable to allow all Optionholders to exercise their respective
Ample Options for the purpose of participating in the Arrangement.
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2.16
|
Satisfaction of Closing Indebtedness Amount and Transaction
Expenses
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|
(a)
|
Ample
will, following receipt by Ample of the Final Order and prior to the Effective Time,
provide or cause to be provided to Akerna and Purchaser payout letters (the “Payout
Letters”) with respect to the Closing Indebtedness Amount, and will make arrangements
reasonably satisfactory to the Akerna and Purchaser (i) for all lenders and creditors
entitled to repayment of any portion of the Closing Indebtedness Amount to provide to
Akerna and the Purchaser recordable form lien releases and other documents reasonably
requested simultaneously with or promptly following the Effective Time to evidence repayment,
extinguishment and discharge of such portion of the Closing Indebtedness Amount, and
(ii) to terminate effective as of the Effective Time all obligations Ample and its Subsidiaries
under the credit agreements, guarantees, security agreements and other financial instruments
and documents relating to such portion of the Closing Indebtedness Amount.
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|
(b)
|
At
the Effective Time, Akerna and Purchaser shall satisfy and pay the Closing Indebtedness
Amount on behalf of each applicable debtor by paying directly to the applicable lenders
and creditors in immediately available funds all amounts owing in respect of the Closing
Indebtedness Amount, if any, in each case, as directed pursuant to the Payout Letters.
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|
(c)
|
At
the Effective Time, Akerna and Purchaser shall pay and satisfy all Transaction Expenses
on behalf of Ample by paying directly to the appropriate Persons set forth on Schedule
2.16(c) of the Ample Disclosure Letter in immediately available funds all amounts owing
in respect of the Transaction Expenses, in each case as set out on Schedule 2.16(c) of
the Ample Disclosure Letter.
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2.17
|
Indemnities and Directors’ and Officers’
Insurance
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|
(a)
|
Akerna
and Purchaser agree that: (i) after the Effective Time, Ample and any successor to Ample
will not take any action to terminate or materially adversely affect indemnities provided
or available to or in favour of past and present officers and directors of Ample and
the Ample Subsidiaries pursuant to the provisions of the articles, by-laws or other constating
documents of Ample or any Ample Subsidiary, applicable corporate legislation and any
written indemnity agreements which have been entered into between Ample and past and
present officers and directors of Ample and the Ample Subsidiaries effective on or prior
to the date hereof (the forms of which were provided in the Ample Information); and (ii)
immediately prior to the Effective Time, Akerna will make arrangements satisfactory to
the Ample Board, acting reasonably, to secure the obligations under such written indemnity
agreements.
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|
(b)
|
Prior
to the Effective Date, Ample will secure “run-off” directors’ and officers’
liability insurance for the current and former directors and officers of Ample and the
Ample Subsidiaries, covering claims made or reported within six years after the Effective
Date, which has a scope and coverage substantially similar in scope and coverage to that
provided pursuant to Ample’s current directors and officers insurance policy, including
coverage for any claims arising from completion of the Arrangement and related transactions,
and Purchaser will not take any action, or cause Ample to take any action, to adversely
affect or terminate such directors’ and officers’ liability insurance.
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Akerna,
Purchaser, Ample, Callco and the Depositary, as applicable, shall be entitled to deduct and withhold, or direct Akerna, Purchaser,
Ample, Callco or the Depositary to deduct and withhold on their behalf, from any consideration otherwise payable or otherwise
deliverable to any Ample Shareholders under the Plan of Arrangement such amounts as Akerna, Purchaser, Ample, Callco or the Depositary,
as applicable, are required or reasonably believe to be required to deduct and withhold from such consideration under any provision
of any Applicable Law in respect of Taxes. Any such amounts will be deducted, withheld and remitted from the consideration payable
pursuant to the Plan of Arrangement and shall be treated for all purposes under this Agreement as having been paid to Ample Shareholders
in respect of which such deduction, withholding and remittance was made.
2.19
|
Deferred Consideration
|
|
(a)
|
Not
later than 45 calendar days after the Deferred Consideration Period, Akerna shall deliver
to the Shareholder Representative the Deferred Consideration Statement. The Deferred
Consideration Statement shall be prepared in accordance with U.S. GAAP applied consistently
with Ample’s past practices (to the extent such past practices are consistent with
U.S. GAAP).
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|
(b)
|
The
Deferred Consideration Statement shall be accompanied by all relevant backup materials,
in detail reasonably acceptable to the Shareholder Representative and such other material
reasonably requested by the Shareholder Representative, and a statement setting forth
the amount, if any, of Deferred Consideration payable to holders of the CVRs.
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|
(c)
|
The
Shareholder Representative shall have 20 Business Days to accept or dispute the Deferred
Consideration Statement by providing written notice of such acceptance or dispute to
Akerna. In the event that Akerna does not receive any written notice of acceptance or
dispute of the Deferred Consideration Statement from the Shareholder Representative by
the expiry of such 20 Business Day period, the Shareholder Representative will be deemed
to have accepted the Deferred Consideration Statement for and on behalf of all holders
of CVRs. Notwithstanding the foregoing, the period for the Shareholder Representative
to accept or dispute the Deferred Consideration Statement shall be extended by such number
of days as is equal to the period from: (i) the date the Shareholder Representative requests
other material as contemplated under Section 2.19(b); and (ii) the date all such material
is delivered to the Shareholder Representative.
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|
(d)
|
In
the event the Shareholder Representative disputes the Deferred Consideration Statement,
the Shareholder Representative shall provide Akerna the nature and basis of such dispute,
and Akerna and the Shareholder Representative shall use their commercially reasonable
efforts to reach agreement on the disputed amounts in order to determine the amount of
the Deferred Consideration payable, if any. If Akerna and the Shareholder Representative
are unable to resolve the dispute within 15 Business Days, then any remaining items in
dispute shall be submitted to an independent firm of professional accountants selected
by Akerna and the Shareholder Representative, and if the Parties fail to or refuse to
mutually select a firm within a further five Business Days after written request therefor
by Akerna or the Shareholder Representative, as applicable, such independent firm shall
be KPMG LLP. All determinations and calculations pursuant to this subsection 2.19(d)
shall consider only those Deferred Consideration Statement calculations on which the
Parties have disagreed, shall be in writing, and shall be delivered to Akerna and the
Shareholder Representative as promptly as practicable. The determination of the independent
firm of professional accountants shall be binding and conclusive upon all Parties and
will not be subject to appeal, absent manifest error. The fees and expenses of the independent
firm of professional accountants shall be for the account of Akerna up to a maximum amount
equal to $60,000; provided that all such fees and expenses in excess of such amount shall
be shared equally by the Shareholder Representative on the one hand, and Akerna and Purchaser
on the other hand.
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|
(e)
|
If
Deferred Consideration is payable in accordance with the Deferred Consideration Statement,
then Akerna or Purchaser shall promptly (and in any case within five Business Days of
the acceptance or final determination of the Deferred Consideration Statement) (the “Deferred
Consideration Payment Date”) deliver to the Paying Agent such number of Exchangeable
Shares as is equal to the quotient obtained by dividing: (i) the dollar value of the
Deferred Consideration payable, by (ii) the 20 day volume weighted average price of the
Akerna Shares (converted to Canadian dollars from US dollars using the Exchange Rate
as of the Deferred Consideration Payment Date) as quoted on the NASDAQ on the last trading
day immediately preceding the issuance of such Exchangeable Shares, to be held and released
by the Paying Agent to the holders of CVRs in accordance with the terms of the Rights
Indenture.
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|
(f)
|
No
certificates or other entitlements to fractional Exchangeable Shares shall be issued
to any holder of CVRs, and each holder of a CVR otherwise entitled to a fractional interest
in an Exchangeable Share will receive the nearest whole number of Exchangeable Shares
(with fractions equal to or greater than 0.5 being rounded up and fractions less than
0.5 being rounded down).
|
|
(g)
|
Akerna
covenants and agrees that following the Effective Time and until the expiration of the
Deferred Consideration Period, Akerna shall cause Ample to make commercially reasonable
efforts to preserve and expand the Recurring Revenue recognized by Ample during the Deferred
Consideration Period, and Akerna shall not take, or permit Ample to take, any action
or series of actions with respect to the business and affairs of Ample that are intended
to lower or otherwise frustrate the Ample Shareholders’ entitlement to receive
all or any portion of the Deferred Consideration.
|
2.20
|
Shareholder Representative
|
|
(a)
|
In
order to efficiently administer the transactions contemplated by this Agreement, the
Plan of Arrangement, the Escrow Agreement and the Rights Indenture, including: (i) the
final determination of the Deferred Consideration and the allocation of the Consideration
among the Ample Shareholders in accordance with the Ample Articles; (ii) the exercise
on behalf of the Ample Shareholders of any voting rights, consent rights and/or the right
to direct any votes with respect to the Special Voting Share, in each case, attaching
to Up-front Shares during such time as any such Up-front Shares are held in escrow pursuant
to the Escrow Agreement; (iii) the determination from time to time while the Up-front
Shares (or any of them) are held in escrow pursuant to this Escrow Agreement, of the
number (if any) of Up-front Shares in respect of which each Ample Shareholder shall be
entitled to provide instructions with respect to the exercise of any voting rights (including
any right to direct the voting of the Special Voting Share) or consent right; (iv) the
waiver of any condition to the obligations of Ample or the Ample Shareholders to consummate
the transactions contemplated hereby; and (v) the defense and/or settlement of any claims
for which the Ample Shareholder may be required to indemnify Akerna or Purchaser pursuant
to this Agreement, the Shareholder Representative, by virtue of the entering into of
this Agreement by the Parties, is hereby appointed as the true, exclusive and lawful
representative, attorney-in-fact and agent for each Ample Shareholder in connection with
this Agreement and the Plan of Arrangement.
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(b)
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The
Shareholder Representative is hereby authorized to make all decisions, take all actions
or do any and all thing necessary relating to: (i) the final determination of the Deferred
Consideration and the allocation of the Consideration among the Ample Shareholders in
accordance with the Ample Articles; (ii) the exercise on behalf of the Ample Shareholders
of any voting rights, consent rights and/or the right to direct any votes with respect
to the Special Voting Share, in each case, attaching to Up-front Shares during such time
as any such Up-front Shares are held in escrow pursuant to the Escrow Agreement; (iii)
the determination from time to time while the Up-front Shares (or any of them) are held
in escrow pursuant to this Escrow Agreement, of the number (if any) of Up-front Shares
in respect of which each Ample Shareholder shall be entitled to provide instructions
with respect to the exercise of any voting rights (including any right to direct the
voting of the Special Voting Share) or consent right; (iv) the waiver of any condition
to the obligations of Ample or the Ample Shareholders to consummate the transactions
contemplated hereby; (v) the defense and/or settlement of any claims for which the Ample
Shareholder may be required to indemnify Akerna or Purchaser pursuant to this Agreement;
and (vi) any and all additional actions contemplated to be taken by the Shareholder Representative
on behalf of the Ample Shareholders (or any of them) pursuant to this Agreement, the
Plan of Arrangement, the Escrow Agreement or the Rights Indenture.
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(c)
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Akerna
and Purchaser shall be able to rely conclusively on the instructions and decision of
the Shareholder Representative as to any decision or act of the Shareholder Representative
taken in accordance with this Agreement, the Plan of Arrangement, the Escrow Agreement
or the Rights Indenture and no party shall have any cause of action against Akerna or
Purchaser for any action taken in reliance upon the instructions or decisions of the
Shareholder Representative.
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(d)
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No
Ample Shareholder shall have any cause of action against the Shareholder Representative
for any action taken, decision made or instruction given by the Shareholder Representative
in accordance with this Agreement, the Plan of Arrangement, the Escrow Agreement or the
Rights Indenture, except for fraud or wilful breach by the Shareholder Representative
of this Agreement, the Plan of Arrangement, the Escrow Agreement or the Rights Indenture.
The Shareholder Representative shall not be liable to any Ample Shareholder for any action
taken or omitted to be taken by them in connection with this Agreement, the Plan of Arrangement,
the Escrow Agreement or the Rights Indenture in good faith and in the exercise of their
reasonable judgment.
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(e)
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The
provisions of this Section 2.20 are independent and severable, are irrevocable and coupled
with an interest and shall be enforceable notwithstanding any rights or remedies that
any Ample Shareholder may have in connection with the transactions contemplated by this
Agreement, the Plan of Arrangement, the Escrow Agreement or the Rights Indenture.
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(f)
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Remedies
available at law for any breach of this Section 2.20 are inadequate, therefore, Akerna,
Purchaser and the Shareholder Representative shall be entitled to temporary and permanent
injunctive relief without the necessity of proving damages if either of them brings an
action to enforce the provisions of this Section 2.20.
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(g)
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The
provisions of this Section 2.20 shall be binding upon the executors, heirs, legal representative,
personal representatives, successors and permitted assigns of each Ample Shareholder,
and any references in this Agreement to an Ample Shareholder or Ample Shareholders shall
mean and include the successors to the Ample Shareholder’s rights hereunder, whether
pursuant to testamentary disposition, the laws of dissent and distribution or otherwise.
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(h)
|
Notwithstanding
any other provision of this Agreement, the appointment of the Shareholder Representative
shall be subject to and conditional upon receipt of the Ample Shareholder Approval and
the approval by the Court of the Arrangement pursuant to the Interim Order and the Final
Order.
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(i)
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Ample
hereby covenants and agrees that on or prior to the Effective Date, Ample shall furnish
to the Shareholder Representative a certified copy of the true and complete shareholder
register of Ample as of the Effective Date (the “Effective Date Register”).
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2.21
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Adjustments to Deemed Value Amount
|
Notwithstanding
anything in this Agreement to the contrary, if, between the date of this Agreement and the Effective Time, the issued and outstanding
Akerna Shares shall have been changed into a different number of shares by reason of any split or consolidation of the issued
and outstanding Akerna Shares, then, it being acknowledged by the Parties that the Deemed Value amount set forth herein is intended
to reflect the deemed value of one Akerna Share on the Effective Date for the purpose of determining the number of Up-front Shares
issuable hereunder, the Deemed Value Amount shall be appropriately adjusted to provide to Ample Shareholders the same economic
effect as contemplated by this Agreement and the Arrangement prior to such action and as so adjusted shall, from and after the
date of such event, be the Deemed Value Amount for all purposes hereunder.
Article
3
COVENANTS
3.1
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Covenants of Ample Regarding the Conduct of Business
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Ample
covenants and agrees that, during the period from the date of this Agreement until the earlier of the Effective Time and the time
that this Agreement is terminated in accordance with its terms, except as required or permitted by this Agreement, as required
by Applicable Law, Governmental Entity or existing Contract or unless Akerna and Purchaser otherwise agree in writing (such agreement
not to be unreasonably withheld, conditioned or delayed):
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(a)
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other
than as set out in Schedule 3.1(a) of the Ample Disclosure Letter, Ample shall and shall
cause each of its Subsidiaries to: (i) in all material respects conduct the business
of Ample and its Subsidiaries (taken as a whole) only in, and not take any action except
in, the ordinary course of business consistent with past practice; and (ii) use commercially
reasonable efforts to preserve intact the present business organization, goodwill, business
relationships and assets of Ample and its Subsidiaries (taken as a whole) and to keep
available the services of their officers and employees as a group;
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(b)
|
without
limiting the generality of Section 3.1(a), Ample shall not, and shall cause each of its
Subsidiaries not to, during the period from the date of this Agreement until the earlier
of the Effective Time and the time that this Agreement is terminated in accordance with
its terms, directly or indirectly:
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(i)
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amend
or propose to amend its articles, notice of articles or other constating documents, including
partnership agreements of its Subsidiaries;
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(ii)
|
declare,
set aside or pay any dividend or other distribution (whether in cash, securities or property
or any combination thereof) in respect of any Ample Shares;
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(iii)
|
other
than as set out in Schedule 3.1(b) of the Ample Disclosure Letter, issue, sell, grant,
award, pledge, dispose of or otherwise encumber or agree to issue, sell, grant, award,
pledge, dispose of or otherwise encumber any Ample Shares or other equity or voting interests
or any options, stock appreciation rights, warrants, calls, conversion or exchange privileges
or rights of any kind to acquire (whether on exchange, exercise, conversion or otherwise)
any Ample Shares or other equity or voting interests or other securities or any shares
of its Subsidiaries;
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(iv)
|
split,
combine or reclassify any outstanding Ample Shares or the securities of any of its Subsidiaries;
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(v)
|
redeem,
purchase or otherwise acquire or offer to purchase or otherwise acquire Ample Shares
or other securities of Ample or any securities of its Subsidiaries;
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(vi)
|
amend
the terms of any securities of Ample or any of its Subsidiaries;
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(vii)
|
adopt
or propose a plan of liquidation or resolutions providing for the liquidation or dissolution
of Ample or any of its Subsidiaries;
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(viii)
|
reorganize,
amalgamate or merge Ample or its Subsidiaries with any other Person;
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(ix)
|
sell,
pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer or agree
to sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer
any assets of Ample or any of its Subsidiaries or any interest in any assets of Ample
or any of its Subsidiaries, except in the ordinary course of business consistent with
past practice and subject to a maximum (in terms of value of such assets or interests
therein) of $100,000 (whether individually or in the aggregate);
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(x)
|
acquire
(by merger, consolidation, acquisition of stock or assets or otherwise) or agree to acquire,
directly or indirectly, in one transaction or in a series of related transactions, any
Person, or make any investment or agree to make any investment, directly or indirectly,
in one transaction or in a series of related transactions, either by purchase of shares
or securities, contributions of capital (other than to wholly-owned Subsidiaries), property
transfer or purchase of any property or assets of any other Person, other than pursuant
to acquisitions in the ordinary course of business consistent with past practice that
do not have a purchase or subscription price greater than $100,000 in the aggregate (including
any assumed indebtedness);
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(xi)
|
incur
any capital expenditures or enter into any agreement obligating Ample or its Subsidiaries
to provide for future capital expenditures other than budgeted capital expenditures that
(A) have been approved by the Ample Board prior to the date of this Agreement; or (B)
do not exceed $100,000 in the aggregate;
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(xii)
|
make
any changes in financial accounting methods, principles, policies or practices, except
as required, in each case, by IFRS or by Applicable Laws;
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(xiii)
|
reduce
the stated capital of the shares of Ample or any of its Subsidiaries;
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(xiv)
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other
than as set out in Schedule 3.1(b) of the Ample Disclosure Letter or in respect of pre-existing
indebtedness of any Person acquired by Ample in acquisitions permitted by Section 3.1(b)(x)
or capital expenditures permitted by Section 3.1(b)(xi), incur, create, assume or otherwise
become liable for any indebtedness for borrowed money or any other material liability
or obligation or issue any debt securities, or guarantee, endorse or otherwise become
responsible for, the obligations of any other Person or make any loans or advances;
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(xv)
|
pay,
discharge, settle, satisfy, compromise, waive, assign or release any claims, rights,
liabilities or obligations (including any litigation, proceeding or investigation by
any Governmental Entity) other than:
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|
(A)
|
the
payment, discharge or satisfaction, in the ordinary course of business, of liabilities
reflected or reserved against in Ample’s financial statements (or in those of any
of its Subsidiaries) or incurred in the ordinary course of business; or
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|
(B)
|
payment
of any fees related to the Arrangement;
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(xvi)
|
other
than as set out in Schedule 3.1(b) of the Ample Disclosure Letter, amend or modify in
any material respect or terminate or waive any material right under any Ample Material
Contract or enter into any contract or agreement that would be an Ample Material Contract
if in effect on the date hereof;
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(xvii)
|
enter
into or terminate any interest rate, currency, equity or commodity swaps, hedges, derivatives,
forward sales contracts or other financial instruments or like transaction, other than
in the ordinary course of business consistent with past practice;
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(xviii)
|
materially
change the business carried on by Ample and its Subsidiaries, as a whole;
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(xix)
|
other
than as set out in Schedule 3.1(b) of the Ample Disclosure Letter: (A) grant, accelerate,
or increase any severance, change of control or termination pay to (or amend any existing
arrangement relating to the foregoing with) any director, officer or employee of Ample
or any of its Subsidiaries; (B) grant, accelerate, or increase any payment, award (equity
or otherwise) or other benefits payable to, or for the benefit of, any director, officer
or employee of Ample or any of its Subsidiaries; (C) increase the coverage, contributions,
funding requirements or benefits available under any benefit plan or create any new plan
which would be considered to be a benefit plan once created; (D) increase compensation
(in any form), bonus levels or other benefits payable to any director, officer, employee
or consultant of Ample or any of its Subsidiaries or grant any general increase in the
rate of wages, salaries, bonuses or other remuneration, except in the ordinary course
of business consistent with past practice; (E) make any material determination under
any Employee Plan that is not in the ordinary course of business consistent with past
practice; or (F) take or propose any action to effect any of the foregoing;
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(xx)
|
make
any bonus or profit sharing distribution or similar payment of any kind;
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(xxi)
|
terminate
the employment of any officer, except for cause; or
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|
(xxii)
|
take
any action or fail to take any action which action or failure to act would reasonably
be expected to cause any Governmental Entities to institute proceedings for the suspension
of, or the revocation or limitation of rights under, any material authorizations necessary
to conduct its businesses as now conducted, and use its commercially reasonable efforts
to maintain such authorizations;
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(c)
|
Ample
shall use all commercially reasonable efforts to cause its current insurance (or re-insurance)
policies maintained by Ample or any of its Subsidiaries not to be cancelled or terminated
or any of the coverage thereunder to lapse, unless simultaneously with such termination,
cancellation or lapse, replacement policies underwritten by insurance and reinsurance
companies of nationally recognized standing providing coverage equal to or greater than
the coverage under the cancelled, terminated or lapsed policies for substantially similar
premiums are in full force and effect; provided that neither Ample nor any of its Subsidiaries
shall obtain or renew any insurance (or re-insurance) policy for a term exceeding 12
months;
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(d)
|
Ample
and each of its Subsidiaries shall:
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|
(i)
|
not
take any action inconsistent with past practice relating to the filing of any Tax Return
or the withholding, collecting, remitting and payment of any Tax, except as may be required
by Applicable Laws;
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|
(ii)
|
not
amend any Tax Return or change any of its methods of reporting income, deductions or
accounting for income Tax purposes from those employed in the preparation of its income
tax return for the taxation year ended December 31, 2018, except as may be required by
Applicable Laws;
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(iii)
|
not
make or revoke any material election relating to Taxes, other than any election that
has yet to be made in respect of any event or circumstance occurring prior to the date
of the Agreement;
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(iv)
|
not
enter into any Tax sharing, Tax allocation, Tax related waiver or Tax indemnification
agreement;
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(v)
|
not
settle (or offer to settle) any Tax claim, audit, proceeding or re-assessment that would
reasonably be expected to be material to Ample and its Subsidiaries, taken as a whole;
and
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(vi)
|
keep
Akerna reasonably informed, on a current basis, of any events, discussions, notices or
changes with respect to any Tax investigation (other than ordinary course communications
which could not reasonably be expected to be material to Ample and its Subsidiaries,
taken as a whole); and
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(e)
|
Ample
shall not authorize, agree to, propose, enter into or modify any contract, agreement,
commitment or arrangement, to do any of the matters prohibited by the other subsections
of this Section 3.1 or resolve to do so.
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3.2
|
Covenants of Akerna Regarding the Conduct of Business
|
Akerna
covenants and agrees that during the period from the date of this Agreement until the earlier of the Effective Time and the time
that this Agreement is terminated in accordance with its terms, except as required or permitted by this Agreement, as required
by Applicable Law, Governmental Entity or existing Contract or unless Ample shall otherwise agree in writing (such agreement not
to be unreasonably withheld, conditioned or delayed):
|
(a)
|
Akerna
shall and shall cause each of its Subsidiaries to: (i) in all material respects conduct
the business of Akerna and its Subsidiaries (taken as a whole) only in, and not take
any action except in, the ordinary course of business consistent with past practice and
in connection with the Akerna Transactions; and (ii) use commercially reasonable efforts
to preserve intact the present business organization, goodwill, business relationships
and assets of Akerna and its Subsidiaries (taken as a whole) and to keep available the
services of their officers and employees as a group;
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(b)
|
without
limiting the generality of Section 3.2(a), Akerna shall not, directly or indirectly:
|
|
(i)
|
amend
or propose to amend its articles, by-laws or other constating documents, other than to
effect a split or consolidation of the issued and outstanding Akerna Shares;
|
|
(ii)
|
declare,
set aside or pay any dividend or other distribution (whether in cash, securities or property
or any combination thereof) in respect of any Akerna Shares;
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|
(iii)
|
issue,
sell, grant, award or pledge or agree to issue, sell, grant, award or pledge any Akerna
Shares or securities convertible into or exchangeable for Akerna Shares, other than in
connection with the Arrangement and the Akerna Transactions, Akerna Shares issuable pursuant
to the terms of outstanding options and other convertible securities of Akerna, securities
granted or issued pursuant to Akerna’s equity compensation plans in the ordinary
course of business and consistent with past practice and Akerna Shares issued as part
of the purchase price in connection with the acquisition of shares or assets of another
business by Akerna, directly or indirectly, by merger or otherwise;
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|
(iv)
|
redeem,
purchase or otherwise acquire or offer to purchase or otherwise acquire Akerna Shares
or other securities of Akerna, other than ordinary course purchases of Akerna Shares
made in the public markets and at then prevailing market price;
|
|
(v)
|
adopt
or propose a plan of liquidation or resolutions providing for the liquidation or dissolution
of Akerna;
|
|
(vi)
|
other
than in connection with the Akerna Transactions, merge Akerna with any other Person that
is not a wholly-owned Subsidiary of Akerna;
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|
(vii)
|
sell,
pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer or agree
to sell, pledge, lease, dispose of, mortgage, licence, encumber or otherwise transfer
all or substantially all of the assets of Akerna and its Subsidiaries (on a consolidated
basis);
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(viii)
|
reduce
the stated capital of the shares of Akerna;
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|
(ix)
|
materially
change the business carried on by Akerna and its Subsidiaries, taken as a whole;
|
|
(x)
|
take
any action or fail to take any action which action or failure to act would reasonably
be expected to cause any Governmental Entities to institute proceedings for the suspension
of, or the revocation or limitation of rights under, any material authorizations necessary
to conduct its businesses as now conducted, and use its commercially reasonable efforts
to maintain such authorizations; or
|
|
(xi)
|
take
any action or series of actions that cause or would reasonably be expected to cause the
Akerna Shares to cease being traded on the NASDAQ; and
|
|
(c)
|
Akerna
shall not authorize, agree to, propose, enter into or modify any contract, agreement,
commitment or arrangement, to do any of the matters prohibited by the other subsections
of this Section 3.2 or resolve to do so.
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3.3
|
Covenants of Akerna Relating to the Exchangeable Shares
|
Akerna
shall and, where appropriate, shall cause Purchaser to:
|
(a)
|
create
the Exchangeable Shares and the Special Voting Share prior to the Effective Time in a
manner reasonably acceptable to Ample and consistent with the Exchangeable Share Provisions
attached hereto as Schedule “I”;
|
|
(b)
|
prior
to the Effective Time, incorporate and organize Callco under the laws of Ontario;
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|
(c)
|
at
the Effective Time, execute and deliver and cause Purchaser and Callco to execute and
deliver the Exchangeable Share Support Agreement and the Voting and Exchange Trust Agreement,
as applicable;
|
|
(d)
|
at
the Effective Time, deliver the Special Voting Share in accordance with the Voting and
Exchange Trust Agreement;
|
|
(e)
|
ensure
that Purchaser is and continues to be at all relevant times a taxable Canadian corporation
within the meaning of the Tax Act;
|
|
(f)
|
apply
for and use commercially reasonable efforts to obtain conditional approval of the listing
and posting for trading on the NASDAQ of the Akerna Shares issuable pursuant to the exchange
of the Exchangeable Shares;
|
|
(g)
|
not
take any action which could reasonably be expected to prevent the exchange of Ample Shares
for consideration that includes Exchangeable Shares under the Arrangement by Eligible
Holders who make and file a valid tax election under subsection 85(1) or (2) of the Tax
Act as described and on the terms set forth in the Plan of Arrangement from being treated
as a tax-deferred transaction for purposes of the Tax Act if such holders are otherwise
eligible for such treatment; and
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|
(h)
|
do
all things necessary (as further described in the Exchangeable Share Support Agreement
and the Exchangeable Share terms contained in Purchaser’s articles of incorporation)
to permit the exchange of the Exchangeable Shares for Akerna Shares.
|
3.4
|
Covenants of Akerna Regarding Blue-Sky Laws
|
Akerna
shall use its commercially reasonable efforts ensure that the Exchangeable Shares, and the Akerna Shares to be issued pursuant
to the exchange of the Exchangeable Shares, in each case to be issued pursuant to the Arrangement shall, at the Effective Time,
either be registered or qualified under all applicable U.S. Securities Laws, or exempt from such registration and qualification
requirements.
3.5
|
Mutual Covenants Regarding the Arrangement
|
Each
of the Parties covenants and agrees that, subject to the terms and conditions of this Agreement, during that period from the date
of this Agreement until the earlier of the Effective Time and the time that this Agreement is terminated in accordance with its
terms:
|
(a)
|
it
shall use its commercially reasonable efforts to, and shall cause its Subsidiaries to
use all commercially reasonable efforts to, satisfy (or cause the satisfaction of) the
conditions precedent to its obligations hereunder as set forth in Article 5 to the extent
the same is within its control and to take, or cause to be taken, all other action and
to do, or cause to be done, all other things necessary, proper or advisable under all
Applicable Laws to complete the Arrangement, including using its commercially reasonable
efforts to promptly: (i) obtain all necessary and material waivers, consents and approvals
required to be obtained by it from parties to any Contracts; (ii) obtain all necessary
and material Authorizations as are required to be obtained by it or any of its Subsidiaries
under Applicable Laws; (iii) fulfill all conditions and satisfy all provisions of this
Agreement and the Arrangement; and (iv) co-operate with the other Party in connection
with the performance by it and its Subsidiaries of their obligations hereunder;
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|
(b)
|
it
shall not take any action, shall refrain from taking any action, and shall not permit
any action to be taken or not taken, which is inconsistent with this Agreement or which
would reasonably be expected to, individually or in the aggregate, materially impede
or materially delay the consummation of the Arrangement or the other transactions contemplated
herein;
|
|
(c)
|
it
shall use commercially reasonable efforts to: (i) defend all lawsuits or other legal,
regulatory or other proceedings against itself or any of its Subsidiaries challenging
or affecting this Agreement or the consummation of the transactions contemplated hereby;
(ii) appeal, overturn or have lifted or rescinded any injunction or restraining order
or other order, including orders, relating to itself or any of its Subsidiaries which
may materially adversely affect the ability of the Parties to consummate the Arrangement;
and (iii) appeal or overturn or otherwise have lifted or rendered non-applicable in respect
of the Arrangement, any Applicable Law that makes consummation of the Arrangement illegal
or otherwise prohibits or enjoins Ample or Akerna from consummating the Arrangement;
and
|
|
(d)
|
it
shall carry out the terms of the Interim Order and Final Order applicable to it and use
commercially reasonable efforts to comply promptly with all requirements which Applicable
Laws may impose on it or its Subsidiaries or Affiliates with respect to the transactions
contemplated hereby.
|
Each
Party will use its commercially reasonable efforts to cooperate with the other in connection with the performance by the other
of their obligations under this Section 3.5 and this Agreement including continuing to provide reasonable access to information
and to maintain ongoing communications as between officers of each Party, subject in all cases to the Confidentiality Agreement.
3.6
|
Covenants of Akerna and Purchaser
|
Subject
to the other provisions of this Agreement, Akerna and Purchaser jointly covenant and agree that, from the date of this Agreement
until the Effective Date or termination of this Agreement, except with the prior written consent of Ample (such consent not to
be unreasonably withheld, conditioned or delayed), and except as otherwise expressly permitted or specifically contemplated by
this Agreement (including the Plan of Arrangement) or required by Applicable Laws, they will:
|
(a)
|
provide
Ample and its legal counsel with reasonable opportunity to review and comment upon drafts
of all Purchaser Circular Disclosure and will give reasonable consideration to the comments
of Ample and its counsel with respect to any information to be included in such material
and any other matters contained therein and ensure that the Purchaser Circular Disclosure
provided by it expressly for inclusion in the Ample Circular does not, at the time of
the mailing of the Ample Circular, contain any misrepresentation;
|
|
(b)
|
use
its commercially reasonable efforts to take all such steps as are necessary to set the
record date for the Akerna Meeting as a date not later than January 27, 2020;
|
|
(c)
|
subject
to the terms of this Agreement, use their commercially reasonable efforts take all such
steps as are necessary to convene and hold the Akerna Meeting in accordance with Applicable
Laws not later than February 26, 2020 for the purpose of considering the Akerna Shareholder
Matters and, unless this Agreement will have been terminated in accordance with subsection
8.1(a), Akerna will not cancel the Akerna Meeting or fail to put the Akerna Shareholder
Matters before the Akerna Shareholders for their consideration without Ample’s
prior written consent, other than as may be required under Applicable Laws; and Akerna
will not propose to adjourn or postpone the Akerna Meeting without the prior consent
of Ample except as required by Applicable Laws or by a Governmental Entity and except
as required under subsections 2.5(d) or 5.45.4(b); and Akerna shall, if requested by
Ample (acting reasonably), adjourn the Akerna Meeting one or more times for the purposes
of obtaining any required quorum or attempting to obtain the requisite approval of the
Akerna Shareholder Matters;
|
|
(d)
|
subject
to compliance by Ample with its obligations set forth in subsection 3.7(i), as soon as
practicable after the execution and delivery of this Agreement, prepare the Akerna Circular
together with any other documents required by Applicable Laws in connection with the
Akerna Meeting required to be filed or prepared by Akerna and, subject to subsection
3.7(i), as soon as practicable after the execution and delivery of this Agreement, Akerna
shall, unless otherwise agreed by Ample, cause the Akerna Circular and other documentation
required in connection with the Akerna Meeting to be sent to the Akerna Shareholders
and be filed as required by Applicable Laws;
|
|
(e)
|
provide
Ample and its legal counsel a reasonable opportunity to review and comment on drafts
of the Akerna Circular and other documents to be sent to the Akerna Shareholders in connection
with the Akerna Meeting, and will give reasonable consideration to any comments made
by Ample and their counsel, provided that all information included in the Akerna Circular
and any other documents to be sent to the Akerna Shareholders in connection with the
Akerna Meeting relating to Ample will be in form and content satisfactory to Ample, acting
reasonably;
|
|
(f)
|
ensure
that the Akerna Circular (other than any Ample Circular Disclosure included in the Akerna
Circular that was provided to Akerna by, or approved by, Ample expressly for inclusion
in the Akerna Circular) complies with Applicable Laws and, without limiting the generality
of the foregoing, that the Akerna Circular will not contain a misrepresentation and provides
the Akerna Shareholders with information in sufficient detail to permit them to form
a reasoned judgment concerning the Akerna Shareholder Matters and will include: (i) the
unanimous determination of the Akerna Board that voting in favour of the Akerna Shareholder
Matters is in the best interests of Akerna and the unanimous recommendation that the
Akerna Shareholders vote in favour of the Akerna Shareholder Matters; (ii) a statement
that each director and officer of Akerna intends to vote all of such Person’s Akerna
Shares (including any Akerna Shares issued upon exercise or exchange of any securities
convertible or exercisable into Akerna Shares) in favour of the Akerna Shareholder Matters;
and (iii) any other disclosure required under Applicable Securities Laws that is required
to be included in the Akerna Circular;
|
|
(g)
|
ensure
that all Purchaser Circular Disclosure included in the Ample Circular that was provided
to Ample by or approved by Akerna or Purchaser complies with Applicable Laws;
|
|
(h)
|
indemnify
and save harmless Ample and its directors and officers from and against any and all liabilities,
claims, demands, losses, costs, damages and expenses (excluding any loss of profits or
consequential damages) to which Ample or its directors and officers may be subject or
which Ample or its directors or officers may suffer, whether under the provisions of
any statute or otherwise, in any way caused by, or arising, directly or indirectly, from
or in consequence of:
|
|
(i)
|
any
misrepresentation or alleged misrepresentation contained in: (A) the Akerna Circular
(other than in respect of Ample Circular Disclosure); (B) in any Purchaser Circular Disclosure
included in the Ample Circular that was provided to Ample by, or approved by, Akerna
or Purchaser expressly for inclusion in the Ample Circular; or (C) any material filed
by Akerna in connection with the transactions contemplated by this Agreement in compliance
or intended compliance with any Applicable Laws;
|
|
(ii)
|
any
order made or any inquiry, investigation or proceeding by any securities commission or
other competent authority based upon any Misrepresentation or alleged Misrepresentation
contained in: (A) the Akerna Circular (other than in respect of Ample Circular Disclosure);
(B) the Purchaser Circular Disclosure included in the Ample Circular that was provided
to Ample by, or approved by, Akerna or Purchaser expressly for inclusion in the Ample
Circular; or (C) in any material filed by or on behalf of Akerna or Purchaser in compliance
or intended compliance with Applicable Securities Laws; and
|
|
(iii)
|
Akerna
or Purchaser not complying with any requirement of Applicable Laws in connection with
the transactions contemplated in this Agreement,
|
except
that Akerna and/or Purchaser will not be liable in any such case to the extent that any such liabilities, claims, demands, losses,
costs, damages and expenses arise out of:
|
(iv)
|
any
information contained in the Ample Circular other than the Purchaser Circular Disclosure
included in the Ample Circular that was provided to Ample by, or approved by, Akerna
or Purchaser expressly for inclusion in the Ample Circular;
|
|
(v)
|
any
Ample Circular Disclosure included in the Akerna Circular that was provided to Akerna
by, or approved by, Ample expressly for inclusion in the Akerna Circular;
|
|
(vi)
|
or
the negligence of Ample or the non-compliance by Ample with any requirement of Applicable
Laws in connection with the transactions contemplated by this Agreement;
|
|
(i)
|
provide
notice to Ample of the Akerna Meeting and allow Ample’s Representatives to attend
the Akerna Meeting;
|
|
(j)
|
except
for proxies and other non-substantive communications with Akerna Shareholders and communications
that Akerna is required to keep confidential pursuant to Applicable Law, furnish promptly
to Ample or their counsel: (i) a copy of each notice, report, schedule or other document
delivered, filed or received by Akerna from securityholders or Governmental Entities
in connection with the Arrangement or the Akerna Meeting; (ii) any filings under Applicable
Laws in connection with the transactions contemplated hereby; and (iii) any dealings
with stock exchanges, regulatory agencies or other governmental authorities in connection
with the transactions contemplated hereby;
|
|
(k)
|
solicit
proxies to be voted at the Akerna Meeting in favour of the Akerna Shareholder Matters;
|
|
(l)
|
promptly
advise Ample of the number or amount of Ample Shares for which Akerna receives notices
of dissent or written objections to the Akerna Shareholder Matters and provide Ample
with copies of such notices and written objections and subject to Applicable Laws;
|
|
(m)
|
promptly
inform Ample of any requests or comments made by Securities Authorities in connection
with the Akerna Circular and any other required filings under Applicable Laws; and each
of the Parties will cooperate with the other and will diligently do all such acts and
things as may be necessary in the manner contemplated in the context of the preparation
of the Akerna Circular and any other required filings under Applicable Laws and use its
commercially reasonable efforts to resolve all requests or comments made by Securities
Authorities with respect to the Akerna Circular and any other required filings under
Applicable Laws as promptly as practicable after receipt thereof;
|
|
(n)
|
advise
Ample, as Ample may request, and on a daily basis on each of the last five Business Days
prior to the proxy cut-off date for the Akerna Meeting, as to the aggregate tally of
the proxies received by Akerna in respect of the Akerna Shareholder Matters and any other
matters to be considered at the Akerna Meeting, and provide Ample with copies of any
materials, or grant access to information regarding the Akerna Meeting, generated by
any proxy solicitation firm;
|
|
(o)
|
keep
Ample informed as to discussions between Akerna and any Person holding not less than
10% of the voting rights attached to all of the Akerna Shares with respect to the Akerna
Shareholder Matters;
|
|
(p)
|
take
or cause to be taken all corporate action to allot and reserve for issuance the Exchangeable
Shares to be issued in exchange for the Ample Shares, and the Akerna Shares to be issued
in exchange for the Exchangeable Shares;
|
|
(q)
|
take
or cause to be taken all corporate action to maintain the listing of the Akerna Shares
on the NASDAQ;
|
|
(r)
|
take
or cause to be taken all corporate action to enter into the Rights Indenture and to create
and issue the CVRs to each former holder of Ample Shares at the Effective Time;
|
|
(s)
|
take
or cause to be taken all corporate action, as reasonably requested by Ample or its counsel,
to assist Ample in diligently pursuing the application to the Court for the Final Order;
and
|
|
(t)
|
make
all necessary filings and applications under Applicable Laws, including Applicable Securities
Laws, required to be made on the part of Akerna and Purchaser in connection with the
transactions contemplated herein, including, without limitation, for all Regulatory Approvals,
and shall take all commercially reasonable action necessary to be in compliance with
such Applicable Laws.
|
3.7
|
Covenants of Ample Regarding the Arrangement
|
Subject
to the other provisions of this Agreement, Ample covenants and agrees that, from the date of this Agreement until the Effective
Date or termination of this Agreement, except with the prior written consent of Akerna and Purchaser (such consent not to be unreasonably
withheld, conditioned or delayed), and except as otherwise expressly permitted or specifically contemplated by this Agreement
(including the Plan of Arrangement) or required by Applicable Laws, it will:
|
(a)
|
provide
Akerna and Purchaser and their legal counsel with reasonable opportunity to review and
comment upon drafts of all materials to be filed with the Court in connection with the
Arrangement, including by providing on a timely basis a description of any information
required to be supplied by Akerna and Purchaser for inclusion in such material, prior
to the service and filing of such material, and will give reasonable consideration to
the comments of Akerna and Purchaser and their counsel with respect to any information
to be included in such material and any other matters contained therein;
|
|
(b)
|
ensure
that all material filed with the Court in connection with the Arrangement is consistent
in all material respects with the terms of this Agreement and the Plan of Arrangement;
|
|
(c)
|
not
object to legal counsel to Akerna and Purchaser making such submissions on the application
for the Interim Order and the application for the Final Order as such counsel considers
appropriate (acting reasonably), provided such submissions are in all material respects
consistent with this Agreement and the Plan of Arrangement;
|
|
(d)
|
use
its commercially reasonable efforts to take all such steps as are necessary to set the
record date for the Ample Meeting as a date not later than January 27, 2020;
|
|
(e)
|
subject
to the terms of this Agreement and in accordance and compliance with the Interim Order,
use its commercially reasonable efforts to take all such steps as are necessary to convene
and hold the Ample Meeting in accordance with the Interim Order and Applicable Laws not
later than February 26, 2020 for the purpose of considering the Arrangement Resolution
and, unless this Agreement will have been terminated in accordance with subsection 8.1(a),
Ample will not cancel the Ample Meeting or fail to put the Arrangement Resolution before
the Ample Shareholders for their consideration without Akerna and Purchaser’s prior written
consent, other than as may be required under the Interim Order or Applicable Laws and
Ample will not propose to adjourn or postpone the Ample Meeting without the prior consent
of Akerna and Purchaser except as required by Applicable Laws or by a Governmental Entity
and except as required under subsections 2.6(d) or 5.4(b); and Ample shall, if requested
by Akerna and Purchaser (each acting reasonably), adjourn the Ample Meeting one or more
times for the purposes of obtaining any required quorum or attempting to obtain the requisite
approval of the Arrangement Resolution;
|
|
(f)
|
subject
to compliance by Akerna and Purchaser with their obligations set forth in subsection
3.6(g) as soon as practicable after the execution and delivery of this Agreement, prepare
the Ample Circular together with any other documents required by Applicable Laws in connection
with the Ample Meeting required to be filed or prepared by Ample and, subject to subsection
3.6(g), as soon as practicable after the execution and delivery of this Agreement, Ample
shall, unless otherwise agreed by Akerna and Purchaser, cause the Ample Circular and
other documentation required in connection with the Ample Meeting to be sent to the Ample
Shareholders and be filed as required by the Interim Order and Applicable Laws;
|
|
(g)
|
provide
Akerna and Purchaser and their legal counsel a reasonable opportunity to review and comment
on drafts of the Ample Circular and other documents to be sent to the Ample Shareholders
in connection with the Ample Meeting or the Arrangement, and will give reasonable consideration
to any comments made by Akerna and Purchaser and their counsel, provided that all information
included in the Ample Circular and any other documents to be sent to the Ample Shareholders
in connection with the Ample Meeting or the Arrangement relating to Akerna and Purchaser
will be in form and content satisfactory to Akerna and Purchaser, each acting reasonably;
|
|
(h)
|
ensure
that the Ample Circular (other than any Purchaser Circular Disclosure included in the
Ample Circular that was provided to Ample by, or approved by, Akerna or Purchaser expressly
for inclusion in the Ample Circular) complies with Applicable Laws and, without limiting
the generality of the foregoing, that the Ample Circular will not contain a misrepresentation
and provides the Ample Shareholders with information in sufficient detail to permit them
to form a reasoned judgment concerning the matters before them and will include: (i)
the unanimous determination of the Ample Board that the Arrangement is in the best interests
of Ample, is fair to the Ample Shareholders, and the unanimous recommendation that the
Ample Shareholders vote in favour of the Arrangement Resolution; (ii) a statement that
each director and officer of Ample intends to vote all of such Person’s Ample Shares
(including any Ample Shares issued upon exercise or exchange of any Ample Options or
Ample Warrants) in favour of the Arrangement Resolution; and (iii) any other disclosure
required under Applicable Securities Laws that is required to be included in the Ample
Circular;
|
|
(i)
|
ensure
that all Ample Circular Disclosure included in the Akerna Circular that was provided
to Akerna by or approved by Ample complies with Applicable Laws;
|
|
(j)
|
indemnify
and save harmless Akerna and Purchaser and their respective directors and officers from
and against any and all liabilities, claims, demands, losses, costs, damages and expenses
(excluding any loss of profits or consequential damages) to which Akerna, Purchaser or
their respective directors and officers may be subject or which Akerna, Purchaser or
their respective directors or officers may suffer, whether under the provisions of any
statute or otherwise, in any way caused by, or arising, directly or indirectly, from
or in consequence of:
|
|
(i)
|
any
misrepresentation or alleged misrepresentation contained in: (A) the Ample Circular (other
than in respect of the Purchaser Circular Disclosure); (B) in any Ample Circular Disclosure
included in the Akerna Circular that was provided to Akerna by, or approved by, Ample
expressly for inclusion in the Akerna Circular; or (C) any material filed by Ample in
connection with the transactions contemplated by this Agreement in compliance or intended
compliance with any Applicable Laws;
|
|
(ii)
|
any
order made or any inquiry, investigation or proceeding by any securities commission or
other competent authority based upon any Misrepresentation or alleged Misrepresentation
contained in: (A) the Ample Circular (other than in respect of the Purchaser Circular
Disclosure); (B) the Ample Circular Disclosure included in the Akerna Circular that was
provided to Akerna by, or approved by, Ample expressly for inclusion in the Akerna Circular;
or (C) in any material filed by or on behalf of Ample in compliance or intended compliance
with Applicable Securities Laws; and
|
|
(iii)
|
Ample
not complying with any requirement of Applicable Laws in connection with the transactions
contemplated in this Agreement,
|
except
that Ample will not be liable in any such case to the extent that any such liabilities, claims, demands, losses, costs, damages
and expenses arise out of:
|
(iv)
|
any
information contained in the Akerna Circular other than Ample Circular Disclosure included
in the Akerna Circular that was provided to Akerna by, or approved by, Ample expressly
for inclusion in the Akerna Circular;
|
|
(v)
|
any
Purchaser Circular Disclosure included in the Ample Circular that was provided to Ample
by, or approved by, Akerna or Purchaser expressly for inclusion in the Ample Circular;
|
|
(vi)
|
or
the negligence of Akerna or Purchaser or the non-compliance by Akerna or Purchaser with
any requirement of Applicable Laws in connection with the transactions contemplated by
this Agreement;
|
|
(k)
|
provide
notice to Akerna and Purchaser of the Ample Meeting and allow Akerna’s and Purchaser’s
Representatives to attend the Ample Meeting;
|
|
(l)
|
except
for proxies and other non-substantive communications with the holders of Ample securityholders
and communications that Ample is required to keep confidential pursuant to Applicable
Law, furnish promptly to Akerna and Purchaser or their counsel: (i) a copy of each notice,
report, schedule or other document delivered, filed or received by Ample from securityholders
or Governmental Entities in connection with the Arrangement or the Ample Meeting; (ii)
any filings under Applicable Laws in connection with the transactions contemplated hereby;
and (iii) any dealings with stock exchanges, regulatory agencies or other governmental
authorities in connection with the transactions contemplated hereby;
|
|
(m)
|
solicit
proxies to be voted at the Ample Meeting in favour of matters to be considered at the
Ample Meeting, including the Arrangement Resolution;
|
|
(n)
|
promptly
advise Akerna and Purchaser of the number or amount of Ample Shares for which Ample receives
notices of dissent or written objections to the Arrangement and provide Akerna and Purchaser
with copies of such notices and written objections and subject to Applicable Laws, will
provide Akerna and Purchaser with an opportunity to review and comment upon any written
communications proposed to be sent by or on behalf of Ample to any Ample Shareholder
exercising or purporting to exercise Dissent Rights in relation to the Arrangement Resolution
and reasonable consideration will be given to any comments made by Akerna and Purchaser
and their counsel prior to sending any such written communications; provided that,
Ample will not settle any claims with respect to Dissent Rights without the prior written
consent of Akerna and Purchaser (such consent not to be unreasonably withheld, conditioned
or delayed);
|
|
(o)
|
promptly
inform Akerna and Purchaser of any requests or comments made by Securities Authorities
in connection with the Ample Circular and any other required filings under Applicable
Laws; and each of the Parties will cooperate with the other and will diligently do all
such acts and things as may be necessary in the manner contemplated in the context of
the preparation of the Ample Circular and any other required filings under Applicable
Laws and use its commercially reasonable efforts to resolve all requests or comments
made by Securities Authorities with respect to the Ample Circular and any other required
filings under Applicable Laws as promptly as practicable after receipt thereof;
|
|
(p)
|
advise
Akerna and Purchaser, as Akerna and Purchaser may request, and on a daily basis on each
of the last five Business Days prior to the proxy cut-off date for the Ample Meeting,
as to the aggregate tally of the proxies received by Ample in respect of the Arrangement
Resolution and any other matters to be considered at the Ample Meeting, and provide Akerna
and Purchaser with copies of any materials, or grant access to information regarding
the Ample Meeting, generated by any proxy solicitation firm;
|
|
(q)
|
subject
to obtaining such approvals as are required by the Interim Order, proceed with and diligently
pursue the application to the Court for the Final Order;
|
|
(r)
|
provide
Akerna and Purchaser’s legal counsel, on a timely basis, with copies of any notice and
evidence served on Ample or its legal counsel in respect of the application for the Final
Order or any appeal therefrom;
|
|
(s)
|
keep
Akerna and Purchaser informed as to discussions with all Significant Shareholders;
|
|
(t)
|
make
all necessary filings and applications under Applicable Laws, including Applicable Securities
Laws, required to be made on the part of Ample in connection with the transactions contemplated
herein, including, without limitation, for all Regulatory Approvals, and will take all
actions necessary to be in compliance with such Applicable Laws;
|
|
(u)
|
use
its commercially reasonable efforts to obtain resignations and mutual releases (in a
form satisfactory to Akerna), to be effective at the Effective Time, from all directors
of Ample on or prior to the Effective Time;
|
|
(v)
|
use
its commercially reasonable efforts to obtain Employment Agreements, to be effective
at the Effective Time, from all of the Retained Personnel on or prior to the Effective
Time; and
|
3.8
|
Covenants of Ample Regarding Non-Solicitation
|
|
(a)
|
Except
as otherwise expressly provided in this Section 3.8, Ample shall not, directly or indirectly
through any Representative:
|
|
(i)
|
solicit,
assist, initiate, knowingly encourage or otherwise facilitate (including by way of furnishing
confidential information or entering into any form of agreement, arrangement or understanding)
any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute
or lead to an Acquisition Proposal;
|
|
(ii)
|
enter
into, engage in, continue or otherwise participate in any discussions or negotiations
with any Person (other than Akerna and its Subsidiaries or affiliates) in respect of
any inquiry, proposal or offer that constitutes or may reasonably be expected to lead
to an Acquisition Proposal, it being acknowledged and agreed that, provided Ample is
then in compliance with its obligations under this Section 3.8, Ample may: (A) advise
a Person who has submitted a written Acquisition Proposal of the restrictions in this
Agreement; or (B) advise a Person who has submitted a written Acquisition Proposal that
their Acquisition Proposal does not constitute a superior proposal;
|
|
(iii)
|
accept,
approve, endorse or recommend, or publicly propose to accept, approve, endorse or recommend,
or take no position or remain neutral with respect to, any publicly announced or publicly
proposed Acquisition Proposal (it being understood that publicly taking no position or
a neutral position with respect to any Acquisition Proposal for a period of no more than
three Business Days following the formal announcement of such Acquisition Proposal will
not be considered to be in violation of this Section 3.8(a)(iii) provided the Ample Board
has rejected such Acquisition Proposal and affirmed the Ample Board Recommendation before
the end of such three Business Day period);
|
|
(iv)
|
approve,
recommend or enter into (other than a confidentiality agreement permitted by and in accordance
with this Section 3.8) or publicly propose to enter into any agreement to accept, recommend,
approve or enter into any agreement in respect of an Acquisition Proposal; or
|
|
(v)
|
withdraw,
amend, modify or qualify, or publicly propose or state an intention to withdraw, amend,
modify or qualify, the Ample Board Recommendation.
|
|
(b)
|
Ample
shall, and shall cause its Subsidiaries and Representatives to immediately cease and
terminate, and cause to be ceased and terminated, any solicitation, encouragement, discussion
or negotiations commenced prior to the date of this Agreement with any Person (other
than Akerna) with respect to any inquiry, proposal or offer that constitutes, or may
reasonably be expected to constitute or lead to, an Acquisition Proposal and, in connection
therewith, Ample will discontinue access to and disclosure of its and its Subsidiaries’
confidential information (and not allow access to or disclosure of any such confidential
information, or any data room, virtual or otherwise) and shall as soon as possible request,
and exercise all rights it has (or cause its Subsidiaries to exercise any rights that
they have) to require the return or destruction of all confidential information regarding
Ample and its Subsidiaries previously provided in connection therewith to any Person
other than Akerna to the extent such information has not already been returned or destroyed.
|
|
(c)
|
Ample
shall as soon as practicable, and in any event, within 24 hours, notify Akerna (orally
at first and then in writing) if it receives or otherwise becomes aware of any proposal
or offer that constitutes or may reasonably be expected to constitute or lead to an Acquisition
Proposal, of such Acquisition Proposal, inquiry, proposal or offer, including the identity
of the Person making such Acquisition Proposal, inquiry, proposal or offer and the material
terms and conditions thereof and copies of all material or substantive documents received
in respect of, from or on behalf of any such Person. Ample shall keep Akerna promptly
and fully informed of the status of developments and discussions and negotiations with
respect to such Acquisition Proposal, proposal or offer, including any material changes,
modifications or other amendments thereto.
|
|
(d)
|
Ample
will ensure that the Representatives retained by it are aware of the provisions of this
Section 3.8 and will be responsible for any breach of this Section 3.8 by any of them.
|
|
(e)
|
Nothing
contained in this Agreement shall prohibit the Ample Board from withdrawing, modifying,
qualifying or changing its recommendation to the Ample Shareholders in respect of the
transactions contemplated herein prior to the approval of the Arrangement by such Ample
Shareholders, if the Ample Board determines, in good faith (after consultation with its
financial advisors and after receiving advice of outside counsel), that the failure to
make such withdrawal, modification, qualification or change would be inconsistent with
its fiduciary duties under Applicable Laws; provided that: (i) prior to making any such
withdrawal, modification, qualification or change of recommendation, Ample shall give
Akerna not less than 48 hours’ notice of its intention thereof; and (ii) the foregoing
shall not relieve Ample from its obligation to proceed to call and hold the Ample Meeting
(provided that, except as required under Applicable Laws, Ample shall be relieved from
any obligation to actively solicit proxies in favour of the Arrangement in such circumstances),
except in circumstances where this Agreement is terminated in accordance with the terms
hereof.
|
|
(f)
|
Nothing
in this Section 3.8 shall prohibit Ample or its Representatives from complying with Part
2 Division 3 of Multilateral Instrument 62-104 Take-Over Bids and Issuer Bids
and similar provisions under Applicable Securities Laws relating to the provision of
directors circulars in respect of an Acquisition Proposal.
|
3.9
|
Mutual Covenants Regarding Regulatory Approvals
|
|
(a)
|
Each
Party, as applicable to that Party, covenants and agrees with respect to obtaining all
Regulatory Approvals that, subject to the terms and conditions of this Agreement, until
the earlier of the Effective Time and the date on which this Agreement is terminated
in accordance with its terms:
|
|
(i)
|
each
Party shall use its commercially reasonable efforts to obtain all Regulatory Approvals
and co-operate with the other Party in connection with all Regulatory Approvals sought
by the other Party and shall use its commercially reasonable efforts to effect all necessary
registrations, filings and submissions of information required by Governmental Entities
relating to the Arrangement or this Agreement;
|
|
(ii)
|
each
Party shall use commercially reasonable efforts to respond promptly to any request or
notice from any Governmental Entity requiring that Party to supply additional information
that is relevant to the review of the transactions contemplated by this Agreement in
respect of obtaining or concluding the Regulatory Approvals sought by either Party and
each Party shall co-operate with the other Party and shall furnish to the other Party
such information and assistance as a Party may reasonably request in connection with
preparing any submission or responding to such notice from a Governmental Entity;
|
|
(iii)
|
subject
to compliance with Applicable Laws, each Party shall permit the other Party an opportunity
to review in advance any proposed substantive applications, notices, filings, submissions,
undertakings, correspondence and communications (including responses to requests for
information and inquiries from any Governmental Entity) in respect of obtaining or concluding
the Regulatory Approvals and shall provide the other Party with a reasonable opportunity
to comment thereon and agree to consider those comments in good faith and each Party
shall provide the other Party with any substantive applications, notices, filings, submissions,
undertakings or other substantive correspondence provided to a Governmental Entity or
any substantive communications received from a Governmental Entity, in respect of obtaining
or concluding the Regulatory Approvals; and
|
|
(iv)
|
subject
to compliance with Applicable Laws, each Party shall keep the other Party reasonably
informed on a timely basis of the status of discussions relating to obtaining or concluding
the Regulatory Approvals sought by each such Party and, for certainty, no Party shall
participate in any substantive meeting (whether in person, by telephone or otherwise)
with a Governmental Entity in respect of obtaining or concluding the required Regulatory
Approvals unless it advises the other Party in advance and gives such other Party an
opportunity to attend.
|
3.10
|
Covenants Regarding Provision of Information; Access
|
From
and after the date hereof, until the Effective Time or termination of this Agreement, Ample, to the extent it is not restricted
from doing so pursuant to confidentiality or other restrictions (in which circumstances it will use its commercially reasonable
efforts to obtain a waiver thereof) shall provide Akerna and Purchaser and their Representatives access, upon reasonable notice,
during normal business hours and at such other time or times as Akerna and Purchaser may reasonably request, to its and each Ample
Subsidiary’s premises, books, contracts, records, computer systems, properties, Employees and management personnel and shall furnish
promptly to Akerna and Purchaser all information concerning its and each Ample Subsidiary’s business, properties and personnel
as Akerna and Purchaser may reasonably request, which information shall remain subject to the Confidentiality Agreement, including
for the purposes to permit Akerna and Purchaser to be in a position to expeditiously and efficiently integrate the operations
of Ample and to provide an orderly transition of control immediately upon but not prior to the Effective Time. The Parties shall
use all commercially reasonable efforts to ensure that they take no actions, through the exchange of confidential information
or otherwise, in breach of the Competition Act or any other applicable competition laws, and notwithstanding anything contained
in this Agreement, neither Akerna nor Purchaser shall control or materially influence Ample until following the Effective Time.
3.11
|
Section 85 Elections
|
Where
an Eligible Holder desires to so elect, Purchaser shall make a joint election with such Ample Shareholder in respect of its disposition
of its Ample Shares pursuant to Section 85 of the Tax Act (and any similar provision of any applicable provincial Tax legislation)
in accordance with the procedures and within the time limits set out in the Plan of Arrangement. The agreed amount under such
joint elections shall be determined by each such Ample Shareholder in his or her sole discretion within the limits set out in
the Tax Act.
Article
4
REPRESENTATIONS AND WARRANTIES
4.1
|
Representations and Warranties of Akerna and Purchaser
|
Each
of Akerna and Purchaser jointly and severally hereby represents and warrants to and in favour of Ample and acknowledges that Ample
is relying upon such representations and warranties in connection with the matters contemplated by this Agreement and the consummation
of the Arrangement:
|
(a)
|
Organization,
Status and Qualification. Each of Akerna and Purchaser is duly formed and is validly
subsisting, under the laws of its jurisdiction of formation and has the requisite power
and authority to own, lease and operate its respective properties and assets and to conduct
its business as now owned and conducted. Each of Akerna and Purchaser is duly qualified
to carry on business in each jurisdiction in which its assets and properties, owned,
leased, licensed or otherwise held, or the nature of its activities makes such qualification
necessary, except where the failure to be so qualified will not, individually or in the
aggregate, have an Akerna Material Adverse Effect.
|
|
(b)
|
Authorization.
Each of Akerna and Purchaser has all necessary corporate power and authority and has
taken all necessary corporate action to authorize the execution and delivery of this
Agreement and the Contracts, agreements and instruments required by this Agreement to
be delivered by it and the performance of its obligations hereunder and thereunder (subject
to approval of the Akerna Board of the Akerna Circular and matters relating to and to
be approved at the Akerna Meeting).
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(c)
|
Enforceability.
This Agreement has been duly executed and delivered by each of Akerna and Purchaser and
(assuming due execution and delivery by Ample) is a legal, valid and binding obligation
of Akerna and Purchaser enforceable against each of Akerna and Purchaser in accordance
with its terms, except that enforcement may be limited by bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and other Applicable Laws of general application
relating to or affecting the rights of creditors generally and that equitable remedies,
including specific performance, may be granted only in the discretion of a court of competent
jurisdiction. Each of the Contracts, agreements and instruments required by this Agreement
to be delivered by each of Akerna and Purchaser will, at the Effective Time, have been
duly executed and delivered by each of Akerna and Purchaser and (assuming due execution
and delivery by the other parties thereto) will at the Effective Time be enforceable
against each of Akerna and Purchaser in accordance with its terms, except that enforcement
may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization moratorium
and other Applicable Laws of general application relating or affecting the rights of
creditors generally and that equitable remedies, including specific performance, may
be granted only in the discretion of a court of competent jurisdiction.
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(d)
|
No
Violations. Other than as permitted or contemplated under this Agreement, none of
the execution and delivery of this Agreement by Akerna and Purchaser, the consummation
by Akerna and Purchaser of the Arrangement or any of the transactions contemplated by
this Agreement or compliance by Akerna and Purchaser with any of the provisions hereof
will:
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|
(i)
|
violate,
conflict with, or result in a breach of any provision of, require any consent, approval
or notice under, or constitute a default (or an event which with or without notice or
lapse of time or both, would constitute a default) under any of the terms, conditions
or provisions of their respective constating or governing documents;
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(ii)
|
allow
any Person to exercise any rights, require any consent or notice under or other action
by any Person, or cause or permit the termination, cancellation, acceleration or other
change of any right or obligation or the loss of any benefit to which Akerna or Purchaser
is entitled (including by triggering any rights of first refusal or first offer or other
restrictions or limitations) under any Contract to which it is a party, except as would
not reasonably be expected to have, individually or in the aggregate, an Akerna Material
Adverse Effect or impede the consummation of the Arrangement; or
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|
(iii)
|
subject
to obtaining the Regulatory Approvals and Akerna Shareholder Approval, violate any Applicable
Laws.
|
Other
than in connection with obtaining any required Regulatory Approvals, compliance with any Applicable Laws, stock exchange rules
and policies, the Interim Order and the Final Order, no Authorization of, or other action by or in respect of, or filing, recording,
registering or publication with, or notification to, any Governmental Entity is necessary on the part of Akerna or Purchaser for
the consummation by Akerna and Purchaser of their obligations in connection with the Arrangement under this Agreement or for the
completion of the Arrangement, except for such Authorizations and filings as to which the failure to obtain or make would not
materially impede or delay the ability of Akerna or Purchaser to consummate the Arrangement.
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(e)
|
Compliance
with Applicable Laws; No Orders. Akerna and each Akerna Subsidiary has complied with
all Applicable Laws in all material respects and is not in violation of any Applicable
Laws in any material respect except where the failure to so comply would not reasonably
be expected to have an Akerna Material Adverse Effect.
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|
(f)
|
Regulatory
Approvals. As at the date of this Agreement, there are no Regulatory Approvals required
to be obtained by Akerna or any Akerna Subsidiary in connection with this Agreement or
the Arrangement other than the acceptance of the NASDAQ.
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(i)
|
Akerna
is authorized to issue (i) 5,000,000 shares of preferred stock, par value USD$0.0001,
of which none are issued and outstanding as at the date hereof; and (ii) 75,000,000 shares
of common stock, par value USD$0.0001, of which 10,958,656 shares are outstanding
as at the date hereof. Prior to the Effective Time, Akerna will reserve for issuance
the Akerna Shares to be issued upon exchange of the Exchangeable Shares.
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(ii)
|
As
of the date hereof, (A) the authorized capital of the Purchaser consists of an unlimited
number of common shares (the “Purchaser Shares”), and no other shares,
and (B) all of the outstanding Purchaser Shares are owned, directly or indirectly, by
Akerna.
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(iii)
|
Upon
completion of the Arrangement, (A) all of the shares in the capital of the Purchaser
other than the Exchangeable Shares required to be issued by the Purchaser hereunder will
be owned, legally and beneficially, by Akerna, and (B) each of the Exchangeable Shares
required to be issued by the Purchaser hereunder shall be, as and when required to be
issued hereunder, validly issued, fully paid and non-assessable.
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|
(iv)
|
The
total aggregate number of Akerna Shares that Akerna may be required to issue upon the
exchange of all Exchangeable Shares issuable hereunder (including in respect of the Deferred
Consideration) will at the Effective Time have been duly authorized and reserved for
issuance and will, on such exchange, be validly issued, fully paid and non-assessable.
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(h)
|
Bankruptcy.
Neither Akerna nor any Akerna Subsidiary is an insolvent Person within the meaning of
the Bankruptcy and Insolvency Act (Canada) or any other Applicable Law regarding
bankruptcy, insolvency or creditor’s rights generally and nor have any such entity made
an assignment in favour of its creditors or a proposal in bankruptcy to its creditors
or any class thereof, and no petition for a receiving order has been presented in respect
of it. Neither Akerna nor any Akerna Subsidiary has initiated proceedings with respect
to a compromise or arrangement with its creditors or for its winding up, liquidation
or dissolution. No receiver or interim receiver has been appointed in respect of Akerna
or any Akerna Subsidiary or any of the assets of Akerna and no execution or distress
has been levied on any of the assets or Akerna, nor have proceedings been commenced in
connection with any of the foregoing.
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(i)
|
Registrant
Status and Stock Exchange Compliance. Akerna is an SEC registrant. There is no Order
delisting, suspending or cease trading any securities of Akerna. The Akerna Shares are
listed and posted for trading on the NASDAQ, and are not listed or quoted on any market
other than the NASDAQ, and Akerna is in compliance in all material respects with the
applicable listing and corporate governance rules and regulations of the NASDAQ. No Securities
Authority, other competent authority or stock exchange in Canada or the United States
has issued any order which is currently outstanding preventing or suspending trading
in any securities of Akerna, no such proceeding is, to the knowledge of Akerna, pending,
contemplated or threatened and neither Akerna or any Akerna Subsidiaries is in material
default of any requirement of any Applicable Laws.
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(j)
|
U.S.
Securities Law Matters.
|
|
(i)
|
The
Akerna Shares are registered pursuant to Section 12(b) of the U.S. Exchange Act and Akerna
is in compliance with its reporting obligation pursuant to Section 13 of the U.S. Exchange
Act.
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|
(ii)
|
Other
than the Akerna Shares, Akerna does not have, nor is it required to have, any class of
securities registered under the U.S. Exchange Act, nor is Akerna subject to any reporting
obligation (whether active or suspended) pursuant to section 15(d) of the U.S. Exchange
Act.
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(iii)
|
Akerna
is not an investment company registered or required to be registered under the Investment
Company Act of 1940, as amended.
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(k)
|
WTO
Investor. Akerna is a “WTO investor” within the meaning of the Investment
Canada Act.
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(l)
|
Reports.
Akerna has timely filed true and correct copies of documents that Akerna is required
to file under U.S. Securities Laws, other than such documents that the failure to file
would, individually or in the aggregate, not have an Akerna Material Adverse Effect.
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(m)
|
Financial
Statements.
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(i)
|
The
audited consolidated financial statements for Akerna as of and for each of the fiscal
years ended on June 30, 2018 and June 30, 2019 (the “Akerna Financial Statements”)
including the notes thereto and the interim consolidated financial statements for the
three month period ended September 30, 2019 including the notes thereto have been, and
all financial statements of Akerna which are publicly disseminated by Akerna in respect
of any subsequent periods prior to the Effective Date will be, prepared in accordance
with U.S. GAAP applied on a basis consistent with prior periods and all Applicable Laws
and present fairly, in all material respects, the assets, liabilities (whether accrued,
absolute, contingent or otherwise), consolidated financial position and results of operations
of Akerna and its Subsidiaries as of the respective dates thereof and its results of
operations and cash flows for the respective periods covered thereby (except as may be
indicated expressly in the notes thereto)
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(ii)
|
As
of the date of this Agreement, none of the Akerna, any of its Subsidiaries or, to Akerna’s
knowledge, any director, officer, auditor, accountant or representative of Akerna or
any of its Subsidiaries has received or otherwise obtained knowledge of any complaint,
allegation, assertion or claim that Akerna or any of its Subsidiaries has engaged in
questionable accounting or auditing practices or any expression of concern from its employees
regarding questionable accounting or auditing matters.
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(n)
|
Litigation.
To the knowledge of Akerna, there are no investigations by Governmental Entities, actions,
suits or proceedings in progress, pending or threatened against Akerna or any of its
Subsidiaries, which if successful, would reasonably be expected to have an Akerna Material
Adverse Effect or would significantly impede the ability of Akerna to consummate the
Arrangement.
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|
(o)
|
Undisclosed
Liabilities. There are no liabilities or obligations of Akerna or Purchaser of any
kind whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise,
other than liabilities or obligations: (i) disclosed in Akerna’s audited consolidated
financial statements as at June 30, 2019; (ii) incurred in the ordinary course of business
since June 30, 2019; (iii) incurred in connection with this Agreement or the Akerna Transactions;
or (iv) that would not be reasonably expected to have, individually or in the aggregate,
an Akerna Material Adverse Effect.
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(p)
|
Intellectual
Property. Except as would not be reasonably expected to have, individually or in
the aggregate, an Akerna Material Adverse Effect: (i) Akerna and its Subsidiaries, as
applicable, own or possess, or have a licence to or otherwise have the right to use,
all Intellectual Property which is material and necessary for the conduct of its business
as presently conducted; and (ii) to the knowledge of Akerna, neither Akerna nor any of
its subsidiaries is infringing on any intellectual property right of any third party.
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(q)
|
Sufficient
Funds. Akerna has sufficient funds available to satisfy the aggregate cash consideration
payable under the terms of the Plan of Arrangement.
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(r)
|
Public
Disclosure. The information and statements set forth in the Akerna Public Record
were true, correct and complete, and did not contain any misrepresentation, as of the
date of such information or statement.
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|
(s)
|
No
Material Change. Since the date of the Akerna Financial Statements, other than as
disclosed in the Akerna Public Record:
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|
(i)
|
there
has not been any Akerna Material Adverse Change (on a consolidated basis) and as of the
date of this Agreement, there have been no material facts, transactions, events or occurrences
which, to the knowledge of Akerna, would reasonably be expected to have an Akerna Material
Adverse Effect (on a consolidated basis);
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(ii)
|
Akerna
and its Subsidiaries have not issued, sold, transferred, disposed of, acquired, redeemed,
granted options or rights to purchase, rights of first refusal or subscription rights,
or sold any securities of Akerna or its Subsidiaries (or securities convertible into
or exchangeable for Akerna Shares) or permitted any reclassifications of any securities
of Akerna or any of its Subsidiaries;
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|
(iii)
|
Akerna
and its Subsidiaries have not amended or modified their constating documents;
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|
(iv)
|
Akerna
and its Subsidiaries have not declared, paid or otherwise set aside for payment any non-cash
dividend or other non-cash distribution with respect to the Akerna Shares or any other
equity securities;
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|
(v)
|
Akerna
and its Subsidiaries have not merged or consolidated with, or acquired all or substantially
all the assets of, or otherwise acquired, any business, business organization or division
thereof, or any other Person;
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|
(vi)
|
no
liability or obligation of any nature (whether absolute, accrued, contingent or otherwise)
which has had, or is reasonably likely to have, individually or in the aggregate, an
Akerna Material Adverse Effect has been incurred;
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|
(vii)
|
there
has not been any material change to the accounting practices used by Akerna and its Subsidiaries;
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|
(viii)
|
there
has not been any satisfaction or settlement of any material claims or material liabilities,
other than the settlement of claims or liabilities in the ordinary course of business;
and
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|
(ix)
|
Akerna
and its Subsidiaries have conducted their business only in the ordinary and normal course
consistent with past practice, except for the transactions contemplated by this Agreement
and the Akerna Transactions.
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|
(t)
|
Taxes.
Akerna and its Subsidiaries have timely filed all material Tax Returns required to be
filed in all applicable jurisdictions and such Tax Returns are, in all material respects,
true, complete and correct, and have been prepared and filed in all material respects
in accordance with Applicable Laws. Akerna and its Subsidiaries have made and remitted
all material amounts of required deductions or withholdings of Taxes, and have paid all
Taxes payable by Akerna and any of its Subsidiaries as and when due and payable.
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(u)
|
Corporate
Records. The corporate records and minute books, books of account and other records
of Akerna and each Akerna Subsidiary have (whether of a financial or accounting nature
or otherwise) been maintained in accordance with, in all material respects, all Applicable
Laws and prudent business practice and are complete and accurate in all material respects.
Copies of the constating documents of Akerna and each Akerna Subsidiary, together with
all amendments to date, which are included in the Akerna Information, are accurate and
complete in all material respects and have not been amended or superseded.
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|
(i)
|
Neither
Akerna or Purchaser has, directly or indirectly: (A) made, offered or authorized any
contribution, payment, promise, advantage or gift of funds or property to any official,
employee or agent of any governmental agency, authority or instrumentality of any jurisdiction
or any official of any public international organization; or (B) made any contribution
to any candidate for public office, in either case where either the payment or the purpose
of such contribution, payment, promise, advantage or gift would violate, or was or would
be prohibited under, Applicable Laws, including the principles described in the Convention
on Combating Bribery of Foreign Public Officials in International Business Transactions
and the Convention’s Commentaries, the U.S. Foreign Corrupt Practices Act of 1977,
as amended, the Corruption of Foreign Public Officials Act (Canada) or the Proceeds
of Crime (Money Laundering) and Terrorist Financing Act (Canada) or the rules and
regulations promulgated thereunder.
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(ii)
|
No
action, suit or proceeding by or before any court or Governmental Entity or any arbitrator
involving Akerna or Purchaser is pending or threatened under any applicable financial
recordkeeping and reporting requirements and under all applicable money laundering laws
and statutes and the rules and regulations thereunder and any related or similar rules,
regulations or guidelines, issued, administered or enforced by any Governmental Entity,
whether in Canada, the United States or other jurisdictions.
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|
(iii)
|
None
of Akerna, Purchaser, nor any director, officer, agent, employee or any other Person
acting on behalf of Akerna or Purchaser, has been or is the subject of any sanctions
administered by the Office of Foreign Assets Control of the U.S. Treasury Department
(in this subsection subsection 4.1(v)(iii), “OFAC”) (including but not
limited to the designation as a “specially designated national or blocked person”
thereunder), the Government of Canada, Her Majesty’s Treasury, the European Union or
any other relevant sanctions authority; and neither Akerna nor Purchaser is in violation
of any of the economic sanctions of the United States administered by OFAC or economic
sanctions of any other relevant sanctions authority or any law or executive order relating
thereto (in this subsection 4.1(o), the “Economic Sanctions”) or is
conducting business with any Person subject to any Economic Sanctions (a “Sanctioned
Person”); and neither Akerna nor Purchaser nor any of their affiliates are owned
by or affiliated with a Sanctioned Person.
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(w)
|
Freely
Tradeable Shares. The Exchangeable Shares, and the Akerna Shares to be issued pursuant
to the exchange of the Exchangeable Shares, in each case to be issued pursuant to the
Arrangement, shall be registered or qualified for distribution, or exempt from or not
subject to any requirement for registration or qualification for distribution, under
Applicable Securities Laws. Such securities shall not be “restricted securities”
within the meaning of Rule 144 under the U.S. Securities Act or under any other U.S.
federal or state securities laws.
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|
(x)
|
Non-Reliance.
Ample acknowledges that none of Akerna, Purchaser, any Akerna Subsidiary, nor any Akerna Shareholder makes any representation
or warranty with respect to Akerna, Purchaser, any Akerna Subsidiary or the Arrangement other than those expressly set forth in
this Section 4.1 or any other agreement or instrument entered into by Akerna, Purchaser or Callco pursuant to this Agreement,
and Ample has not relied on any statement of any Person in entering into this Agreement other than such express representations
and warranties.
|
4.2
|
Representations and Warranties of Ample
|
Ample
hereby represents and warrants to and in favour of Akerna and Purchaser as follows and acknowledges that Akerna and Purchaser
are relying on these representations and warranties in connection with the matters contemplated by this Agreement and the consummation
of the Arrangement:
|
(a)
|
Organization,
Status and Qualification. Each of Ample and each Ample Subsidiary is a corporation
duly incorporated, amalgamated or continued, or organized, as the case may be, and is
validly subsisting, under the laws of the jurisdiction of its formation and has the requisite
power and authority to own, lease and operate its respective properties and assets and
to conduct its business as now owned and conducted. Each of Ample and each Ample Subsidiary
is duly qualified to carry on business in each jurisdiction in which its assets and properties,
owned, leased, licensed or otherwise held, or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified will not, individually
or in the aggregate, have an Ample Material Adverse Effect.
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|
(b)
|
Authorization.
Ample has all necessary corporate power and authority and has taken all necessary corporate
action to authorize the execution and delivery of this Agreement and the Contracts, agreements
and instruments required by this Agreement to be delivered by it and the performance
of its obligations hereunder and thereunder (subject to approval of the Ample Board of
the Ample Circular and matters relating to and to be approved at the Ample Meeting).
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|
(c)
|
Enforceability.
This Agreement has been duly executed and delivered by Ample and (assuming due execution
and delivery by Akerna and Purchaser) is a legal, valid and binding obligation of Ample
enforceable against it in accordance with its terms, except that enforcement may be limited
by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other
Applicable Laws of general application relating to or affecting the rights of creditors
generally and that equitable remedies, including specific performance, may be granted
only in the discretion of a court of competent jurisdiction. Each of the Contracts, agreements
and instruments required by this Agreement to be delivered by it will, at the Effective
Time, have been duly executed and delivered by it and (assuming due execution and delivery
by the other parties thereto) will at the Effective Time be enforceable against it in
accordance with its terms, except that enforcement may be limited by bankruptcy, insolvency,
fraudulent transfer, reorganization moratorium and other Applicable Laws of general application
relating or affecting the rights of creditors generally and that equitable remedies,
including specific performance, may be granted only in the discretion of a court of competent
jurisdiction.
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|
(d)
|
No
Violations. Other than as permitted or contemplated under this Agreement and subject
to obtaining the consents and delivery of the notices set forth in Schedule 4.2(d) of
the Ample Disclosure Letter, none of the execution and delivery of this Agreement by
Ample, the consummation by Ample of the Arrangement or any of the transactions contemplated
by this Agreement or compliance by Ample with any of the provisions hereof will:
|
|
(i)
|
violate,
conflict with, or result in a breach of any provision of, require any consent, approval
or notice under, or constitute a default (or an event which with or without notice or
lapse of time or both, would constitute a default) under any of the terms, conditions
or provisions of its constating or governing documents;
|
|
(ii)
|
allow
any Person to exercise any rights, or constitute a default under, or cause or permit
the termination, cancellation, acceleration or other change of any right or obligation
or the loss of any benefit to which Ample is entitled (including by triggering any rights
of first refusal or first offer or other restrictions or limitations) under any Ample
Material Contract;
|
|
(iii)
|
subject
to obtaining the Regulatory Approvals and the Ample Shareholder Approval in respect of
the Arrangement, violate any Applicable Laws; and
|
|
(iv)
|
result
in any restriction on Ample or any Ample Subsidiary from engaging in its business, as
now conduced, or from competing with any Person or in any geographical area and does
not and will not trigger or cause to arise any rights of any Person under any contract
or arrangement to restrict Ample or any Ample Subsidiary from engaging in its business,
as now conducted.
|
Other
than in connection with obtaining any required Regulatory Approvals, compliance with any Applicable Laws, stock exchange rules
and policies, the Interim Order and the Final Order, no Authorization of, or other action by or in respect of, or filing, recording,
registering or publication with, or notification to, any Governmental Entity is necessary on the part of Ample for the consummation
by Ample of its obligations in connection with the Arrangement under this Agreement or for the completion of the Arrangement,
except for such Authorizations and filings as to which the failure to obtain or make would not materially impede or delay the
ability of Ample to consummate the Arrangement.
|
(e)
|
Subsidiaries.
Other than as disclosed in Schedule 4.2(e) of the Ample Disclosure Letter and the Ample
Subsidiaries, Ample does not have any material Subsidiaries or own, directly or indirectly,
any shares, partnership interest, limited liability company interest or joint venture
interest in, or any security issued by, any other Person. All of the issued and outstanding
equity interests of Ample’s Subsidiaries are owned beneficially and of record by Ample
and are fully paid and non-assessable.
|
|
(f)
|
Compliance
with Applicable Laws; No Orders. Ample and each Ample Subsidiary has complied with
all Applicable Laws in all material respects and is not in violation of any Applicable
Laws in any material respect except where the failure to so comply would not reasonably
be expected to have an Ample Material Adverse Effect.
|
|
(g)
|
Regulatory
Approvals. As at the date of this Agreement, there are no Regulatory Approvals required
to be obtained by Ample or the Ample Subsidiaries in connection with this Agreement or
the Arrangement other than the Interim Order and the Final Order.
|
|
(h)
|
Authorized
and Issued Capital. The authorized capital of Ample consists of an unlimited number
of Ample Common Shares and 5,304,000 Ample Preferred Shares. As of the date of this Agreement,
there are issued and outstanding 37,447,622 Ample Common Shares and 4,061,358 Ample Preferred
Shares and no other shares are issued and outstanding. Other than: (i) Ample Options
to acquire up to 1,309,750 Ample Common Shares; (ii) Ample Common Warrants to acquire
up to 2,217,161 Ample Common Shares; and (iii) Ample Preferred Warrants to acquire up
to 312,000 Ample Preferred Shares, there are no options, warrants or other rights, plans,
agreements or commitments of any nature whatsoever requiring the issuance, sale or transfer
by Ample of any securities of Ample (including Ample Shares) or any securities convertible
into, or exchangeable or exercisable for, or otherwise evidencing a right to acquire,
any securities of Ample (including Ample Shares). All outstanding Ample Shares and Ample
Preferred Shares have been duly authorized and validly issued, are fully paid and non-assessable
and are not subject to, nor were they issued in violation of, any pre-emptive rights.
Other than the Ample Shares and Ample Preferred Shares, there are no securities of Ample
outstanding which have the right to vote generally with the shareholders of Ample on
any matter.
|
|
(i)
|
Significant
Shareholders. Other than as set out in Schedule 4.2(i) of the Disclosure Letter,
to the knowledge of Ample, no Person beneficially owns, directly or indirectly, or exercises
control or direction over, Ample Shares representing more than 10% of the issued and
outstanding Ample Shares (each, a “Significant Shareholder”).
|
|
(j)
|
Bankruptcy.
Neither Ample nor any Ample Subsidiary is an insolvent Person within the meaning of the
Bankruptcy and Insolvency Act (Canada) or any other Applicable Law regarding bankruptcy,
insolvency or creditor’s rights generally and nor have any such entity made an assignment
in favour of its creditors or a proposal in bankruptcy to its creditors or any class
thereof, and no petition for a receiving order has been presented in respect of it. Neither
Ample nor any Ample Subsidiary has initiated proceedings with respect to a compromise
or arrangement with its creditors or for its winding up, liquidation or dissolution.
No receiver or interim receiver has been appointed in respect of Ample or any Ample Subsidiary
or any of the assets of Ample and no execution or distress has been levied on any of
the assets of Ample, nor have proceedings been commenced in connection with any of the
foregoing.
|
|
(k)
|
Securities
Laws Matters. No Securities Authority, other competent authority or stock exchange
in Canada or the United States has issued any order which is currently outstanding preventing
or suspending trading in any securities of Ample, no such proceeding is, to the knowledge
of Ample, pending, contemplated or threatened and neither Ample or Ample Subsidiaries
is in material default of any requirement of any Applicable Laws.
|
|
(l)
|
U.S.
Securities Law Matters.
|
|
(i)
|
There
is no class of securities of Ample which is registered pursuant to Section 12 of the
U.S. Exchange Act, nor is Ample subject to any reporting obligation (whether active or
suspended) pursuant to section 15(d) of the U.S. Exchange Act. Ample is not, and has
never been, subject to any requirement to register any class of its equity securities
pursuant to Section 12(g) of the U.S. Exchange Act.
|
|
(ii)
|
Ample
is not an investment company registered or required to be registered under the U.S. Investment
Company Act of 1940.
|
|
(iii)
|
Ample
is not, has not previously been and on the Effective Date will not be a “shell company”
(as defined in Rule 405 under the U.S. Securities Act).
|
|
(m)
|
Financial
Statements.
|
|
(i)
|
The
Ample Financial Statements fairly present, in accordance with IFRS, consistently applied,
the financial position and condition of Ample at the dates thereof and the results of
the operations of Ample for the periods then ended and reflect, in accordance with IFRS,
consistently applied, all material assets, liabilities or obligations (absolute, accrued,
contingent or otherwise) of Ample, as at the dates thereof.
|
|
(ii)
|
Neither
Ample nor, to Ample’s knowledge, any director, officer, Employee, auditor, accountant
or representative of Ample, has received or otherwise had or obtained knowledge of any
material complaint, allegation, assertion, expression of concern or claim from any source,
whether written or oral, regarding the accounting, internal accounting controls or auditing
practices, procedures, methodologies or methods of Ample or the Ample Subsidiaries, including
any material complaint, allegation, assertion, expression of concern or claim from any
source that Ample has engaged in questionable accounting or auditing practices, which
has not been resolved to the satisfaction of the Ample Board.
|
|
(n)
|
Litigation.
To the knowledge of Ample, there are no investigations by Governmental Entities, actions,
suits or proceedings in progress, pending or threatened against Ample or any of its Subsidiaries,
which if successful, would reasonably be expected to have an Ample Material Adverse Effect
or would significantly impede the ability of Ample to consummate the Arrangement.
|
|
(o)
|
Undisclosed
Liabilities. Other than as disclosed in Schedule 4.2(o) of the Ample Disclosure Letter,
there are no liabilities or obligations of Ample of any kind whatsoever whether accrued,
contingent, absolute, determined, determinable or otherwise, other than liabilities or
obligations: (i) disclosed in Ample’s audited consolidated financial statements as at
December 31, 2018; (ii) incurred in the ordinary course of business since December 31,
2018; (iii) incurred in connection with this Agreement; or (iv) that would not be reasonably
expected to have, individually or in the aggregate, an Ample Material Adverse Effect.
|
|
(p)
|
No
Restrictions on Business. Other than as disclosed in Schedule 4.2(p) of the Ample
Disclosure Letter, neither Ample nor any Ample Subsidiary is a party to or bound or affected
by any commitment, agreement, judgment, injunction, order, decree or document binding
upon Ample or such Ample Subsidiary that has or could reasonably be expected to have
the effect of prohibiting, restricting or impairing its business, or individually or
in the aggregate, having an Ample Material Adverse Effect or containing any covenant
expressly prohibiting, restricting or limiting its freedom or ability to: (i) compete
in any line of business or geographic region; (ii) transfer or move any of the assets
or operations; (iii) conduct any business practice of Ample or such Ample Subsidiary
as now conducted; or (iv) effect any acquisition of property by Ample or such Ample Subsidiary
(including following the transactions contemplated by this Agreement).
|
|
(i)
|
Except
as would not be reasonably expected to have, individually or in the aggregate, an Ample
Material Adverse Effect: (A) Ample and the Ample Subsidiaries, as applicable, have valid,
good and marketable title to all of the real or immovable property owned by them (the
“Ample Owned Properties”) free and clear of any Liens, except for Permitted
Liens; and (B) there are no outstanding options or rights of first refusal to purchase
the Ample Owned Properties or any portion thereof or interest therein.
|
|
(ii)
|
Except
as would not be reasonably expected to have, individually or in the aggregate, an Ample
Material Adverse Effect: (A) each lease or sublease for real and immovable property leased
or subleased by Ample or any Ample Subsidiaries creates a good and valid leasehold estate
in the premises thereby demised and is in full force and effect; (B) none of Ample or
any Ample Subsidiaries is in breach of, or default under, such lease or sublease and
no event has occurred which, with notice, lapse of time or both, would constitute such
a breach or default by Ample or any Ample Subsidiaries or permit termination, modification
or acceleration by any third party thereunder; and (C) to the knowledge of Ample, no
third party has repudiated or has the right to terminate or repudiate any such lease
or sublease (except for the normal exercise of remedies in connection with a default
thereunder or any termination rights set forth in the lease or sublease) or any provision
thereof.
|
|
(r)
|
Personal
Property. Ample and its Subsidiaries have valid, good and marketable title to all
personal property owned by them, except as would not, individually or in the aggregate,
be reasonably expected to have an Ample Material Adverse Effect.
|
|
(s)
|
Intellectual
Property. Except as would not be reasonably expected to have, individually or in
the aggregate, an Ample Material Adverse Effect: (i) Ample and its Subsidiaries, as applicable,
own or possess, or have a licence to or otherwise have the right to use, all Intellectual
Property which is material and necessary for the conduct of its business as presently
conducted (collectively, the “Ample Intellectual Property Rights”);
(ii) to the knowledge of Ample, all such Ample Intellectual Property Rights that are
owned by Ample and its Subsidiaries are valid and enforceable subject only to any limitation
under bankruptcy, insolvency or other Applicable Laws affecting the enforcement of creditors’
rights generally and the discretion that a court may exercise in the granting of equitable
remedies such as specific performance and injunction and does not infringe in any material
way upon the rights of others; and (iii) to the knowledge of Ample, no third party is
infringing upon the Ample Intellectual Property Rights owned or licensed by Ample or
its Subsidiaries.
|
|
(i)
|
No
Ample Employee has any agreement as to length of notice or severance payment required
to terminate his or her employment other than such as results from Applicable Law from
the employment of an employee without an agreement as to notice or severance.
|
|
(ii)
|
Other
than as set out in Schedule 4.2(t)(ii) of the Ample Disclosure Letter and except as provided
in this Agreement, there are no change of control payments, golden parachutes, severance
payments, retention payments, Contracts or other agreements with current or former Ample
Employees providing for cash or other compensation or benefits upon the consummation
of, or relating to, the Arrangement, including a change of control of Ample or any of
its Subsidiaries.
|
|
(iii)
|
Ample
and its Subsidiaries are in material compliance with all terms and conditions of employment
and all Applicable Laws respecting employment, including pay equity, wages, hours of
work, overtime, vacation, human rights and work safety and health.
|
|
(iv)
|
There
are no charges pending under applicable occupational health and safety legislation. Ample
has complied in all material respects with any orders issued under applicable occupational
health and safety legislation and there are no appeals of any orders under applicable
occupational health and safety legislation currently outstanding.
|
|
(v)
|
There
are no material Ample Employee related claims, complaints, investigations or orders under
all Applicable Laws respecting employment now pending or, to the knowledge of Ample,
threatened against Ample and its Subsidiaries by or before any Governmental Entity as
of the date of this Agreement and, as of the date of this Agreement, no such claims,
complaints, investigations or orders could reasonably be expected to have an Ample Material
Adverse Effect.
|
|
(vi)
|
None
of Ample or its Subsidiaries is: (A) a party to any collective bargaining agreement with
respect to any Ample Employees or any contract with any employee association; or (B)
is subject to any application for certification or, to the knowledge of Ample, threatened
or apparent union-organizing campaigns for employees not covered under a collective bargaining
agreement and no trade union, council of trade unions, employee bargaining agency or
affiliated bargaining agent holds bargaining rights with respect to any employees of
Ample by way of certification, voluntary recognition or succession rights. There is no
labour strike, dispute, work slowdown or stoppage pending or involving, or to the knowledge
of Ample threatened against Ample or any of its Subsidiaries.
|
|
(u)
|
Material
Contracts and Other Contracts. True and correct copies of all Ample Material Contracts
entered into by Ample and the Ample Subsidiaries have been included in the Ample Information
and:
|
|
(i)
|
such
Ample Material Contracts are valid and binding obligations of Ample or the applicable
Ample Subsidiary, and Ample has no reason to believe that such Ample Material Contracts
are not, valid and binding obligations of each other party thereto;
|
|
(ii)
|
neither
Ample nor, to the knowledge of Ample, any of the other parties thereto (including any
Ample Subsidiary), is in breach or violation of, or default under (in each case, with
or without notice or lapse of time or both) any such Ample Material Contract and Ample
has not received or given any notice of a default under any such Ample Material Contract
which remains uncured; and
|
|
(iii)
|
to
the knowledge of Ample, there exists no state of facts which after notice or lapse of
time or both would constitute a default or breach of any Ample Material Contract or entitle
any party to terminate, accelerate, modify or cause a default under, or trigger any pre-emptive
rights or rights of first refusal under, any such Ample Material Contracts.
|
|
(v)
|
No
Material Change. Since the date of the latest Ample Financial Statements:
|
|
(i)
|
there
has not been any Ample Material Adverse Change (on a consolidated basis) and as of the
date of this Agreement, there have been no material facts, transactions, events or occurrences
which, to the knowledge of Ample, would reasonably be expected to have an Ample Material
Adverse Effect (on a consolidated basis);
|
|
(ii)
|
other
than as set out in Schedule 4.2(v) of the Ample Disclosure Letter, Ample and its Subsidiaries
have not issued, sold, transferred, disposed of, acquired, redeemed, granted options
or rights to purchase, rights of first refusal or subscription rights, or sold any securities
of Ample or its Subsidiaries (or securities convertible into or exchangeable for Ample
Shares) or permitted any reclassifications of any securities of Ample or any of its Subsidiaries;
|
|
(iii)
|
other
than as set out in Schedule 4.2(v) of the Ample Disclosure Letter, Ample and its Subsidiaries
have not amended or modified their constating documents;
|
|
(iv)
|
Ample
and its Subsidiaries have not declared, paid or otherwise set aside for payment any non-cash
dividend or other non-cash distribution with respect to the Ample Shares or any other
equity securities;
|
|
(v)
|
Ample
and its Subsidiaries have not merged or consolidated with, or acquired all or substantially
all the assets of, or otherwise acquired, any business, business organization or division
thereof, or any other Person;
|
|
(vi)
|
other
than as set out in Schedule 4.2(v) of the Ample Disclosure Letter, there has not been
any material increase in the salary, bonus or other remuneration payable by Ample or
any of its Subsidiaries to any of their respective directors, officers, employees or
consultants, and there has not been any amendment or modification to the vesting or exercisability
schedule or criteria, including any acceleration, right to accelerate or acceleration
event or other entitlement under any stock option, deferred compensation or other compensation
award or any grant to such director, officer, employee or consultant of any increase
in severance or termination pay or any increase or modification of any bonus, pension,
insurance or benefit arrangement made to, for or with any of such directors, officers,
employees or consultants;
|
|
(vii)
|
no
liability or obligation of any nature (whether absolute, accrued, contingent or otherwise)
which has had, or is reasonably likely to have, individually or in the aggregate, an
Ample Material Adverse Effect has been incurred;
|
|
(viii)
|
there
has not been any material change to the accounting practices used by Ample and its Subsidiaries;
|
|
(ix)
|
other
than as set out in Schedule 4.2(v) of the Ample Disclosure Letter, there has not been
any entering into, or any amendment of, any Ample Material Contract other than in the
ordinary course of business consistent with past practice;
|
|
(x)
|
there
has not been any satisfaction or settlement of any material claims or material liabilities,
other than the settlement of claims or liabilities in the ordinary course of business;
and
|
|
(xi)
|
Ample
and its Subsidiaries have conducted their business only in the ordinary and normal course
consistent with past practice, except for the transactions contemplated by this Agreement.
|
|
(i)
|
Ample
and its Subsidiaries have timely filed, all material Tax Returns prior to the date hereof,
other than those which have been administratively waived, and all such Tax Returns are
true, complete and correct and are in accordance with Applicable Laws in all material
respects;
|
|
(ii)
|
Ample
and its Subsidiaries have paid on a timely basis all Taxes and all assessments and reassessments
of Taxes due on or before the date hereof, other than Taxes which are being or have been
contested in good faith and for which adequate accruals have been provided in the Ample
Financial Statements. Ample and its Subsidiaries have provided adequate accruals in accordance
with IFRS in the most recent Ample Financial Statements for any Taxes of Ample and each
of its Subsidiaries for the period covered by such financial statements that have not
been paid whether or not shown as being due in any Tax Returns. Since the date of the
most recent Ample Financial Statements, no material liability in respect of Taxes not
reflected in such financial statements or otherwise provided for has been assessed, proposed
to be assessed, incurred or accrued, other than in the ordinary course of business;
|
|
(iii)
|
Ample
and its Subsidiaries have duly and timely withheld, or caused to be withheld, all material
amounts of Taxes required by Applicable Laws to be withheld by it (including Taxes and
other amounts required to be withheld by it in respect of any amount paid or credited
or deemed to be paid or credited by it to or for the account of any Person, including
any present or former employees, officers or directors and any Persons who are non-residents
of Canada for the purpose of the Tax Act) and duly and timely remitted, or caused to
be remitted, to the appropriate Taxing Authority such Taxes required by Applicable Laws
to be remitted by it;
|
|
(iv)
|
Ample
and its Subsidiaries have duly and timely collected, or caused to be collected, all material
amounts of sales or transfer taxes, including goods and services, harmonized sales and
provincial or territorial sales taxes, required by Applicable Laws to be collected by
it and duly and timely remitted to the appropriate Taxing Authority any such amounts
required by Applicable Laws to be remitted by it;
|
|
(v)
|
there
are no audits or investigations in progress, or to the knowledge of Ample, pending or
threatened by any Governmental Entity with respect to Taxes against Ample or any Ample
Subsidiary or any of the assets of Ample or any Ample Subsidiary; and to the knowledge
of Ample, no deficiencies, litigation, proposed adjustments or matters in controversy
with respect to any amount of Taxes of Ample or any Ample Subsidiary have been asserted
or have been raised by any Governmental Entity which remain unresolved at the date hereof,
except, in each case, as are being contested in good faith and for which adequate accruals
have been provided in the Ample Financial Statements;
|
|
(vi)
|
there
are no currently effective elections, agreements or waivers extending the statutory period
or providing for an extension of time with respect to the assessment or reassessment
of any amount of Taxes of, or the filing of any Tax Return or any payment of any amount
of Taxes by, Ample or any Ample Subsidiary;
|
|
(vii)
|
Ample
is, and has been since incorporation, a “taxable Canadian corporation” as defined
in the Tax Act;
|
|
(viii)
|
there
are no circumstances existing which could result in additional Taxes owing as a result
of the application of section 17, subsection 18(4), section 78, section 79, sections
80 to 80.04 or section 245 of the Tax Act to each of Ample and the Ample Subsidiaries;
|
|
(ix)
|
there
are no Liens for Taxes upon any of the assets of Ample or any of its Subsidiaries; and
|
|
(x)
|
Ample
has not either directly or indirectly transferred any property to or supplied any services
to or acquired any property or services from a Person with whom it was not dealing at
arm’s length (for the purposes of the Tax Act) for consideration other than consideration
equal to the fair market value of the property or services at the time of the transfer,
supply or acquisition of the property or services.
|
|
(x)
|
Corporate
Records. Other than as set out in Schedule 4.2(x) of the Ample Disclosure Letter,
the corporate records and minute books, books of account and other records of Ample and
each Ample Subsidiary have (whether of a financial or accounting nature or otherwise)
been maintained in accordance with, in all material respects, all Applicable Laws and
prudent business practice and are complete and accurate in all material respects. Copies
of the constating documents of Ample and each Ample Subsidiary, together with all amendments
to date, which are included in the Ample Information, are accurate and complete in all
material respects and have not been amended or superseded.
|
|
(y)
|
Insurance.
Policies of insurance are in force naming Ample as an insured that adequately cover all
risks as are customarily covered by businesses in the industry in which Ample operates
and Ample and its Subsidiaries are in compliance in all material respects with all requirements
with respect to such policies. All such policies shall remain in force and effect (subject
to taking into account insurance market conditions and offerings and industry practices)
and shall not be cancelled or otherwise terminated as a result of the Arrangement. To
the knowledge of Ample, each material insurance policy currently in effect that insures
the physical properties, business, operations and assets of Ample and its Subsidiaries
is valid and binding and in full force and effect and there is no material claim pending
under any such policies as to which coverage has been questioned, denied or disputed.
There is no material claim pending under any insurance policy of Ample or any Subsidiary
that has been denied, rejected, questioned, or disputed by any insurer or as to which
any insurer has made any reservation of rights or refused to cover all or any material
portion of such claims.
|
|
(i)
|
Except
as would not be reasonably expected to have, individually or in the aggregate, an Ample
Material Adverse Effect, all of the Employee Plans are and have been established, registered,
qualified and administered in accordance with all Applicable Laws and in accordance with
their terms, the terms of the material documents that support such Employee Plans and
the terms of agreements between Ample and its Subsidiaries and Ample Employees (present
and former) who are members of, or beneficiaries under, the Employee Plans. To the knowledge
of Ample, no fact or circumstance exists which could adversely affect the registered
status of any such Employee Plan. Neither Ample nor, to the knowledge of Ample, any of
its agents or delegates, has breached any fiduciary obligation with respect to the administration
or investment of any Employee Plan.
|
|
(ii)
|
Except
as would not be reasonably expected to have, individually or in the aggregate, an Ample
Material Adverse Effect: (A) all current obligations of Ample regarding the Employee
Plans have been satisfied; and (B) all contributions, premiums or Taxes required to be
made or paid by Ample by Applicable Laws or under the terms of each Employee Plan have
been made in a timely fashion in accordance with Applicable Laws and the terms of the
applicable Employee Plan.
|
|
(iii)
|
There
are no material pension or retirement income plans of Ample.
|
|
(iv)
|
To
the knowledge of Ample, no Employee Plan is subject to any pending investigation, examination,
action, claim (including claims for Taxes, interest, penalties or fines) or any other
proceeding initiated by any Person (other than routine claims for benefits) which, if
adversely determined, would be reasonably expected to have, individually or in the aggregate,
an Ample Material Adverse Effect and, to the knowledge of Ample, there exists no state
of facts which could reasonably be expected to give rise to any such investigation, examination,
action, claim or other proceeding.
|
|
(v)
|
Other
than as set out in Schedule 4.2(z)(v) of the Ample Disclosure Letter and except as provided
in this Agreement, the execution, delivery and performance of this Agreement and the
consummation of the Arrangement will not: (A) result in any material payment (including
bonus, golden parachutes, retirement, severance, unemployment compensation or other benefit
or enhanced benefit) becoming due or payable to any of the Ample Employees (present or
former); (B) materially increase the compensation or benefits otherwise payable to any
Ample Employee (present or former); or (C) result in the acceleration of the time of
payment or vesting of any material benefits or entitlements otherwise available pursuant
to any Employee Plan.
|
|
(vi)
|
None
of the Employee Plans provide for retiree or post-termination benefits or for benefits
to retired or terminated employees or to the beneficiaries or dependants of retired or
terminated employees.
|
|
(vii)
|
All
current obligations of Ample regarding the Employee Plans have been satisfied, and all
contributions, premiums or Taxes required to be made or paid by Ample by Applicable Laws
or under the terms of each Employee Plan have been made in a timely fashion in accordance
with Applicable Laws and the terms of the applicable Employee Plan.
|
|
(aa)
|
Environmental
Matters. Except as would not be reasonably expected to have, individually or in the
aggregate, an Ample Material Adverse Effect: (i) no written notice, order, complaint
or penalty has been received by Ample or any of its Subsidiaries alleging that Ample
or any of its Subsidiaries is in violation of, or has any liability or potential liability
under, any Environmental Laws and there are no judicial, administrative or other actions,
suits or proceedings pending or, to the knowledge of Ample, threatened against Ample
or any of its Subsidiaries which alleges a violation of, or any liability or potential
liability under, any Environmental Laws; (ii) Ample and each of its Subsidiaries has
all environmental permits necessary for the operation of their respective businesses
and to comply with all Environmental Laws; and (iii) the operations of Ample and each
of its Subsidiaries are in compliance with Environmental Laws.
|
|
(bb)
|
No
Dividends. Since December 31, 2018, Ample has not declared, paid or resolved to declare
or pay any dividends or distributions.
|
|
(cc)
|
Related
Party Transactions. No officer, director or Employee of Ample, or any Affiliate of
such officer, director or Employee: (i) is a party to any contract or transaction with
Ample (other than for legal services and services as Employees, officers or directors);
(ii) has any ownership interest in any property, real or personal or mixed, tangible
or intangible, used by Ample or any Ample Subsidiary in its business; or (iii) is indebted
to Ample or any Ample Subsidiary.
|
|
(dd)
|
Brokers.
Other than as set out in Schedule 4.2(dd) of the Ample Disclosure Letter, no broker,
finder or investment banker is entitled to any brokerage, finder’s or other fee or commission
from, or to the reimbursement of any of its expenses by, Ample in connection with this
Agreement or the Arrangement.
|
|
(i)
|
Neither
Ample nor any Ample Subsidiary has, directly or indirectly: (A) made, offered or authorized
any contribution, payment, promise, advantage or gift of funds or property to any official,
employee or agent of any governmental agency, authority or instrumentality of any jurisdiction
or any official of any public international organization; or (B) made any contribution
to any candidate for public office, in either case where either the payment or the purpose
of such contribution, payment, promise, advantage or gift would violate, or was or would
be prohibited under, Applicable Laws, including the principles described in the Convention
on Combating Bribery of Foreign Public Officials in International Business Transactions
and the Convention’s Commentaries, the U.S. Foreign Corrupt Practices Act of 1977,
as amended, the Corruption of Foreign Public Officials Act (Canada) or the Proceeds
of Crime (Money Laundering) and Terrorist Financing Act (Canada) or the rules and
regulations promulgated thereunder.
|
|
(ii)
|
No
action, suit or proceeding by or before any court or Governmental Entity or any arbitrator
involving Ample or any Ample Subsidiary is pending or threatened under any applicable
financial recordkeeping and reporting requirements and under all applicable money laundering
laws and statutes and the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any Governmental
Entity, whether in Canada or other jurisdictions.
|
|
(iii)
|
None
of Ample, any Ample Subsidiary, nor any director, officer, agent, Employee or any other
Person acting on behalf of Ample, or any Ample Subsidiary has been or is the subject
of any sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury
Department (in this subsection 4.2(ee)(iii) only, “OFAC”) (including
but not limited to the designation as a “specially designated national or blocked
person” thereunder), the Government of Canada, Her Majesty’s Treasury, the European
Union or any other relevant sanctions authority; and none of Ample or any Ample Subsidiary
is in violation of any of the economic sanctions of the United States administered by
OFAC or economic sanctions of any other relevant sanctions authority or any law or executive
order relating thereto (in this subsection 4.2(ee)(iii) only, the “Economic Sanctions”)
or is conducting business with any Person subject to any Economic Sanctions.
|
|
(ff)
|
Equity
Monetization Plans. There are no outstanding stock appreciation rights, phantom equity,
profit sharing plan or similar rights, agreements, arrangements or commitments payable
to any Employee and which are based upon the revenue, value, income or any other attribute
of Ample or any Ample Subsidiary.
|
|
(gg)
|
Rights
Plans. Ample does not have any similar type of shareholder rights plan. Ample will
not adopt any shareholder rights plan or any other similar form of plan, agreement, Contract
or instrument that will trigger any rights to acquire Ample Shares or other securities
of Ample or any Ample Subsidiary upon the entering into of this Agreement or in connection
with the Arrangement.
|
|
(hh)
|
Place
of Principal Offices. None of Ample or any Ample Subsidiary is incorporated or formed
in the United States, is not organized under the laws of the United States and does not
have its principal office within the United States.
|
|
(ii)
|
Investment
Company. None of Ample or any Ample Subsidiary is registered or required to be registered
as an “investment company” pursuant to the United States Investment Company
Act of 1940, as amended.
|
|
(jj)
|
Shareholder
Agreements. Other than as set out in Schedule 4.2(jj) and existing agreements with
Akerna, there are no shareholders agreements, registration rights agreements, voting
trusts, proxies or similar agreements, arrangements, or commitments to which Ample is
a party or, to the knowledge of Ample, with respect to any shares or other equity interests
of Ample or any other Contract relating to disposition, voting or dividends with respect
of any equity securities of Ample.
|
|
(kk)
|
Competition
Act. Ample, together with its affiliates, as such term is defined under the Competition
Act, neither have assets in Canada with an aggregate value in excess of $96,000,000 nor
aggregate gross revenues from sales in, from or into Canada in excess of $96,000,000,
as determined in accordance with the Competition Act.
|
|
(ll)
|
Disclosure.
The representations and warranties set forth in this Section 4.2 do not contain any untrue
statement of a material fact or omit to state a material fact which is necessary in order
to make the statements contained in those representations and warranties, taken as a
whole, not misleading in any material respect.
|
|
(mm)
|
Non-Reliance.
Each of Akerna and Purchaser acknowledge that none of Ample, any Ample Subsidiary, nor
any Ample Shareholder makes any representation or warranty with respect to Ample, any
Ample Subsidiary or the Arrangement other than those expressly set forth in this Section
4.2 or any other agreement or instrument entered into by Ample pursuant to this Agreement,
and each of Akerna and Purchaser have not relied on any statement of any Person in entering
into this Agreement other than such express representations and warranties.
|
Article
5
CONDITIONS
PRECEDENT
5.1
|
Mutual Conditions
Precedent
|
The
respective obligations of the Parties to complete the Arrangement are subject to the satisfaction or mutual waiver, on or before
the Effective Date or such other time specified, of the following conditions:
|
(a)
|
the
Interim Order will have been granted in form and substance satisfactory to Akerna, Purchaser and Ample, acting reasonably,
and such order will not have been set aside or modified in a manner unacceptable to Akerna, Purchaser and Ample, each acting
reasonably, on appeal or otherwise;
|
|
(b)
|
the
Arrangement Resolution will have been passed by the Ample Shareholders by the Outside Date in accordance with the Interim
Order;
|
|
(c)
|
the
Akerna Shareholder Matters will have been passed by the Akerna Shareholders by the Outside Date;
|
|
(d)
|
the
Final Order will have been granted by the Outside Date in form and substance satisfactory to Akerna, Purchaser and Ample,
acting reasonably, and such order will not have been set aside or modified in a manner unacceptable to Akerna, Purchaser and
Ample, each acting reasonably, on appeal or otherwise;
|
|
(e)
|
no
Governmental Entity shall have enacted, issued, promulgated, enforced or entered any order or law which is then in effect
and has the effect of making the Arrangement illegal or otherwise preventing or prohibiting consummation of the Arrangement;
|
|
(f)
|
all
Regulatory Approvals will have been obtained on terms and conditions satisfactory to each of Akerna, Purchaser and Ample,
each acting reasonably;
|
|
(g)
|
the
Akerna Shares to be issued upon the exchange of Exchangeable Shares shall, subject to customary conditions, have been approved
for listing on the NASDAQ; and
|
|
(h)
|
the
Exchangeable Shares, and the Akerna Shares to be issued pursuant to the exchange of the Exchangeable Shares, in each case
to be issued pursuant to the Arrangement, shall be exempt from the registration requirements of the U.S. Securities Act pursuant
to Section 3(a)(10) thereof.
|
5.2
|
Additional Conditions
to Obligations of Akerna and Purchaser
|
The
obligation of Akerna and Purchaser to complete the Arrangement is subject to the fulfillment of each of the following conditions
precedent on or before the Effective Time (each of which is for the exclusive benefit of Akerna and Purchaser and may be waived
by Akerna and Purchaser, in whole or in part at any time, each in its sole discretion, without prejudice to any other rights which
Akerna may have):
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(a)
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the
representations and warranties of Ample set forth in this Agreement will be: (i) for the representations and warranties qualified
as to materiality, true and correct in all respects; and (ii) for all other representations and warranties, true and correct
in all material respects, as of the date of this Agreement and as of the Effective Date as if made on and as of such date
(except to the extent such representations and warranties speak as of an earlier date, the accuracy of which will be determined
as of that specified date), except where the failure of such representations and warranties to be true and correct, individually
or in the aggregate, would not or would not be reasonably expected to have an Ample Material Adverse Effect or materially
impede completion of the Arrangement, and Ample will have provided to Akerna and Purchaser a certificate of two senior officers
or authorized signatories certifying such accuracy;
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(b)
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Ample
will have complied in all material respects with its covenants herein, and Ample will have provided to Akerna and Purchaser
a certificate of two senior officers or authorized signatories certifying compliance with such covenants;
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(c)
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there
shall be no action or proceeding (whether by a Governmental Entity or any other Person) pending or threatened in any jurisdiction
to:
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(i)
|
cease
trade, enjoin or prohibit or impose any limitations, damages or conditions on, Akerna's ability to acquire, hold or exercise
full rights of ownership over, any Ample Shares, including the right to vote the Ample Shares;
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(ii)
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impose
terms or conditions on the completion of the Arrangement or on the ownership or operation by Akerna of the business or assets
of Akerna, Ample and any Ample Subsidiaries, affiliates and related entities; or
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(iii)
|
prevent
or materially delay the consummation of the Arrangement;
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(d)
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between
the date hereof and the Effective Time, there will not have occurred any Ample Material Adverse Effect;
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(e)
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the
Shareholder Representative shall have duly executed and delivered copies of each of the Escrow Agreement and the Rights Indenture;
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(f)
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on
the date hereof, Akerna and Purchaser shall have received the Ample Shareholder Support Agreements duly executed by each of
the directors and officers of Ample;
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(g)
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as
of the Effective Time, the Ample Supporting Securityholders shall not have breached their obligations or covenants under the
Ample Shareholder Support Agreements in any material respect; and
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(h)
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Ample
Shareholders have not validly exercised and not withdrawn Dissent Rights with respect to more than 5% of the Ample Shares
then outstanding.
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5.3
|
Additional Conditions
to Obligations of Ample
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The
obligation of Ample to complete the Arrangement is subject to the fulfillment of each of the following conditions precedent on
or before the Effective Time (each of which is for the exclusive benefit of Ample and may be waived by Ample, in whole or in part
at any time, in its sole discretion, without prejudice to any other rights which Ample may have):
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(a)
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Akerna
and the Purchaser shall have delivered the Up-front Consideration and CVRs in accordance with Section 2.14;
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(b)
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the
representations and warranties of Akerna and Purchaser set forth in this Agreement will be: (i) for the representations and
warranties qualified as to materiality, true and correct in all respects; and (ii) for all other representations and warranties,
true and correct in all material respects, as of the date of this Agreement and as of the Effective Date as if made on and
as of such date (except to the extent such representations and warranties speak as of an earlier date, the accuracy of which
will be determined as of that specified date), except where the failure of such representations and warranties to be true
and correct, individually or in the aggregate, would not or would not be reasonably expected to have a material adverse effect
on the ability of Purchaser to complete the Arrangement or materially impede completion of the Arrangement, and Akerna and
Purchaser will have provided to Ample a certificate of two senior officers or authorized signatories certifying such accuracy;
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(c)
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Akerna
and Purchaser will have complied in all material respects with its covenants herein, and Akerna and Purchaser will have provided
to Ample a certificate of two senior officers or authorized signatories certifying compliance with such covenants; and
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(d)
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between
the date hereof and the Effective Time, there will not have occurred any Akerna Material Adverse Effect;
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(e)
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on
the date hereof, Ample shall have received the Akerna Shareholder Support Agreements duly executed by each of the directors
and officers of Akerna;
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(f)
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Akerna
shall have delivered copies of each of the Exchangeable Share Support Agreement, the Voting and Exchange Trust Agreement,
the Escrow Agreement and the Rights Indenture, in each case, duly executed by each party thereto other than the Shareholder
Representative; and
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(g)
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as
of the Effective Time, the directors and officers of Akerna shall not have breached their obligations or covenants under the
Akerna Shareholder Support Agreements in any material respect.
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5.4
|
Notice and Effect
of Failure to Comply with Conditions
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(a)
|
Each
Party shall give prompt notice to the other Parties of the occurrence, or failure to occur, at any time from the date hereof
to the Effective Date of any event or state of facts which occurrence or failure would, or would be likely to: (i) cause any
of the representations or warranties of any Party contained herein to be untrue or inaccurate in any material respect; or
(ii) result in the failure to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied
by any Party hereunder; provided that, that no such notification will affect the representations or warranties of the
Parties or the conditions to the obligations of the Parties hereunder.
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(b)
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If
any of the conditions precedents set forth in Sections 5.1, 5.2 or 5.3 hereof shall not be complied with or waived by the
Party or Parties for whose benefit such conditions are provided on or before the date required for the performance thereof,
then a Party for whose benefit the condition precedent is provided may, in addition to any other remedies they may have at
law or equity, rescind and terminate this Agreement provided that the Party intending to rely thereon has delivered a written
notice to the other Parties, specifying in reasonable detail all breaches of covenants, representations and warranties or
other matters which the Party delivering such notice is asserting as the basis for the non-fulfillment of the applicable condition
or the availability of a termination right, as the case may be. If any such notice is delivered, provided that a Party is
proceeding diligently to cure any such matter capable of being cured, and that has not occurred as a result of a willful breach,
to the satisfaction of the other Parties, acting reasonably, no Party may terminate this Agreement if such matter capable
of being cured has been cured to the satisfaction of the Parties seeking termination of this Agreement, acting reasonably,
prior to the expiration of a period of five Business Days from the date of receipt of such notice (provided that no such cure
period shall extend beyond the Outside Date and no such cure period shall be provided for a breach which by its nature cannot
be cured). More than one such notice may be delivered by a Party. If a Party seeking termination of this Agreement hereunder
delivers a notice of such termination within five Business Days of the scheduled date of the Akerna Meeting or Ample Meeting,
as applicable, unless the Parties agree otherwise and subject to compliance with Applicable Law, the respective Party shall
postpone or adjourn its shareholders’ meeting to the earlier of: (i) the date that is ten Business Days from receipt
of the termination notice; and (ii) five Business Days prior to the Outside Date.
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5.5
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Satisfaction
of Conditions
|
The
conditions set out in this Article 5 are conclusively deemed to have been satisfied, waived or released at the Effective Time.
For certainty, and notwithstanding the terms of any escrow arrangement entered into between the Parties and the Depositary other
than the Escrow Agreement, all funds and CVRs held in escrow by the Depositary pursuant to Section 2.14(a) hereof shall be released
from escrow at the Effective Time without any further act or formality required on the part of any Person, and the Exchangeable
Shares deposited with the Escrow Agent will be held and released at the times and in accordance with the terms and conditions
of the Escrow Agreement.
Article
6
INDEMNIFICATION
6.1
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Indemnification by Ample Shareholders
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From
and after the Effective Time, the Ample Shareholders shall, jointly and severally indemnify Akerna and Purchaser (each a “Purchaser
Indemnified Person”) in respect of, and hold each Purchaser Indemnified Person harmless against any and all Damages
incurred or suffered by such Purchaser Indemnified Person resulting from, relating to or constituting:
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(a)
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any
breach or inaccuracy, as of the date of this Agreement or as of the Effective Date, of any representation or warranty of Ample
contained in this Agreement or any other agreement or instrument furnished by Ample to Akerna pursuant to this Agreement;
or
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(b)
|
any
failure to perform any covenant or agreement of Ample contained in this Agreement or any other agreement or instrument furnished
by Ample to Akerna pursuant to this Agreement.
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6.2
|
Indemnification
by Akerna and Purchaser
|
From
and after the Effective Time, Akerna and Purchaser shall, jointly and severally indemnify each Ample Shareholder (each an “Ample
Indemnified Person”) in respect of, and hold it harmless against any and all Damages incurred or suffered by any Ample
Shareholder resulting from, relating to or constituting:
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(a)
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any
breach or inaccuracy, as of the date of this Agreement or as of the Effective Date, of any representation or warranty of Akerna
or Purchaser contained in this Agreement or any other agreement or instrument furnished by Akerna or Purchaser to Ample pursuant
to this Agreement; or
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(a)
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any
failure to perform any covenant or agreement of Akerna or Purchaser contained in this Agreement or any other agreement or
instrument furnished by Akerna or Purchaser to Ample pursuant to this Agreement.
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6.3
|
Indemnification
Claims
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(a)
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A
Party that may be entitled to make a Claim for indemnification under this Agreement (the “Indemnified Party”)
shall provide a Claim Notice to the other Party or Parties (the “Indemnifying Party”) promptly upon the
Indemnified Party becoming aware of the Claim and in no event later than the relevant date, if any, specified in Section 6.4.
Each Claim Notice shall describe in reasonable detail (to the extent then known to the Indemnified Party) the facts constituting
the basis for such Claim, the amount of the claimed Damages, and whether such Claim arises in respect of a Third Party Action
or whether such Claim does not so arise. No delay or failure on the part of an Indemnified Party in so delivering a Claim
Notice shall relieve any Indemnifying Party of any liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such delay or failure.
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(b)
|
Within
15 Business Days after delivery of a Claim Notice respecting a Third Party Action, the Indemnifying Party may, upon written
notice thereof to the Indemnified Party, assume control of the defense of such Third Party Action with counsel reasonably
satisfactory to the Indemnified Party; provided that: (i) the Indemnifying Party may only assume control of such defense if:
(A) they acknowledge in writing to the Indemnified Party that any damages, fines, costs or other liabilities that may be assessed
against the Indemnified Party in connection with such Third Party Action constitute Damages for which such Indemnified Party
shall be indemnified pursuant to this Article 6; and (B) the ad damnum in such Third Party Action, taken together with the
estimated costs of defense thereof and the Claimed Amount with respect to any unresolved claims for indemnification then pending,
is less than or equal to the value of the unused portion of the maximum liability each applicable Indemnifying Party is liable
for as contemplated hereunder; and (ii) an Indemnifying Party may not assume control of the defense of any Third Party Action
involving Taxes or criminal liability or in which equitable relief is sought against an Indemnifying Party. If the Indemnifying
Party does not, or is not permitted under the terms of this Agreement to, so assume control of the defense of a Third Party
Action, the Indemnified Party shall control such defense. The Party which is not controlling the defense of the Third Party
Action (the “Non-Controlling Party”) may participate in such defense at its own expense. The party controlling
the defence of the Third Party Action (the “Controlling Party”) Party shall keep the Non-Controlling Party
advised of the status of such Third Party Action and the defense thereof and shall consider in good faith recommendations
made by the Non-Controlling Party with respect thereto. The Non-Controlling Party shall furnish the Controlling Party with
such information as it may have with respect to such Third Party Action (including copies of any summons, complaint or other
pleading which may have been served on such party and any written claim, demand, invoice, billing or other document evidencing
or asserting the same) and shall otherwise cooperate with and assist the Controlling Party in the defense of such Third Party
Action. The Indemnifying Party shall not agree to any settlement of, or the entry of any judgment arising from, any Third
Party Action without the prior written consent of the Indemnified Party, which shall not be unreasonably withheld, conditioned
or delayed; provided that the consent of the Indemnified Party shall not be required if the Indemnifying Party, agrees in
writing to pay any amounts payable pursuant to such settlement or judgment and such settlement or judgment includes a complete
release of the Indemnified Party from further liability and has no other adverse effect on the Indemnified Party. Except as
provided in subsection 6.3(d) below, the Indemnified Party shall not agree to any settlement of, or the entry of any judgment
arising from, any such Third Party Action without the prior written consent of the Indemnifying Party, which shall not be
unreasonably withheld, conditioned or delayed.
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(c)
|
Within
15 Business Days after delivery of a Claim Notice, an Indemnifying Party shall deliver to each Indemnified Party a written
response in which the Indemnifying Party, shall: (i) agree that the Indemnified Party is entitled to receive all of the Claimed
Amount; (ii) agree that the Indemnified Party is entitled to receive an Agreed Amount; or (iii) dispute that the Indemnified
Party is entitled to receive any of the Claimed Amount. The Indemnifying Party may contest the payment of all or a portion
of the Claimed Amount only based upon a good faith belief that all or such portion of the Claimed Amount does not constitute
Damages for which the Indemnified Party is entitled to indemnification under this Article 6. If no written response is delivered
by the Indemnifying Party within such 15 Business Day period, the Indemnifying Party shall be deemed to have agreed that all
of the Claimed Amount is owed to the Indemnified Party. Acceptance by the Indemnified Party of partial payment of any Claimed
Amount shall be without prejudice to the Indemnified Party’s right to claim the balance of any such Claimed Amount.
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|
(d)
|
During
the 20 Business Day period following the delivery of a written response from the Indemnifying Party that reflects a Dispute,
the Indemnifying Party and Indemnified Party shall use good faith efforts to resolve the Dispute. If the Dispute is not resolved
within such 20 Business Day period, any party may commence an action to resolve such Dispute in a court of competent jurisdiction
in the Province of Ontario in accordance with this Agreement. If the Indemnified Party is seeking to enforce the Claim that
is the subject of the Dispute pursuant to the Escrow Agreement, the Indemnifying Party and Indemnified Party shall deliver
to the Escrow Agent, promptly following the resolution of the Dispute (whether by mutual agreement, arbitration, judicial
decision or otherwise), a written notice executed by both the Indemnifying Party and Indemnified Party instructing the Escrow
Agent as to what (if any) portion of the Escrowed Shares shall be distributed to the Indemnified Party (which notice shall
be consistent with the terms of the resolution of the Dispute).
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(e)
|
Notwithstanding
the other provision of this Section 6.3, if a third party asserts (other than by means of a lawsuit or a tax reassessment)
that the Indemnified Party is liable to such third party for a monetary or other obligation which may constitute or result
in Damages for which the Indemnified Party may be entitled to indemnification pursuant to this Article 6, and the Indemnified
Party reasonably determines that it has a valid business reason to fulfill such obligation, then: (i) the Indemnified Party
shall be entitled to satisfy such obligation, without prior notice to or consent from the Indemnifying Party; (ii) the Indemnified
Party may subsequently make a claim for indemnification in accordance with this Article 6; (iii) the Indemnified Party shall
be reimbursed, in accordance with this Article 6, for any such Damages for which it is entitled to indemnification (subject
to the right of the Indemnifying Party to dispute the Indemnified Party's entitlement to indemnification, or the amount for
which it is entitled to indemnification, under the terms of this Article 6).
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(f)
|
The
Shareholder Representative shall have full power and authority on behalf of each Ample Shareholder, to take any and all actions
on behalf of, execute any and all instrument on behalf of, and execute or waive any and all rights of, the Ample Shareholders
under this Article 6. The Shareholder Representative shall have no liability to any Ample Shareholders for any action taken
or omitted on behalf of the Ample Shareholders pursuant to this Article 6.
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6.4
|
Survival of Representations
and Warranties
|
|
(a)
|
Unless
otherwise specified in this Section 6.4(a) or elsewhere in this Agreement, the representations and warranties contained in
this Agreement shall survive the Effective Date and the consummation of the transactions contemplated hereby and shall continue
in full force and effect in accordance with their terms until the date that is 12 months from the Effective Date.
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|
(b)
|
If
an Indemnified Party delivers to an Indemnifying Party, before expiration of a representation, warranty, covenant or agreement,
a Claim Notice or an Expected Claim Notice based upon a breach of such representation, warranty, covenant or agreement, then
the applicable representation, warranty, covenant or agreement shall survive until, but only for the purposes of, the resolution
of the matter covered by such notice. If the legal proceeding or written claim with respect to which an Expected Claim Notice
has been given is definitively withdrawn or resolved in favour of the Indemnified Party, then the Indemnified Party shall
promptly so notify the Indemnifying Party. The rights to indemnification set forth in this Article 6 shall not be affected
by: (i) any investigation conducted by or on behalf of the Indemnified Party or any knowledge acquired (or capable of being
acquired) by the Indemnified Party whether before or after the date of this Agreement or the Effective Date with respect to
the inaccuracy or noncompliance with any representation, warranty, covenant or obligation which is the subject of indemnification
hereunder; or (ii) any waiver by the Indemnified Party of any closing condition relating to the accuracy of representations
and warranties or the performance of or compliance with agreements and covenants.
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|
(a)
|
With
respect to Claims for Damages arising under Section 6.1 or 6.2, no Ample Shareholders, on one hand, and neither of Akerna
nor the Purchaser, on the other hand, shall be liable for any such Damages until the aggregate amount of all such Damages
for which such Party(ies) may be liable, exceeds $350,000 (at which point the applicable Indemnifying Party(ies) shall become
liable for all Damages under Section 6.1 or 6.2, as applicable, from first dollar, and in excess of such amount); provided
that the limitation set forth in this sentence shall not apply to claims based on: (i) fraud; or (ii) any claim pursuant
to an Akerna Fundamental Representation and Warranty or an Ample Fundamental Representation and Warranty, (iii) any failure
of Akerna to satisfy its obligations with respect to the Deferred Consideration under Section 2.19 or the Rights Indenture,
or (iv) any Ample Shareholder’s entitlement following the Effective Time to receive Akerna Shares in exchange for Exchangeable
Shares held by such Ample Shareholder or any alleged breach of the Voting and Exchange Trust Agreement, the Exchangeable Share
Support Agreement or the rights and entitlements of any holder of Exchangeable Shares under the articles of incorporation
of Purchaser.
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|
(b)
|
Except
for Claims based on fraud, the total aggregate liability of the Ample Shareholders for all Claims shall not exceed the aggregate
value of the Escrowed Shares.
|
|
(c)
|
The
total liability of the Ample Shareholders for all Claims (inclusive of Claims based on fraud) shall not exceed the aggregate
value of the Escrowed Shares and the Closing Shares.
|
|
(d)
|
The
recovery of Escrowed Shares and Closing Shares pursuant to Section 6.6 shall be the exclusive means for a Purchaser Indemnified
Person to collect Damages for which it is entitled to indemnification under this Article 6 from the Ample Shareholders.
|
|
(e)
|
Except
for Claims based on (i) fraud, (ii) with respect to any failure of Akerna to satisfy its obligations with respect to the Deferred
Consideration under Section 2.19 or the Rights Indenture, or (iii) any Ample Shareholder’s entitlement following the
Effective Time to receive Akerna Shares in exchange for Exchangeable Shares held by such Ample Shareholder or any alleged
breach of the Voting and Exchange Trust Agreement, the Exchangeable Share Support Agreement or the rights and entitlements
of any holder of Exchangeable Shares under the articles of incorporation of Purchaser, the total liability of Akerna and Purchaser
shall not exceed the amount determined by multiplying the aggregate number of Escrowed Shares by the Deemed Value Amount.
|
|
(f)
|
The
total liability of Akerna and Purchaser for all Claims (inclusive of Claims based on fraud), except for Claims based on (i)
any failure of Akerna to satisfy its obligations with respect to the Deferred Consideration under Section 2.19 or the Rights
Indenture, or (ii) any Ample Shareholder’s entitlement following the Effective Time to receive Akerna Shares in exchange
for Exchangeable Shares held by such Ample Shareholder or any alleged breach of the Voting and Exchange Trust Agreement, the
Exchangeable Share Support Agreement or the rights and entitlements of any holder of Exchangeable Shares under the articles
of incorporation of Purchaser, shall not exceed the amount determined by multiplying the aggregate number of Escrowed Shares
and Closing Shares by the Deemed Value Amount.
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(g)
|
An
Indemnifying Party shall have no liability to an Indemnified Party for any punitive or exemplary damages except in connection
with a Third Party Action.
|
|
(h)
|
An
Indemnifying Party shall have no liability to an Indemnified Party hereunder for any Damages that arise as a result of any
proposed or actual promulgation or change of any Applicable Laws which occurs after the Effective Date, whether or not the
same takes effect retroactively.
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|
(i)
|
An
Indemnifying Party shall not have duplicate liability to an Indemnified Party hereunder by virtue of more than one representation,
warranty or covenant relating to the same matter or thing.
|
|
(j)
|
No
Ample Shareholder shall have any right of contribution against Ample with respect to any breach by Ample of any of its representations,
warranties, covenants or agreements.
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|
(k)
|
Any
payments made to a Party pursuant to this Article 6 or pursuant to the Escrow Agreement shall be treated as an adjustment
to the Consideration for tax purposes to the extent permitted by Applicable Law.
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|
(l)
|
Where
any payment is made under this Agreement pursuant to an indemnity, compensation or reimbursement provision, or in respect
of any Claim Notice, and the sum is subject to a charge to Taxes in the hands of the recipient (other than Taxes attributable
to a payment being properly treated as an adjustment to the Consideration) the sum payable shall be increased to such sum
as will ensure that after payment of such Taxes (and after giving credit for any relief available to the recipient in respect
of the matter giving rise to the payment) the recipient shall be left with a sum equal to the sum that would have been received
in the absence of such a charge to Taxes.
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6.6
|
Recourse to Escrowed
Shares
|
|
(a)
|
Except
with respect to Claims based on fraud, recovery of Escrowed Shares pursuant to this Section 6.6(a) shall be the exclusive
means for a Purchaser Indemnified Person to collect any Damages for which it is entitled to indemnification under this Article
6 from the Ample Shareholders. During the term of the Escrow Agreement (exclusive of any extension thereof past its regular
term which occurs solely as a result of a Claim being made thereunder, other than with respect to such Claim), if the Ample
Shareholders (or any of them) are determined to owe a Claim amount under this Article 6, then the amount due to any Purchaser
Indemnified Person shall be made by the delivery of Escrowed Shares to each applicable Purchaser Indemnified Person pursuant
to the Escrow Agreement. The Parties hereby agree that the number of Escrowed Shares that shall be released from escrow in
satisfaction of any liability for Damages that a Purchaser Indemnified Person is entitled to recover from an Ample Shareholder
in connection with any claim for indemnification under this Article 6 shall, subject to the other limitations on liability
set forth in this Article 6, be equal to the amount of Damages that such Purchaser Indemnified Person is entitled to recover
from such Ample Shareholder, divided by the 20 day volume weighted average price of the Akerna Shares (converted to Canadian
dollars from US dollars using the Exchange Rate as of the last trading day immediately preceding the date on which such Claim
is Determined) as quoted on the NASDAQ on the last trading day immediately preceding the date on which such Claim is Determined
(the “Deemed Escrow Value”). A Claim shall be deemed to be “Determined” for the
purposes of this Section 6.6(a), (a) in the case of any Third Party Action which the Shareholder Representative, on behalf
of the Ample Shareholders (or any of them), elected to defend, by any settlement agreement between the Shareholder Representative
and the applicable Persons asserting such Third Party Action, or otherwise by order of a court, tribunal or arbitrator of
competent jurisdiction; or (b) in the case of all other Claims for indemnification, by written acknowledgement of liability
by the Shareholder Representative, on behalf of the Ample Shareholders (or any of them), by settlement agreement between the
Shareholder Representative and the applicable Purchaser Indemnified Person(s), or otherwise by order of a court, tribunal
or arbitrator of competent jurisdiction.
|
|
(b)
|
With
respect to Claims based on fraud, if the aggregated Deemed Escrow Value of the Escrowed Shares that are then available to
be claimed against pursuant to the Escrow Agreement is insufficient to satisfy any Ample Shareholder’s liability for
Damages in respecting of fraud, then during the term of the Escrow Agreement (exclusive of any extension thereof past its
regular term which occurs solely as a result of a Claim being made thereunder, other than with respect to such Claim), the
amount due to the applicable Purchaser Indemnified Persons that cannot be satisfied out of the Escrowed Shares shall be made
by the delivery to the applicable Purchaser Indemnified Persons of Closing Shares that then remain in escrow and available
to be claimed against pursuant to the Escrow Agreement. The Parties hereby agree that the number of Closing Shares that shall
be released from escrow in satisfaction of any liability for Damages based on fraud that a Purchaser Indemnified Person is
entitled to recover from an Ample Shareholder in connection with any claim for indemnification under this Article 6 shall,
subject to all other limitations on liability set forth in this Article 6, be equal to the amount of Damages that such Purchaser
Indemnified Person is entitled to recover from such Ample Shareholder (minus the amount of any such Damages recovered against
the Escrowed Shares), divided by the applicable Deemed Escrow Value.
|
6.7
|
Satisfaction
of Damages with Akerna Shares
|
If
Akerna and Purchaser (or either of them) are determined to owe a Claim amount under this Article 6, then the amount due to any
Ample Indemnified Person may, in the sole discretion of Akerna and the Purchaser, be made by the issuance of additional Akerna
Shares to such Ample Indemnified Person. The Parties hereby agree that the number of additional Akerna Shares to be issued in
satisfaction of any liability for Damages that an Ample Indemnified Person is entitled to recover from Akerna and/or Purchaser
in connection with any claim for indemnification under this Article 6 shall, subject to the other limitations on liability set
forth in this Article 6, be equal to the amount of Damages that such Ample Indemnified Person is entitled to recover from Akerna
and/or Purchaser, divided by the 20 day volume weighted average price of the Akerna Shares (converted to Canadian dollars from
US dollars using the Exchange Rate as of the last trading day immediately preceding the date on which such Claim is Determined)
as quoted on the NASDAQ on the last trading day immediately preceding the date on which such Claim is Determined. A Claim shall
be deemed to be “Determined” for the purposes of this Section 6.7, (a) in the case of any Third Party Action
which Akerna and/or Purchaser elected to defend, by any settlement agreement between Akerna and/or Purchaser and the applicable
Persons asserting such Third Party Action, or otherwise by order of a court, tribunal or arbitrator of competent jurisdiction;
or (b) in the case of all other Claims for indemnification, by written acknowledgement of liability by Akerna and/or Purchaser,
by settlement agreement between Akerna and/or Purchaser and the applicable Ample Indemnified Person(s), or otherwise by order
of a court, tribunal or arbitrator of competent jurisdiction.
Following
the Effective Date, no Party may make any claim for Damages in respect of this Agreement, including for certainty, in respect
of the Arrangement and each other transaction contemplated hereby, or in respect of any breach hereof, against any other Party
except by making a Claim pursuant to and in accordance with this Article 6. The indemnities provided for in Sections 6.1 and 6.2
shall constitute the only remedy of Akerna, Purchaser and the Shareholder Representative (on behalf of the Ample Shareholders)
against any Party for any inaccuracy in or breach of any representation, warranty, covenant or agreement of such Party contained
in this Agreement and each of the Parties hereto expressly waives and renounces any other remedies whatsoever, whether at law
or in equity, which it would otherwise be entitled to as against a Party.
Nothing
in this Article 6 shall eliminate or reduce an Indemnified Party’s obligation to mitigation Damage as required by Applicable
Laws.
Article
7
AMENDMENT
This
Agreement may at any time and from time to time before or after the holding of the Ample Meeting be amended by written agreement
of the Parties without, subject to Applicable Laws, further notice to or authorization on the part of the Ample Shareholders and
any such amendment may, without limitation:
|
(a)
|
change
the time for performance of any of the obligations or acts of the Parties;
|
|
(b)
|
waive
any inaccuracies or modify any representation or warranty contained herein or in any document delivered pursuant hereto;
|
|
(c)
|
waive
compliance with or modify any of the covenants herein contained and waive or modify performance of any of the obligations
of the Parties; or
|
|
(d)
|
waive
compliance with or modify any other conditions precedent contained herein,
|
provided that no such amendment reduces or materially
adversely affects the consideration to be received by Ample Shareholders without approval by the affected Ample Shareholders
given in the same manner as required for the approval of the Arrangement or as may be ordered by the Court.
7.2
|
Amendment of Plan of Arrangement
|
|
(a)
|
Ample,
Akerna and Purchaser reserve the right to amend, modify and/or supplement the Plan of Arrangement at any time and from time
to time prior to the Effective Time by written agreement of the Parties, provided that any amendment, modification
or supplement must be contained in a written document which is: (i) filed with the Court and, if made following the Ample
Meeting, approved by the Court; and (ii) communicated to Ample Shareholders in the manner required by the Court (if so required).
|
|
(b)
|
Other
than as may be required under the Interim Order, any amendment, modification or supplement to the Plan of Arrangement may
be proposed by Ample, Akerna and Purchaser (if consented to by all of the Parties, each acting reasonably) at any time prior
to or at the Ample Meeting with or without any other prior notice or communication and, if so proposed and accepted, in the
manner contemplated and to the extent required by this Agreement, by the Ample Shareholders, shall become part of the Plan
of Arrangement for all purposes.
|
|
(c)
|
Any
amendment, modification or supplement to the Plan of Arrangement which is approved or directed by the Court following the
Ample Meeting shall be effective only: (i) if it is consented to by Ample, Akerna and Purchaser (each acting reasonably);
and (ii) is not adverse to the financial interests of any former holder of Ample Shares and, if required by the Court or Applicable
Laws, it is consented to by the Ample Shareholders.
|
|
(d)
|
Any
amendment, modification or supplement to this Plan of Arrangement which is approved or directed by the Court following the
Effective Time shall be effective only if it is consented to in writing by Purchaser, Akerna and Ample, and provided that
it concerns a matter which, in the reasonable opinion of each of Purchaser, Akerna and Ample, is of an administrative nature
required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the financial interests
of any former holder of Ample Shares, Ample Options or Ample Warrants.
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Article
8
TERMINATION AND AMENDMENT
|
(a)
|
This
Agreement may be terminated at any time prior to the Effective Date:
|
|
(i)
|
by
mutual written consent of the Parties;
|
|
(ii)
|
by
either Akerna and Purchaser or Ample, if the Arrangement Resolution shall have failed to receive the Ample Shareholder Approval
at the Ample Meeting (including any adjournment or postponement thereof) in accordance with the Interim Order;
|
|
(iii)
|
by
either Akerna and Purchaser or Ample, if the Akerna Shareholder Matters shall have failed to receive the Akerna Shareholder
Approval at the Akerna Meeting (including any adjournment or postponement thereof);
|
|
(iv)
|
by
either Akerna and Purchaser or Ample, if the Effective Time shall not have occurred on or prior to the Outside Date, except
that the right to terminate this Agreement under this subsection 8.1(a)(iii) shall not be available to any Party whose failure
to fulfill any of its obligations has been the cause of, or resulted in, the failure of the Effective Time to occur by such
date;
|
|
(v)
|
as
provided in Section 5.4; provided that the Party seeking termination is not then in breach of this Agreement so as
to cause any of the conditions set forth in Sections 5.1, 5.2 and 5.3, as applicable, not to be satisfied;
|
|
(A)
|
prior
to the Effective Time: (1) the Ample Board or any committee thereof: (i) fails to recommend or withdraws, amends, modifies
or qualifies, in a manner adverse to Akerna or fails to reaffirm (without qualification) the Ample Board Recommendation, or
its recommendation of the Arrangement within five Business Days (and in any case prior to the Ample Meeting) after having
been requested in writing by Akerna to do so (acting reasonably); or (ii) takes no position or a neutral position with respect
to an Acquisition Proposal for more than five Business Days after the public announcement of such Acquisition Proposal; or
(2) the Ample Board or a committee thereof shall have resolved or proposed to take any of the foregoing actions ((1) or (2)
each a "Ample Change in Recommendations"); or (3) Ample shall have breached Section 3.8 in any material respect;
|
|
(B)
|
a
breach of any representation or warranty or failure to perform any covenant or agreement on the part of Ample set forth in
this Agreement shall have occurred that would cause the conditions set forth in Section 5.2(a) or Section 5.2(b) not to be
satisfied, and such conditions are incapable of being satisfied by the Outside Date, as reasonably determined by Akerna and
provided that Akerna is not then in breach of this Agreement so as to cause any condition in Section 5.3(a) or Section 5.3(c)
not to be satisfied; or
|
|
(C)
|
there
has occurred an Ample Material Adverse Effect which is not capable of being cured on or before the Outside Date; and
|
|
(A)
|
a
breach of any representation or warranty or failure to perform any covenant or agreement on the part of Akerna or Purchaser
set forth in this Agreement shall have occurred that would cause the conditions set forth in Section 5.3(a) or Section 5.3(c)
not to be satisfied, and such conditions are incapable of being satisfied by the Outside Date, as reasonably determined by
Ample and provided that Ample is not then in breach of this Agreement so as to cause any condition in Section 5.2(a) or Section
5.2(b) not to be satisfied; or
|
|
(B)
|
there
has occurred an Akerna Material Adverse Effect which is not capable of being cured on or before the Outside Date;
|
|
(b)
|
The
Party desiring to terminate this Agreement pursuant to this Section 8.1 shall deliver written notice of such termination to
the other Parties, specifying in reasonable detail the basis for such Party's exercise of its termination right.
|
|
(c)
|
If
this Agreement is terminated in accordance with the foregoing provisions of this Section 8.1, this Agreement will forthwith
become void and no Party will have any further liability or obligation to the other Parties hereunder except as provided this
subsection 8.1(b), subsection 3.6(h), subsection 3.7(j), Section 10.1, Section 10.5, Section 10.9, Section 10.10 and Section
10.12, which will survive such termination. Notwithstanding the foregoing, nothing contained in this subsection 8.1(c) shall
relieve any Party from liability for any fraud or wilful or intentional breach of any provision of this Agreement.
|
Article
9
NOTICES
All
notices that may or are required to be given pursuant to any provision of this Agreement are to be given or made in writing and
delivered by personal delivery or delivery by recognized commercial courier, sent by email (with confirmation of transmission)
or delivered by registered mail (return receipt requested, postage prepaid), addressed as follows:
|
(a)
|
in
the case of Akerna to:
|
Akerna
Corp.
1601 Arapahoe Street
Denver,
CO 80202
|
Attention:
|
Scott Sozio, President
|
|
Email:
|
scott.sozio@akerna.com
|
with
a copy to:
Dentons
Canada LLP
15th Floor, Bankers Court, 850 – 2nd Street S.W.
Calgary, Alberta T2P 0R8
|
Attention:
|
Courtney Burton
|
|
Email:
|
courtney.burton@dentons.com
|
|
(b)
|
in
the case of Purchaser, to:
|
2732805
Ontario Inc.
c/o Akerna Corp.
1601 Arapahoe Street
Denver,
CO 80202
|
Attention:
|
Scott Sozio, President
|
|
Email:
|
scott.sozio@akerna.com
|
|
(c)
|
in
the case of Ample, to:
|
Ample
Organics Inc.
629 Eastern Avenue, Building B
Toronto,
Ontario M4M 1E4
|
Attention:
|
John Prentice
|
|
Email:
|
john.prentice@ampleorganics.com
|
with
a copy to:
Dentons
Canada LLP
77 King Street West, Suite 400
Toronto-Dominion Centre
Toronto, Ontario M5K 0A1
|
Attention:
|
Eric Foster
|
|
Email:
|
eric.foster@dentons.com
|
|
(d)
|
in
the case of the Shareholder Representative, to:
|
John
Prentice
629
Eastern Avenue, Building B
Toronto,
Ontario M4M 1E4
|
Email:
|
john.prentice@ampleorganics.com
|
or
at such other address or email of which the addressee may from time to time may notify the addressor. Any notice shall be deemed
to have been validly and effectively given and received (a) if sent by personal delivery or by courier on the date of actual receipt
by the receiving party; (b) if sent by email on the date of transmission if a Business Day or if not a Business Day or after 5:00 p.m.
(Eastern Standard Time) on the date of transmission, on the next following Business Day; or (c) if sent by certified or registered
mail (postage prepaid) on the date indicated in the return receipt.
Article
10
GENERAL
10.1
|
Assignment, Binding
Effect and Entire Agreement
|
|
(a)
|
Except
as expressly permitted by the terms hereof, neither this Agreement nor any of the rights, interests or obligations hereunder
will be assigned by any of the Parties hereto without the prior written consent of the other Parties hereto. The above notwithstanding,
Akerna and/or Purchaser may assign all or any part of its rights or obligations under this Agreement and any agreements ancillary
hereto to one or more of Akerna's or Purchaser’s Affiliates, and provided further that if such assignment takes place,
Akerna will continue to be fully liable as primary obligor, on a joint and several basis with any such entity, to Ample or
the Ample Shareholders, as applicable, for any default in performance by the assignee of any of Akerna’s or Purchaser's
obligations hereunder.
|
|
(b)
|
This
Agreement will be binding on and will inure to the benefit of the Parties and their respective successors and permitted assigns.
|
|
(c)
|
This
Agreement (including the schedules attached hereto), the Akerna Disclosure Letter and the Ample Disclosure Letter constitute
the entire agreement with respect to the subject matter hereof, and supersede all other prior agreements and understandings,
both written and oral, between the Parties with respect to the subject matter hereof and thereof.
|
10.2
|
Adjustments to
Calculation
|
Notwithstanding
anything in this Agreement to the contrary, in respect of each calculation hereunder based upon the 20 day volume weighted average
price of the Akerna Shares as quoted on the NASDAQ, if during the referenced 20 day period there shall be any split or consolidation
of the issued and outstanding Akerna Shares, then such calculation shall be appropriately adjusted to take into account for the
purposes of such calculation, only the portion of such 20 day period following the completion of such split or consolidation.
10.3
|
Public Communications
|
Each
Party agrees to consult with the other Parties prior to issuing, or permitting any of its directors, officers, employees or agents
to issue, any press releases or otherwise make public statements with respect to this Agreement or the Arrangement. Without limiting
the generality of the foregoing, no Party will issue any press release regarding the Arrangement, this Agreement or any transaction
relating to this Agreement without first providing a draft of such press release to the other Parties and reasonable opportunity
for comment and obtaining their consent to issue (which consent will not be unreasonably withheld, conditioned or delayed); provided,
however, that the foregoing will be subject to each Party's overriding obligation to make any such disclosure required in accordance
with Applicable Laws. If such disclosure is required and the other Party has not reviewed or commented on or consented to the
disclosure, the Party making such disclosure will use all commercially reasonable efforts to give prior oral or written notice
to the other Party, and if such prior notice is not possible, to give such notice promptly following such disclosure.
Except
as otherwise expressly provided for herein, all fees, costs and expenses incurred in connection with this Agreement and the transactions
contemplated hereby will be paid by the Party incurring such cost or expense, whether or not the Arrangement is completed.
No
director or officer of Akerna shall have any personal liability whatsoever to Ample under this Agreement, or any other document
delivered in connection with the transaction contemplated hereby on behalf of Akerna. No director or officer of Ample shall have
any personal liability whatsoever to Akerna under this Agreement, or any other document delivered in connection with the transactions
contemplated hereby on behalf of Ample.
If
any one or more of the provisions or parts thereof contained in this Agreement should be or become invalid, illegal or unenforceable
in any respect, the remaining provisions or parts thereof contained herein will be and will be conclusively deemed to be severable
therefrom and the validity, legality or enforceability of such remaining provisions or parts thereof will not in any way be affected
or impaired by the severance of the provisions or parts thereof severed. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the Parties will negotiate in good faith to modify this Agreement so as to
effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated
hereby are fulfilled to the fullest extent possible.
Each
Party hereto will, from time to time and at all times hereafter, at the request of the another Party hereto, but without further
consideration, do all such further acts, and execute and deliver all such further documents and instruments and provide all such
further assurances as may be reasonably required in order to fully perform and carry out the terms and intent hereof.
Time
will be of the essence of this Agreement.
10.9
|
Applicable Laws
and Enforcement
|
This
Agreement will be governed, including as to validity, interpretation and effect, by the laws of the Province of Ontario and the
laws of Canada applicable therein, and will be construed and treated in all respects as an Ontario contract. Each of the Parties
hereby irrevocably attorns to the non-exclusive jurisdiction of the Courts of the Province of Ontario in respect of all matters
arising under and in relation to this Agreement and the Arrangement. Each Party hereby waives any right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to this Agreement
or the transactions contemplated hereby or the actions of the Parties in the negotiation, administration, performance and enforcement
of this Agreement.
The
Parties agree that irreparable harm would occur for which money damages would not be an adequate remedy at law in the event that
any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the Parties will be entitled to equitable remedies, including specific performance, a restraining
order and interlocutory, preliminary and permanent injunctive relief and other equitable relief to prevent breaches of this Agreement,
any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable
relief hereby being waived. Such remedies will not be the exclusive remedies for any breach of this Agreement but will be in addition
to all other remedies available at law or equity to each of the Parties.
Any
Party may, on its own behalf only: (a) extend the time for the performance of any of the obligations or acts of another Party;
(b) waive compliance with another Party’s agreements or the fulfillment of any conditions to its own obligations contained
herein; or (c) waive inaccuracies in another Party's representations or warranties contained herein or in any document delivered
by such other Party; provided, however, that any such extension or waiver (with respect only to the Party delivering such extension
or waiver) will be valid only if set forth in an instrument in writing signed on behalf of such Party and, unless otherwise provided
in the written waiver, will be limited to the specific breach or condition waived.
10.12
|
Third Party Beneficiaries
|
Except
as provided in subsection 3.6(h) and subsection 3.7(j), and except for the rights of the Ample Shareholders to receive the
Consideration for their Ample Shares pursuant to the Arrangement following the Effective Time, which rights are hereby
acknowledged and agreed by Akerna and Purchaser to be for the benefit of, and enforceable by, the Third Party Beneficiaries
or the Ample Shareholders (as applicable), or on their behalf, this Agreement is not intended to confer any rights or
remedies upon any Person other than the Parties to this Agreement. The provisions of subsection 3.6(h) are intended for the
benefit of all present and former directors and officers of Ample, as and to the extent applicable in accordance with their
terms, and shall be enforceable by each of such Persons and his or her heirs, executors, administrators and other legal
representatives, and the provisions of subsection 3.7(j) are intended for the benefit of all present and former directors and
officers of Akerna and Purchaser, as and to the extent applicable in accordance with their terms, and shall be enforceable by
each of such Persons and his or her heirs, executors, administrators and other legal representatives (collectively, the
"Third Party Beneficiaries"), and each of Akerna, Purchaser and Ample, as applicable, shall hold the rights
and benefits of subsection 3.6(h) and subsection 3.7(j) in trust for and on behalf of the Third Party Beneficiaries and each
of Akerna, Purchaser and Ample hereby accepts such trust and agrees to hold the benefit of and enforce performance of such
covenants on behalf of the Third Party Beneficiaries, and in addition to, and not in substitution for, any other rights that
the Third Party Beneficiaries may have by contract or otherwise.
10.13
|
Counterparts,
Execution
|
This
Agreement may be executed in two or more counterparts, each of which will be deemed to be an original but all of which together
will constitute one and the same instrument. The Parties will be entitled to rely upon delivery of an executed facsimile or similar
executed electronic copy of this Agreement, and such facsimile or similar executed electronic copy will be legally effective to
create a valid and binding agreement between the Parties.
[Remainder
of page left blank intentionally – signatures follow]
Each
of Parties has caused this Agreement to be executed as of the date first written above by their respective officers thereunto
duly authorized.
2732805
ONTARIO INC.
|
|
AKERNA
CORP.
|
|
|
|
|
|
Per:
|
/s/
Scott Sozio
|
|
Per:
|
/s/
Jessica Billingsley
|
|
Name:
Scott Sozio
Title:
Director
|
|
|
Name:
Jessica Billingsley
Title:
CEO
|
Signature
Page – Arrangement Agreement
|
AMPLE
ORGANICS INC.
|
|
|
|
|
Per:
|
/s/
Peter Slater
|
|
|
Name:
Peter Slater
Title:
CFO
|
|
|
|
|
|
/s/
John Prentice
|
|
|
JOHN
PRENTICE
|
Signature
Page – Arrangement Agreement
Schedule
“A” – Arrangement Resolution
Schedule
“B” – Plan of Arrangement
Schedule
“C” – Form of Exchangeable Share Support Agreement
Schedule
“D” – Form of Escrow Agreement
Schedule
“E” – Voting and Exchange Trust Agreement
Schedule
“F” – Form of Rights Indenture
Schedule
“G” – Form of Ample Shareholder Support Agreement
Schedule
“H” – Form of Akerna Shareholder Support Agreement
Schedule
“I” – Exchangeable Share Provisions
Signature
Page – Arrangement Agreement
Annex B
AMENDMENT
TO
ARRANGEMENT AGREEMENT
THIS
AMENDING AGREEMENT is made this 28 day of February, 2020
AMONG:
AKERNA
CORP., a company existing under the laws of the State of Delaware (“Akerna”)
AND
2732805
ONTARIO INC., a company existing under the laws of the Province of Ontario (“Purchaser”)
AND
AMPLE
ORGANICS INC., a corporation existing under the laws of the Province of Ontario (“Ample”)
AND
JOHN
PRENTICE, an individual resident in the Province of Ontario (hereinafter referred to as the “Shareholder Representative”)
WHEREAS:
|
A.
|
The
Parties entered into an Arrangement Agreement dated December 18, 2019 (the “Arrangement
Agreement”) pursuant to which Akerna, through its wholly owned subsidiary, Purchaser,
agreed to acquire all of the issued and outstanding Ample Shares by way of the Arrangement;
and
|
|
B.
|
the
Parties wish to amend certain terms of the Arrangement Agreement as hereinafter provided.
|
NOW
THEREFORE in consideration of the mutual covenants and agreements herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged by each of the Parties hereto, the Parties hereto hereby covenant
and agree as follows:
|
1.
|
Terms
denoted with initial capital letters and not otherwise defined herein have the meanings
assigned to them in the Arrangement Agreement.
|
|
2.
|
Section
1.1 of the Arrangement Agreement is hereby amended as follows:
|
|
(a)
|
the
definition of “Escrow Agent” in Section 1.1 is hereby deleted and replaced
by the following:
|
““Escrow
Agent” means Odyssey Trust Company;”
|
(b)
|
the
definition of “Outside Date” in Section 1.1 is hereby deleted and replaced
by the following:
|
““Outside
Date” means August 31, 2020 or such later date as may be agreed to in writing by Akerna and Ample;”
|
(c)
|
the
definition of “Paying Agent” in Section 1.1 is hereby deleted and replaced
by the following:
|
“Paying
Agent” means Odyssey Trust Company;”
|
3.
|
Section
2.4 of the Arrangement Agreement is hereby deleted in its entirety and replaced with
the following:
|
“2.4
Interim Order
As
soon as reasonably practicable following the execution of this Agreement, but in any event no later than June 25, 2020, Ample
shall apply to the Court in a manner acceptable to Akerna, acting reasonably, pursuant to the OBCA and prepare, file and diligently
pursue an application to the Court of the Interim Order, which shall provide, among other things:
|
(a)
|
for
the class of Persons to whom notice is to be provided in respect of the Arrangement and
the Ample Meeting and for the manner in which such notice is to be provided;
|
|
(b)
|
that
the requisite approval for the Arrangement Resolution shall be 66 2/3% of the votes cast
on the Arrangement Resolution by Ample Shareholders present in person or represented
by proxy at the Ample Meeting voting together as a single class, together with the affirmative
vote of the holders holding not less than a majority of the Ample Preferred Shares;
|
|
(c)
|
that
it is the intention of Akerna and Purchaser to rely upon Section 3(a)(10) of the U.S.
Securities Act in connection with the offer and sale of Consideration Shares and Akerna
Shares to be issued pursuant to the exchange of Exchangeable Shares, in each case in
accordance with the Arrangement, based on the Court’s approval of the Arrangement,
which approval through the issuance of the Final Order will constitute its determination
of the fairness of the Arrangement;
|
|
(d)
|
that
the Ample Meeting may be adjourned or postponed from time to time by the Ample Board
subject to the terms of this Agreement without the need for additional approval of the
Court;
|
|
(e)
|
that
the record date for Ample Shareholders entitled to notice of and to vote at the Ample
Meeting will not change in respect of any adjournment(s) or postponements of the Ample
Meeting;
|
|
(f)
|
that,
in all other respects, other than as ordered by the Court, the terms, conditions and
restrictions of the constating documents of Ample, including quorum requirements and
other matters, shall apply in respect of the Ample Meeting;
|
|
(g)
|
for
the grant of the Dissent Rights to registered holders of Ample Shares as set forth in
the Plan of Arrangement;
|
|
(h)
|
for
the notice requirements with respect to the presentation of the application to the Court
for the Final Order; and
|
|
(i)
|
for
such other matters as Akerna may reasonably require, subject to obtaining the prior consent
of Ample, such consent not to be unreasonably withheld, conditioned or delayed.”
|
|
4.
|
Section
2.5 of the Arrangement Agreement is hereby deleted in its entirety and replaced with
the following:
|
“2.5
Akerna Shareholder Meeting
Subject
to the terms of this Agreement and receipt of the Interim Order, Akerna shall:
|
(a)
|
convene
and conduct the Akerna Meeting in accordance with its constating documents and Applicable
Laws, as soon as reasonably practicable, and in any event on or before June 30, 2020;
|
|
(b)
|
in
consultation with Ample, fix and publish a record date for the purposes of determining
Akerna Shareholders entitled to receive notice of and vote at the Akerna Meeting and
give notice to Ample of the Akerna Meeting;
|
|
(c)
|
allow
Ample’s Representatives and counsel to attend the Akerna Meeting;
|
|
(d)
|
not
adjourn, postpone or cancel (or propose or permit the adjournment, postponement or cancellation
of) the Akerna Meeting without Ample’s prior written consent (such consent not be unreasonably
withheld, conditioned or delayed), except;
|
|
(i)
|
as
required for quorum purposes (in which case the meeting shall be adjourned and not cancelled),
by Applicable Law or by a Governmental Entity or by valid Akerna Shareholder action (which
action is not solicited or proposed by Akerna or the Akerna Board); or
|
|
(ii)
|
as
otherwise expressly permitted under this Agreement;
|
|
(e)
|
provide
Ample with copies of or access to information regarding the Akerna Meeting generated
by any dealer or proxy solicitation firm engaged by Akerna, as requested from time to
time by Ample;
|
|
(f)
|
use
commercially reasonable efforts to solicit proxies in favour of the Akerna Shareholder
Matters;
|
|
(g)
|
promptly
advise Ample, at such times as Ample may reasonably request, as to the aggregate tally
of the proxies received by Akerna in respect of the Akerna Shareholder Matters;
|
|
(h)
|
unless
otherwise agreed to in writing by Ample or this Agreement is terminated in accordance
with its terms or except as required by Applicable Law or by a Governmental Entity, Akerna
shall continue to take all steps reasonably necessary to hold the Akerna Meeting and
to cause the Akerna Shareholder Matters to be voted on at such meeting and shall not
propose to adjourn or postpone the Ample Meeting other than as contemplated by Section
2.5(d); and
|
|
(i)
|
not
change the record date for the Akerna Shareholders entitled to vote at the Akerna Meeting
in connection with any adjournment or postponement of the Akerna Meeting unless required
by Applicable Law or with the written consent of Ample, such consent not to be unreasonably
withheld, conditioned or delayed.”
|
|
5.
|
Section
2.6 of the Arrangement Agreement is hereby deleted in its entirety and replaced with
the following:
|
“2.6
Ample Shareholder Meeting
Subject
to the terms of this Agreement and receipt of the Interim Order, Ample shall:
|
(a)
|
convene
and conduct the Ample Meeting in accordance with its constating documents, the Interim
Order and Applicable Laws, as soon as reasonably practicable, and in any event on or
before June 30, 2020;
|
|
(b)
|
in
consultation with Akerna, fix and publish a record date for the purposes of determining
Ample Shareholders entitled to receive notice of and vote at the Ample Meeting and give
notice to Akerna of the Ample Meeting;
|
|
(c)
|
allow
Akerna’s Representatives and counsel to attend the Ample Meeting;
|
|
(d)
|
not
adjourn, postpone or cancel (or propose or permit the adjournment, postponement or cancellation
of) the Ample Meeting without Akerna’s prior written consent (such consent not be unreasonably
withheld, conditioned or delayed), except;
|
|
(i)
|
as
required for quorum purposes (in which case the meeting shall be adjourned and not cancelled),
by Applicable Law or by a Governmental Entity or by valid Ample Shareholder action (which
action is not solicited or proposed by Ample or the Ample Board); or
|
|
(ii)
|
as
otherwise expressly permitted under this Agreement;
|
|
(e)
|
provide
Akerna with copies of or access to information regarding the Ample Meeting generated
by any dealer or proxy solicitation firm engaged by Ample, as requested from time to
time by Akerna;
|
|
(f)
|
use
commercially reasonable efforts to solicit proxies in favour of the Arrangement Resolution;
|
|
(g)
|
promptly
advise Akerna, at such times as Akerna may reasonably request, as to the aggregate tally
of the proxies received by Ample in respect of the Arrangement Resolution;
|
|
(h)
|
promptly
advise Akerna of any written communication from any Ample Shareholder in opposition to
the Arrangement, written notice of dissent, purported exercise or withdrawal of Dissent
Rights, and written communications sent by or on behalf of Ample to any Ample Shareholder
exercising or purporting to exercise Dissent Rights;
|
|
(i)
|
not
make any payment or settlement offer, or agree to any payment or settlement prior to
the Effective Time with respect to Dissent Rights without the prior written consent of
Akerna;
|
|
(j)
|
notwithstanding
the receipt of an Acquisition Proposal or an Ample Change in Recommendation, unless otherwise
agreed to in writing by Akerna or this Agreement is terminated in accordance with its
terms or except as required by Applicable Law or by a Governmental Entity, Ample shall
continue to take all steps reasonably necessary to hold the Ample Meeting and to cause
the Arrangement Resolution to be voted on at such meeting and shall not propose to adjourn
or postpone the Ample Meeting other than as contemplated by Section 2.6(d); and
|
|
(k)
|
not
change the record date for the Ample Shareholders entitled to vote at the Ample Meeting
in connection with any adjournment or postponement of the Ample Meeting unless required
by Applicable Law or with the written consent of Akerna, such consent not to be unreasonably
withheld, conditioned or delayed.”
|
|
6.
|
Section
2.12 of the Arrangement Agreement is hereby deleted in its entirety and replaced with
the following:
|
“2.12
Effective Date
The
Arrangement shall become effective at the Effective Time on the Effective Date. The certificate of arrangement shall be conclusive
evidence that the Arrangement has become effective as of the Effective Time. The Parties shall use their commercially reasonable
efforts to cause the Effective Date to occur on or about July 3, 2020 or as soon thereafter as reasonably practicable and, in
any event, by the Outside Date.”
|
7.
|
Subsections
3.6(b) and (c) of the Arrangement Agreement are hereby deleted in their entirety and
replaced with the following:
|
|
“(b)
|
use its commercially reasonable efforts to take all
such steps as are necessary to set the record date for the Akerna Meeting as a date not later than May 29, 2020;
|
|
(c)
|
subject
to the terms of this Agreement, use their commercially reasonable efforts take all such
steps as are necessary to convene and hold the Akerna Meeting in accordance with Applicable
Laws not later than June 30, 2020 for the purpose of considering the Akerna Shareholder
Matters and, unless this Agreement will have been terminated in accordance with subsection
8.1(a), Akerna will not cancel the Akerna Meeting or fail to put the Akerna Shareholder
Matters before the Akerna Shareholders for their consideration without Ample’s
prior written consent, other than as may be required under Applicable Laws; and Akerna
will not propose to adjourn or postpone the Akerna Meeting without the prior consent
of Ample except as required by Applicable Laws or by a Governmental Entity and except
as required under subsections 2.5(d) or 5.4(b); and Akerna shall, if requested by Ample
(acting reasonably), adjourn the Akerna Meeting one or more times for the purposes of
obtaining any required quorum or attempting to obtain the requisite approval of the Akerna
Shareholder Matters;”
|
|
8.
|
Subsections
3.7(d) and (e) of the Arrangement Agreement are hereby deleted in their entirety and
replaced with the following:
|
|
“(d)
|
use its commercially reasonable efforts to take all such steps as are necessary to set the record date for the Ample Meeting as
a date not later than May 29, 2020;
|
|
(e)
|
subject
to the terms of this Agreement and in accordance and compliance with the Interim Order,
use its commercially reasonable efforts to take all such steps as are necessary to convene
and hold the Ample Meeting in accordance with the Interim Order and Applicable Laws not
later than June 30, 2020 for the purpose of considering the Arrangement Resolution and,
unless this Agreement will have been terminated in accordance with subsection 8.1(a),
Ample will not cancel the Ample Meeting or fail to put the Arrangement Resolution before
the Ample Shareholders for their consideration without Akerna and Purchaser’s prior written
consent, other than as may be required under the Interim Order or Applicable Laws and
Ample will not propose to adjourn or postpone the Ample Meeting without the prior consent
of Akerna and Purchaser except as required by Applicable Laws or by a Governmental Entity
and except as required under subsections 2.6(d) or 5.4(b); and Ample shall, if requested
by Akerna and Purchaser (each acting reasonably), adjourn the Ample Meeting one or more
times for the purposes of obtaining any required quorum or attempting to obtain the requisite
approval of the Arrangement Resolution;”
|
|
9.
|
This Amendment will
be deemed effective as of February 19, 2020.
|
|
10.
|
Except
as specifically amended herein, all other terms of the Arrangement Agreement remain in
full force and effect unamended as of the date hereof, and time shall remain of the essence.
|
|
11.
|
This
Amending Agreement may be executed in any number of counterparts, which taken together
shall form one and the same agreement, and may be executed and delivered by electronic
mail or facsimile transmission, which shall be binding on the Parties as though originally
executed and delivered.
|
[Signature
Page Follows]
IN
WITNESS WHEREOF the Parties hereto have executed this Agreement as of the date first above written.
2732805 ONTARIO INC.
|
|
AKERNA CORP.
|
|
|
|
|
|
|
Per:
|
/s/ Jessica Billingsley
|
|
Per:
|
/s/ Jessica Billingsley
|
|
Name:
|
Jessica Billingsley
|
|
|
Name:
|
Jessica Billingsley
|
|
Title:
|
CEO
|
|
|
Title:
|
CEO
|
|
AMPLE ORGANICS INC.
|
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|
Per:
|
/s/ John Prentice
|
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|
Name:
|
John Prentice
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|
Title:
|
President & CEO
|
|
|
/s/ John Prentice
|
|
|
JOHN PRENTICE
|
Annex C
Opinion
of Financial Advisor to the Akerna Board
Akerna
retained Cowen to act as its exclusive financial advisor and to render an opinion to the Akerna Board as to the fairness, from
a financial point of view, to Akerna of the consideration paid in the Arrangement.
On
December 17, 2019, Cowen delivered certain of its written analyses and its oral opinion to the Akerna Board, subsequently confirmed
in writing as of the same date, to the effect that and subject to the various assumptions, qualifications and limitations set
forth therein, as of December 17, 2019, the consideration paid in the Arrangement was fair, from a financial point of view, to
Akerna.
The
full text of the written opinion of Cowen, dated December 17, 2019, is attached as Annex C and is incorporated by reference.
Holders of Akerna Shares are urged to read the opinion in its entirety for the assumptions made, procedures followed, other matters
considered and limits of the review by Cowen. The summary of the written opinion of Cowen set forth herein is qualified in its
entirety by reference to the full text of such opinion. Cowen’s analyses and opinion were prepared for and addressed to
the Akerna Board are directed only to the fairness, from a financial point of view, of the consideration paid in the Arrangement,
and do not constitute an opinion as to the merits of the Arrangement or a recommendation to any stockholder as to how to vote
on the proposed proposals. The consideration paid in the Arrangement was determined through negotiations between Akerna and Ample
and not pursuant to recommendations of Cowen.
In
arriving at its opinion, Cowen reviewed and considered such financial and other matters as it deemed relevant, including, among
other things:
|
●
|
a
draft of the Agreement dated December 17, 2019, including the plan of arrangement forming a schedule thereto, the rights indenture
with respect to the CVRs and form of CVR;
|
|
●
|
certain
publicly available financial and other information for Akerna and certain other relevant financial and operating data furnished
to Cowen by management of Akerna;
|
|
●
|
certain
publicly available financial and other information for Ample and certain other relevant financial and operating data furnished
to Cowen by Ample management;
|
|
●
|
certain
internal financial analyses, financial forecasts, reports and other information concerning Akerna prepared by management of Akerna
and Ample prepared by the management of Ample or prepared or supplemented by the management of Akerna, and the amounts and timing
of the cost savings and related expenses expected to result from the Arrangement furnished to Cowen by the management of Akerna
(the “Estimated Cost Savings”);
|
|
●
|
discussions
Cowen had with certain members of the management of Akerna concerning the historical and current business operations, financial
conditions and prospects of Akerna and Ample;
|
|
●
|
certain
operating results of Akerna and Ample as compared to the operating results of certain publicly traded companies Cowen deemed relevant;
|
|
●
|
certain
financial and stock market information for Akerna and Ample as compared with similar information for certain publicly traded companies
Cowen deemed relevant;
|
|
●
|
certain
financial terms of the Arrangement as compared to the financial terms of certain selected business combinations Cowen deemed relevant;
and
|
|
●
|
such
other information, financial studies, analyses and investigations and such other factors that Cowen deemed relevant for the purposes
of its opinion.
|
In
conducting its review and arriving at its opinion, Cowen, with Akerna’s consent, assumed and relied, without independent
investigation, upon the accuracy and completeness of all financial, tax, legal, regulatory, accounting and other information provided
to it by Akerna and Ample, respectively, or which was publicly available. Cowen did not undertake any responsibility for the accuracy,
completeness or reasonableness of, or independent verification of, such information. Cowen relied upon, without independent verifications,
the assessment of Akerna management as to the existing products and services of Ample and Akerna and the viability of, and risks
associated with, the future products and services of Ample and Akerna. In addition, Cowen did not conduct, nor assumed any obligation
to conduct, any physical inspection of the properties or facilities of Akerna or Ample. Cowen further relied upon Akerna’s
representation that all information provided to it by Akerna was accurate and complete in all material respects. Cowen, with Akerna’s
consent, assumed that the financial forecasts and estimated cost savings provided to Cowen were reasonably prepared by the managements
of Akerna and Ample, on bases reflecting the best available estimates and good faith judgments of such managements as to the future
performance of Akerna and Ample, respectively, and the estimated cost savings, and that such financial forecasts and estimated
cost savings provided a reasonable basis for its opinion. Cowen expressed no opinion as to the financial forecasts or the assumptions
on which they were made. Cowen expressly disclaimed any undertaking or obligation to advise any person of any change in any fact
or matter affecting its opinion of which Cowen becomes aware after the date of its opinion.
Cowen
did not make or obtain any independent evaluations, valuations or appraisals of the assets or liabilities of Akerna or Ample,
nor was Cowen furnished with these materials. In addition, Cowen did not evaluate the solvency or fair value of Akerna, Ample
or the Purchaser under any state, provincial or federal laws relating to bankruptcy, insolvency or similar matters. Cowen made
no independent investigation of any legal, tax or accounting matters related to the Agreement or the Arrangement, and Cowen assumed
the correctness in all respects material to its analysis of the legal, tax and accounting advice given to Akerna and the Akerna
Board, including without limitation, advice as to the legal, accounting and tax consequences of the terms of, and the Arrangement
contemplated by, the Agreement to Akerna and its stockholders. Cowen’s opinion addressed only the fairness, from a financial
point of view to Akerna of the consideration paid in the Arrangement. Cowen noted that projecting the future results of any company
is inherently subject to uncertainty. Cowen expressed no view as to any other aspect or implication of the Agreement or any other
agreement, arrangement or understanding entered into in connection with the Arrangement or otherwise. Cowen’s opinion was
necessarily based upon economic and market conditions and other circumstances as they existed and could be evaluated by Cowen
on the date of its opinion. It should be understood that although subsequent developments may affect its opinion, Cowen does not
have any obligation to update, revise or reaffirm its opinion and Cowen expressly disclaims any responsibility to do so.
Cowen
did not consider any potential legislative or regulatory changes being considered or recently enacted by the United States, Canada
or any other foreign government, or any United States, Canadian or other regulatory body, or any changes in accounting methods
or generally accepted accounting principles that may be adopted by the Securities and Exchange Commission, the Financial Accounting
Standards Board, Canadian securities regulatory authorities or any similar foreign regulatory body or board.
In
rendering its opinion, Cowen assumed, in all respects material to its analysis, that the representations and warranties of each
party contained in the Agreement are true and correct, that each party will perform all of the covenants and agreements required
to be performed by it under the Agreement and that all conditions to the consummation of the Arrangement will be satisfied without
waiver or breach thereof. Cowen assumed that the final form of the Agreement would be substantially similar to the last draft
received by Cowen prior to rendering its opinion. Cowen also assumed that all governmental, regulatory and other consents and
approvals contemplated by the Agreement would be obtained and that, in the course of obtaining any of those consents, no restrictions
will be imposed or waivers made that would have an adverse effect on Akerna, the Purchaser, the stockholders of Akerna or the
contemplated benefits of the Arrangement. Cowen assumed that the Arrangement will be consummated in a manner that complies with
the applicable provisions of the Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as amended, and all
other applicable state, provincial and federal statutes, rules and regulations.
Cowen’s
opinion does not constitute a recommendation to any stockholder as to how the stockholder should vote on the proposed Arrangement.
Cowen’s opinion does not imply any conclusion as to what the value, price or the trading range of Akerna or Ample common
stock actually will be before or after the announcement or the consummation of the Arrangement, which may vary depending on numerous
factors that generally influence the price of securities. Cowen’s opinion is limited to the fairness, from a financial point
of view, of the consideration paid by Akerna in the Arrangement. Cowen expressed no opinion as to (i) Akerna’s underlying
business decision to effect the Arrangement, (ii) the relative merits of the Arrangement as compared to other business strategies
or transactions that might be available to Akerna or (iii) the terms of the Agreement or the documents referred to therein. Cowen’s
opinion does not in any manner address (i) the fairness of the Arrangement or the consideration paid by Akerna to the holders
of any class of securities, creditors or other constituencies of Akerna or Ample, or (ii) whether Akerna or the Purchaser has
sufficient cash, available lines of credit or other sources of funds to enable it to pay the consideration at the closing of the
Arrangement.
Summary
of Material Financial Analyses
The
following is a summary of the principal financial analyses performed by Cowen to arrive at its opinion. Some of the summaries
of financial analyses include information presented in tabular format. In order to fully understand the financial analyses, the
tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial
analyses. Considering the data set forth in the tables without considering the full narrative description of the financial analyses,
including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of the financial
analyses. Cowen performed certain procedures, including each of the financial analyses described below, and reviewed with the
Akerna Board and the management of Akerna the assumptions on which such analyses were based and other factors, including the historical
and projected financial results of Akerna and Ample. Financial data utilized for Akerna and Ample in the financial analyses described
below was based on public filings or financial forecasts and estimates of Akerna and Ample management, respectively.
Arrangement
Overview
For
purposes of its opinion, Cowen calculated the implied value of the consideration, as of December 17, 2019, payable by Akerna in
the Arrangement pursuant to the Agreement to be CAD$66.9 million (the “Total Transaction Consideration”), which was
determined by adding (1) CAD$7.5 million, payable in cash by Akerna and expected to be applied to the repayment of Ample’s
existing debt and liabilities per the Agreement (the “Cash Consideration”), to (2) CAD$50.7 million, the implied aggregate
value of the Akerna Shares to be issued by Akerna at the closing of the Arrangement (the “Upfront Stock Consideration”),
which was derived by multiplying the closing price of $11.68 per Akerna Share as reported by Nasdaq on December 13, 2019, by 3,294,574
Akerna Shares, which number of shares was derived by dividing CAD$42.5 million upfront stock consideration payable by Akerna under
the Agreement by the CAD$12.90 deemed value per Akerna Share specified in the Agreement, and multiplying the resulting amount
of US$38.5 million by the CAD/US dollar exchange rate of 1.318, as of December 13, 2019, per Bank of Canada, plus (3) CAD$8.7
million, the implied present value of the CVRs payable in Akerna Shares by Akerna under the Agreement (the “Contingent Stock
Consideration”), which was calculated by Cowen by discounting the maximum aggregate amount payable pursuant to the CVRs
of CAD$10 million to present value using a weighted average cost of capital (“WACC”) for Ample of 15.5% calculated
by Cowen.
Pro
forma Ownership Analysis
Cowen
analyzed the relative equity values of Akerna and Ample, on a stand-alone basis and excluding Estimated Cost Savings, utilizing
(1) estimated 2020 revenue multiple from the Akerna Selected Companies and Ample Selected Companies, respectively, each as defined
below, (2) discounted cash flow analysis using a revenue exit multiple and (3) discounted cash flow analysis using an EBITDA exit
multiple, each as set forth below under “Akerna Valuation” and “Ample Valuation,” respectively,
adjusted for the present value of Akerna’s and Ample’s respective stand-alone net operating loss tax benefits of US$2.3
million and CAD$2.1 million, respectively, calculated by Cowen based on the Akerna Management Projections and Ample Management
Projections, respectively, and the relative pro forma ownership of Akerna Shares implied thereby and compared the results to the
pro forma ownership of Akerna immediately following the Arrangement contemplated by the Agreement and based on the assumptions
described below.
This
analysis indicated that Akerna common stockholders’ ownership of Akerna common stock after giving effect to the Arrangement
based on relative equity values of each of Akerna and Ample on a stand-alone basis calculated utilizing (1) the 2020E revenue
multiple from the selected companies analysis, (2) discounted cash flow analysis using a revenue exit multiple and (3) discounted
cash flow analysis using an EBITDA exit multiple, each as set forth below under “Akerna Valuation” and “Ample
Valuation,” respectively, adjusted for the present value of Akerna’s and Ample’s respective stand-alone
net operating loss tax benefits of US$2.3 million and CAD$2.1 million, respectively, was as follows.
(Equity values in millions of
|
|
Ample
Adjusted
Equity
Value
|
|
|
Akerna Adjusted Equity Value(1)
|
|
|
Implied
Akerna
Stockholder Ownership Post-Arrangement
|
|
Canadian dollars)
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected Companies Analysis – 2020E Revenue Multiple
|
|
$
|
52.3
|
|
|
$
|
86.9
|
|
|
$
|
156.4
|
|
|
$
|
230.7
|
|
|
|
64.3
|
%
|
|
|
81.5
|
%
|
Discounted Cash Flow Analysis – 2024E Revenue Multiple
|
|
$
|
82.2
|
|
|
$
|
140.1
|
|
|
$
|
219.6
|
|
|
$
|
364.8
|
|
|
|
61.1
|
%
|
|
|
81.6
|
%
|
Discounted Cash Flow Analysis – 2024E EBITDA Multiple
|
|
$
|
135.6
|
|
|
$
|
163.1
|
|
|
$
|
225.8
|
|
|
$
|
267.0
|
|
|
|
58.1
|
%
|
|
|
66.3
|
%
|
(1) Converted into Canadian dollars
using CAD/USD exchange rate of 1.318 as of December 13, 2019 per Bank of Canada.
Cowen
noted that these implied ranges of post-Arrangement fully diluted ownership by Akerna common stockholders compared to Akerna common
stockholders owning approximately 76.7% of Akerna’s fully diluted common stock pursuant to the terms of the Agreement, based
on the Akerna closing share price on December 13, 2019 and 10,958,656 Akerna Shares outstanding as of December 13, 2019, plus
1,950,000 Akerna Shares to be issued to Solo pursuant to Akerna’s agreement to acquire Solo and assuming the issuance of
89,602 Akerna Shares under 5,814,205 outstanding Akerna warrants as determined using the treasury stock method, and the issuance
pursuant to the Agreement of 3,294,574 Akerna Shares in Upfront Stock Consideration and 649,593 Akerna Shares pursuant to the
CVRs (which assumes the full CAD$10 million becoming payable under the CVRs and an issuance price for the Akerna Shares issuable
under the CVRs of $11.68 per Akerna Share, which was the closing price reported by Nasdaq on December 13, 2019).
“Has/Gets”
Analysis – Akerna Perspective
Cowen
reviewed and compared the equity value of Akerna attributable to Akerna stockholders prior to the completion of the Arrangement
with the value of what Akerna stockholders will be receiving in the Arrangement (i.e., the value of such stockholder’s interest
in Akerna after giving effect to the Arrangement), in terms of equity value. For this analysis, the stand-alone equity values
of Akerna and Ample were calculated utilizing both a discounted cash flow analysis using a revenue exit multiple and a discounted
cash flow analysis using an EBITDA exit multiple, as set forth below under “Akerna Valuation—Discounted Cash Flow
Analysis” and “Ample Valuation—Discounted Cash Flow Analysis”, respectively. To conduct a “Has/Gets”
analysis, Cowen combined the respective stand-alone Akerna and Ample equity values determined by such standalone discounted cash
flow analyses weighted by an assumed Akerna fully diluted capital stock ownership after the Arrangement of 76.7% by Akerna stockholders
and 23.3% by Ample stockholders (based on the assumptions described above under “—Pro Forma Ownership Analysis”
regarding the number of Akerna Shares outstanding and to be issued in the Arrangement, including pursuant to the CVRs), and adjusted
such amounts by adding Akerna common stockholders’ aggregate 76.7% post-Arrangement proportionate share of the present values
of (1) Akerna’s stand-alone net operating loss tax benefits per Akerna management, which equaled $1.8 million, (2) Ample’s
stand-alone Canadian net operating loss tax benefits, discounted to present value using a WACC of 15.5% and converted into U.S.
dollars using the CAD/USD exchange rate of 1.318 as of December 13, 2019 per Bank of Canada, per Ample management, which equaled
$1.2 million, and (3) estimated cost savings, per Akerna management, using a perpetuity growth rate of 0% to 4% and a discount
rate range of 15% to 17% based on Akerna’s WACC, which resulted in range of $3.9 million to $5.7 million, and deducting
$4.4 million which represented the 76.7% post-Arrangement proportionate share of Ample’s estimated increase in net debt
of $7.5 million.
The
following table summarizes the results of Cowen’s “Has/Gets” analysis, in each case assuming Akerna stockholders
own 76.7% of the fully diluted capital stock of Akerna, calculated based on the assumptions described above, immediately following
the consummation of the Arrangement.
(Equity values in millions of
|
|
Akerna
Adjusted
Equity
Value
(Pre-Arrangement)(1)
|
|
|
Akerna Adjusted Equity Value (Post-Arrangement)
|
|
|
Illustrative Equity Value Accretion to Akerna Stockholders Post-Arrangement
|
|
U.S. dollars)
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discounted Cash Flow Analysis – 2024E Revenue Multiple (As Adjusted)
|
|
$
|
166.6
|
|
|
$
|
276.7
|
|
|
$
|
175.2
|
|
|
$
|
295.1
|
|
|
|
5.2
|
%
|
|
|
6.7
|
%
|
Discounted Cash Flow Analysis – 2024E EBITDA Multiple (As Adjusted)
|
|
$
|
171.3
|
|
|
$
|
202.6
|
|
|
$
|
209.9
|
|
|
$
|
251.6
|
|
|
|
22.6
|
%
|
|
|
24.2
|
%
|
(1)
Includes $2.3 million of Akerna stand-alone net operating loss tax benefits.
Ample
Valuation
Analysis
of Selected Publicly Traded Companies. To provide contextual data and comparative market information, Cowen compared selected
historical operating and financial data and ratios for Ample to the corresponding financial data and ratios of certain other companies
(the “Ample Selected Companies”) whose securities are publicly traded and which Cowen believes have operating, market
valuation and trading valuations similar to what might be expected of Ample. These companies were:
|
|
|
●
|
Akerna Corp.
|
|
|
|
●
|
AppFolio, Inc.
|
|
|
|
●
|
Avalara, Inc.
|
|
|
|
●
|
Blackbaud, Inc.
|
|
|
|
●
|
Constellation Software Inc.
|
|
|
|
●
|
Guidewire Software, Inc.
|
|
|
|
●
|
Phreesia, Inc.
|
|
|
|
●
|
RealPage, Inc.
|
|
|
|
●
|
Roper Technologies, Inc.
|
|
|
|
●
|
Tyler Technologies, Inc.
|
|
|
|
●
|
Veeva Systems Inc.
|
|
|
|
●
|
Workiva Inc.
|
The
data and ratios included the enterprise value of the Ample Selected Companies as multiples of estimated 2019 and estimated 2020
revenues and EBITDA (in each case, as available from research analyst reports or, if not so available, First Call) for the Ample
Selected Companies. The following table presents, for the periods indicated, the multiples implied by the ratio of estimated revenues
and estimated EBITDA for calendar years 2019 and 2020.
|
|
Selected Company Multiples
|
|
|
Multiple Implied for Ample by consideration paid by Akerna in the
|
|
|
|
|
Low
|
|
|
|
Mean
|
|
|
|
Median
|
|
|
|
High
|
|
|
|
Arrangement(1)
|
|
Implied Enterprise Value as a multiple of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019E Revenue
|
|
|
5.0
|
x
|
|
|
10.3
|
x
|
|
|
9.4
|
x
|
|
|
20.1
|
x
|
|
|
8.2x
|
|
2020E Revenue
|
|
|
4.7
|
x
|
|
|
8.5
|
x
|
|
|
7.3
|
x
|
|
|
15.8
|
x
|
|
|
5.8x
|
|
2019E EBITDA
|
|
|
21.4
|
x
|
|
|
35.5
|
x
|
|
|
24.0
|
x
|
|
|
67.4
|
x
|
|
|
NM
|
|
2020E EBITDA
|
|
|
18.6
|
x
|
|
|
30.7
|
x
|
|
|
24.7
|
x
|
|
|
54.0
|
x
|
|
|
NM
|
|
*
EBITDA multiples of greater than 75.0x and negative multiples were deemed not meaningful or “NM”.
(1)
|
Includes
the implied present value of the CVRs payable in Akerna common stock by Akerna under the Agreement of CAD$8.7 million.
|
Cowen
then applied a selected range of estimated 2020 revenue multiples of 5.0x to 8.0x derived from the Ample Selected Companies to
Amples’ estimated 2020 revenue of CAD$11.5 million, and deducted CAD$7.5 million of net debt, each per the Ample Management
Projections provided by Ample management as adjusted by Akerna management. This analysis indicated an approximate implied equity
value range for Ample of CAD$50.2 million to CAD$84.8 million.
Although
the Ample Selected Companies were used for comparison purposes, none of those companies is directly comparable to Ample. Accordingly,
an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating characteristics of the Ample Selected Companies and
other factors that could affect the public trading value of the Ample Selected Companies or Ample to which they are being compared.
Discounted
Cash Flow Analysis. Cowen estimated a range of enterprise values for Ample based upon the discounted present value of
the projected after-tax unlevered cash flows of Ample described in the Ample Management Projections provided by management of
Ample and adjusted by Akerna for the calendar years ended December 31, 2020 through December 31, 2024, and of the terminal value
of Ample at December 31, 2024, in one case based upon multiples of revenue and in another case based upon multiples of EBITDA,
and in each case discounted back to December 31, 2019 using the mid-period convention. After-tax unlevered cash flow was calculated
by taking projected EBIT and subtracting from this amount projected taxes, capital expenditures, changes in working capital and
changes in other assets and liabilities and adding back projected depreciation and amortization. This analysis was based upon
certain assumptions described by, projections supplied by Ample and adjusted by management of Akerna and discussions held with
the management of Akerna. In performing this analysis, Cowen utilized discount rates discounting unlevered fee cash flows and
terminal values to present value ranging from 15% to 17%, which were selected by Cowen based on an estimated weighted average
cost of capital analysis for Ample. Equity value was calculated as enterprise value less CAD$7.5 million net debt per the Ample
Management Projections.
Cowen
utilized terminal multiples of revenue ranging from 5.0 times to 8.0 times, which range was selected by Cowen in its professional
judgment and based on multiples implied by the ratios of enterprise values to estimated revenues for the Ample Selected Companies.
Utilizing this methodology, the implied equity value of Ample ranged from CAD$80.1 million to CAD$138.0 million.
Cowen
utilized terminal multiples of EBITDA ranging from 19.0 times to 21.0 times, which range was selected by Cowen in its professional
judgment and based on multiples implied by the ratios of enterprise values to estimated EBITDA for the Ample Selected Companies.
Utilizing this methodology, the implied equity value of Ample ranged from CAD$133.5 million to CAD$161.0 million.
Akerna
Valuation
Analysis
of Selected Publicly Traded Companies. To provide contextual data and comparative market information, Cowen compared selected
historical operating and financial data and ratios for Akerna to the corresponding financial data and ratios of certain other
companies (the “Akerna Selected Companies”) whose securities are publicly traded and which Cowen believes have operating,
market valuation and trading valuations similar to what might be expected of Akerna. These companies were:
|
●
|
Constellation
Software Inc.
|
|
●
|
Guidewire
Software, Inc.
|
|
●
|
Roper
Technologies, Inc.
|
|
●
|
Tyler
Technologies, Inc.
|
The
data and ratios included the enterprise value of the Akerna Selected Companies as multiples of estimated 2019 and estimated 2020
revenue and EBITDA (in each case, as available from research analyst reports or, if not so available, First Call) for the Akerna
Selected Companies. The following table presents, for the periods indicated, the multiples implied by the ratio of estimated revenue
and estimated EBITDA for calendar years 2019 and 2020. The information in the table is based on the closing stock price of Akerna
stock on December 13, 2019 of $11.68 per share.
|
|
Selected Company Multiples
|
|
|
|
|
|
|
Low
|
|
|
Mean
|
|
|
Median
|
|
|
High
|
|
|
Akerna
|
|
Implied Enterprise Value as a multiple of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019E Revenue
|
|
|
5.0
|
x
|
|
|
10.3
|
x
|
|
|
8.7
|
x
|
|
|
20.1
|
x
|
|
|
10.1x
|
|
020E Revenue
|
|
|
4.7
|
x
|
|
|
8.7
|
x
|
|
|
7.6
|
x
|
|
|
15.8
|
x
|
|
|
6.9x
|
|
2019E EBITDA
|
|
|
21.4
|
x
|
|
|
35.5
|
x
|
|
|
24.0
|
x
|
|
|
67.4
|
x
|
|
|
NM
|
|
2020E EBITDA
|
|
|
18.6
|
x
|
|
|
30.7
|
x
|
|
|
24.7
|
x
|
|
|
54.0
|
x
|
|
|
NM
|
|
*EBITDA
multiples of greater than 75.0x and negative multiples were deemed not meaningful or “NM”.
Cowen
then applied a selected range of estimated 2020 revenue multiples of 5.0x to 8.0x derived from the Akerna Selected Companies to
Akerna’s estimated 2020 revenue of $18.8 million per the Akerna Management Projections provided by Akerna management plus
US$22.4 million of cash as of September 30, 2019 per Akerna’s SEC filings. This analysis indicated an approximate implied
equity value range for Akerna of US$116.3 million to US$172.7 million.
Although
the Akerna Selected Companies were used for comparison purposes, none of those companies is directly comparable to Akerna. Accordingly,
an analysis of the results of such a comparison is not purely mathematical, but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating characteristics of the Akerna Selected Companies and
other factors that could affect the public trading value of the Akerna Selected Companies or Akerna to which they are being compared.
Discounted
Cash Flow Analysis. Cowen estimated a range of enterprise values for Akerna based upon the discounted present value of
the projected after-tax unlevered cash flows of Akerna described in the Akerna Management Projections provided by management of
Akerna for the calendar years ended December 31, 2020 through December 31, 2024, and of the terminal value of Akerna at December
31, 2024, in one case based upon multiples of revenue and in another case based upon multiples of EBITDA, and in each case discounted
back to December 31, 2019 using mid-period convention. After-tax unlevered cash flow was calculated by taking projected EBIT and
subtracting from this amount projected taxes, capital expenditures, changes in working capital and changes in other assets and
liabilities and adding back projected depreciation and amortization. This analysis was based upon certain assumptions described
by, projections supplied by management of Akerna and discussions held with the management of Akerna. In performing this analysis,
Cowen utilized discount rates discounting unlevered fee cash flows and terminal values to present value ranging from 17% to 19%,
which were selected by Cowen based on an estimated weighted average cost of capital analysis for Akerna. Equity value was calculated
as enterprise value plus US$22.4 million cash per Akerna Management Projections.
Cowen
utilized terminal multiples of revenue ranging from 5.0 times to 8.0 times, which range was selected by Cowen in its professional
judgment and based on multiples implied by the ratios of enterprise values to estimated revenues for the Akerna Selected Companies.
Utilizing this methodology, the implied equity value of Akerna ranged from US$164.3 million to US$274.4 million, based on the
Akerna Management Projections.
Cowen
utilized terminal multiples of EBITDA ranging from 19.0 times to 21.0 times, which range was selected by Cowen in its professional
judgment and based on multiples implied by the ratios of enterprise values to estimated EBITDA for the Akerna Selected Companies.
Utilizing this methodology, the implied equity value of Akerna ranged from US$169.0 million to US$200.3 million, based on the
Akerna Management Projections.
The
summary set forth above does not purport to be a complete description of all the analyses performed by Cowen. The preparation
of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and
the application of these methods to the particular circumstances and, therefore, such an opinion is not readily susceptible to
partial analysis or summary description. Cowen did not attribute any particular weight to any analysis or factor considered by
it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, notwithstanding
the separate factors summarized above, Cowen believes, and has advised the Akerna Board, that its analyses must be considered
as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the process underlying its opinion. In performing its analyses, Cowen made numerous
assumptions with respect to industry performance, business and economic conditions and other matters, many of which are beyond
the control of Akerna and Ample. These analyses performed by Cowen are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by such analyses. In addition, analyses relating to the value
of businesses do not purport to be appraisals or to reflect the prices at which businesses or securities may actually be sold.
Accordingly, such analyses and estimates are inherently subject to uncertainty, being based upon numerous factors or events beyond
the control of the parties or their respective advisors. None of Akerna, Ample, Cowen or any other person assumes responsibility
if future results are materially different from those projected. The analyses supplied by Cowen and its opinion were among several
factors taken into consideration by the Akerna Board in making its decision to enter into the Agreement and should not be considered
as determinative of such decision.
Certain
Financial Advisory Fees Paid by Akerna
Cowen
was selected by the Akerna Board to render an opinion to the Akerna Board because Cowen is a nationally recognized investment
banking firm and because, as part of its investment banking business, Cowen is continually engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed
and unlisted securities, private placements and valuations for corporate and other purposes. Cowen is providing financial services
for Akerna for which it will receive customary fees. In addition, in the ordinary course of its business, Cowen and its affiliates
trade the equity securities of Akerna for their own account and for the accounts of their customers, and, accordingly, may at
any time hold a long or short position in such securities. In the two years preceding the date of its opinion, Cowen has been
retained to provide investment banking services to Akerna and has received fees in connection therewith in the amount of $50,000,
and has not provided investment banking services to Ample or any other party to the Agreement. Cowen and its affiliates may in
the future provide commercial and investment banking services to Akerna and may receive fees for the rendering of such services.
The issuance of Cowen’s opinion was approved by Cowen’s Fairness Opinion Review Committee.
Pursuant
to the Cowen engagement letter, if the Arrangement is consummated, Cowen will be entitled to receive a transaction fee equal to
approximately $1.26 million. Akerna has also agreed to pay a fee of $500,000 to Cowen for rendering its opinion, which fee will
be credited against any transaction fee paid. Additionally, Akerna has agreed to reimburse Cowen for its out-of-pocket expenses,
including attorneys’ fees, and has agreed to indemnify Cowen against certain liabilities, including liabilities under the
federal securities laws. The terms of the fee arrangement with Cowen, which are customary in transactions of this nature, were
negotiated at arm’s length, and the Akerna Board was aware of the arrangement, including the fact that a significant portion
of the fee payable to Cowen is contingent upon the completion of the Arrangement.
Annex D
STOCK
PURCHASE AGREEMENT
by and among
Akerna
Corp.,
the
Shareholders of Solo Sciences, Inc.,
and
SOLO
SCIENCES, INC.
November 25, 2019
TABLE
OF CONTENTS
schedules
AND EXHIBITS
Schedule
1(b)
|
Terminated
Agreements
|
Schedule
3.4
|
Net
Working Capital Methodology
|
Schedule
4.2
|
Material
Consents
|
Schedule
4.5
|
Government
Consents
|
Schedule
4.6
|
Payoff
Letters
|
Schedule
4.8(b)
|
Resigning
Directors and Officers
|
Schedule
4.8(e)
|
Non-Compete
Parties
|
Schedule
4.8(g)
|
Lien
Search Jurisdictions
|
Schedule
5.1(d)
|
Governmental
Filings
|
Schedule
6.3(b)
|
Shareholder
Required Consents
|
Schedule
6.5
|
Ownership
of Transferred Shares
|
Schedule
7.1(a)
|
Organization
|
Schedule
7.1(b)
|
Capitalization
|
Schedule
7.1(d)
|
Officers
and Directors
|
Schedule
7.3(b)
|
Company
Required Consents
|
Schedule
7.4
|
Subsidiaries
|
Schedule
7.5(a)
|
Financial
Statements
|
Schedule
7.7(b)
|
Releases
of Hazardous Substances
|
Schedule
7.7(c)
|
Environmental
Permits
|
Schedule
7.8(b)
|
Material
Permits
|
Schedule
7.9
|
Accounts
Receivable
|
Schedule
7.10(b)
|
Owned
Real Property
|
Schedule
7.10(c)
|
Leased
Real Property
|
Schedule
7.12
|
Tax
Matters
|
Schedule
7.12(l)
|
Income
Tax Classifications
|
Schedule
7.13(a)
|
Intellectual
Property
|
Schedule
7.13(b)
|
Intellectual
Property Matters
|
Schedule
7.14
|
Contracts
and Commitments
|
Schedule
7.15
|
Litigation
|
Schedule
7.16(a)
|
Employee
Benefits
|
Schedule
7.16(d)
|
Multiemployer
Plans
|
Schedule
7.17(a)
|
Labor
Matters
|
Schedule
7.18
|
Customers
and Key Suppliers
|
Schedule
7.19
|
Insurance
|
Schedule
7.20
|
Employee
Loans
|
Schedule
7.22
|
Affiliate
Transactions
|
Schedule
7.23
|
Leased
Personal Property
|
Schedule
7.24
|
Licenses
|
Schedule
7.25
|
Bank
Accounts
|
Schedule
7.26
|
Company
Transaction Expenses and Indebtedness
|
Schedule
8.3
|
Akerna
Required Consents
|
Schedule
9.2
|
Conduct
of Business
|
|
|
Exhibit
A
|
Form
of Non-Compete
|
Exhibit
B
|
Form
of Lock-Up Agreement
|
STOCK
PURCHASE AGREEMENT
THIS
STOCK PURCHASE AGREEMENT (this “Agreement”), is dated as of November 25, 2019 (the “Signing Date”),
and is by and among (A) Akerna Corp., a Delaware corporation (“Akerna”), (B) the Shareholders party hereto
(a list of whom is set forth on Schedule 1 hereto), either by executing a signature page hereto directly or by executing
a power of attorney in favor of the Shareholder Representatives who are executing this Agreement on behalf of all Shareholders
who have delivered to the Shareholder Representatives an executed power of attorney, (C) Ashesh C. Shah, Lokesh Chugh and Palle
Pedersen, each an adult individual (collectively, the “Shareholder Representatives”) in their capacities as
Shareholder Representatives and also on behalf of all Shareholders who have delivered to the Shareholder Representatives and executed
power of attorney to execute this Agreement on their behalf and (D) Solo Sciences, Inc., a Delaware corporation (the “Company”).
Shareholders and, prior to the Closing, the Company and its Subsidiaries, are collectively referred to herein as the “Shareholder
Parties.” Capitalized terms not otherwise defined shall have the meanings set forth in Article I.
Recitals
WHEREAS,
the Shareholders executing this Agreement (directly or by the Shareholder Representatives executing this Agreement on their behalf)
on the Signing Date own more than 80% of the Shares, calculated on a fully diluted basis;
WHEREAS,
the Shareholders have agreed to transfer 80.40% of the Shares in exchange for newly issued Akerna Shares (as defined below);
WHEREAS,
for U.S. federal income tax purposes, Akerna and the Company intend that the Share Transfer (as defined below) will qualify as
a “reorganization” within the meaning of Section 368(a) of the Code, that this Agreement will constitute a “plan
of reorganization” with the meaning of Treasury Regulations Sections 1.368-1(c), 1.368-2(g) and 1.368-3(a), and that Akerna
and the Company will each be a “party to the reorganization” within the meaning of Section 368(b) of the Code; and
WHEREAS,
Akerna and the Shareholder Parties desire to make certain representations, warranties, covenants and agreements in connection
with the transfer of the Shares and also to prescribe various conditions to the Share Transfer.
NOW,
THEREFORE, for and in consideration of the foregoing premises, and the agreements, covenants, representations and warranties
hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are forever acknowledged and
accepted, the Parties, intending to be legally bound, hereby agree as follows:
Article
I.
DEFINITIONS
In
addition to the words and terms defined elsewhere in this Agreement, the following words and terms shall have the following meanings,
respectively, unless the context clearly requires otherwise:
“Additional
Capital Contribution” has the meaning assigned to such term in Section 9.13.
“Affiliate”
means, with respect to any Person, any of (a) a manager, member, partner, director, officer or equity holder of such Person, (b)
a spouse, parent, sibling or descendant of such Person (or a spouse, parent, sibling or descendant of any director or officer
of such Person) and (c) any other Person that, directly or indirectly through one or more intermediaries, controls, or is controlled
by, or is under common control with, another Person. The term “control” (and its variations such as “controlled
by” or “under common control with”) includes, without limitation, the possession, directly or indirectly, of
the power to direct the management and policies of a Person, whether through the ownership of voting interests, by contract or
otherwise.
“Agreement”
has the meaning assigned to such term in the preamble of this Agreement.
“Anti-Bribery
Laws” means all anti-bribery and anti-corruption Laws of any jurisdiction, including the UK Bribery Act 2010 and the
U.S. Foreign Corrupt Practices Act (15 U.S.C. 78dd-1 et seq.).
“Akerna”
means Akerna Corp., a Delaware corporation.
“Akerna”
has the meaning assigned to such term in the preamble of this Agreement.
“Akerna
Indemnified Parties” has the meaning assigned to such term in Section 10.2.
“Akerna
Option Closing” has the meaning assigned to such term in Section 9.11(c).
“Akerna
Option Closing Date” has the meaning assigned to such term in Section 9.11(c).
“Akerna
Option Shares” has the meaning assigned to such term in Section 9.11(a).
“Akerna
Purchase Option” has the meaning assigned to such term in Section 9.11(a).
“Akerna
Option Price” has the meaning assigned to such term in Section 9.11(d).
“Akerna
Option Price Share Value” means 20-day volume-weighted average closing price of the Akerna Shares on the NASDAQ or other
market with higher trading volume immediately prior to the Akerna Option Closing Date.
“Akerna
Shares” means shares of the common stock of Akerna.
“Akerna
Tax Returns” has the meaning assigned to such term in Section 9.5(b)(ii).
“Assets”
has the meaning assigned to such term in Section 7.10(a).
“Base
Amount” means 1,950,000 Akerna Shares.
“Business”
means the business conducted, or contemplated to be conducted by the Company and its Subsidiaries as of the date hereof, including
the development and sale of anti-counterfeit and authentication technology.
“Business
Day” means any day except Saturday, Sunday or any day on which banks are generally not open for business in the city
of New York, New York.
“Cap”
has the meaning assigned to such term in Section 10.3(b).
“Cash
on Hand” means the sum of all cash, cash equivalents and marketable securities held by the Company and its Subsidiaries,
as of the Closing Time, as computed in accordance with GAAP (net of issued but uncleared checks and drafts, pending wire and bank
transfers, security deposits and customer deposits and governmental charges assessed on money or currency transfers or payments,
but including checks and other wire transfers and drafts deposited or available for the account of the Company or one of its Subsidiaries).
Cash on Hand shall exclude any cash which is not freely usable by Akerna because it is subject to restrictions, limitations or
Taxes on use or distribution by law, contract or otherwise, including without limitation, restrictions on dividends and repatriations
or any other form of restriction (collectively, “Restricted Cash”) and cash disbursed on the Closing Date to
pay any Company Transaction Expenses or Indebtedness.
“Closing”
has the meaning assigned to such term in Section 3.3.
“Closing
Date” has the meaning assigned to such term in Section 3.3.
“Closing
Date Schedule” has the meaning assigned to such term in Section 3.4(a).
“Closing
Indebtedness” means the outstanding Indebtedness of the Company and its Subsidiaries as of the Closing Time.
“Closing
Net Working Capital” means the Net Working Capital of the Company and its Subsidiaries, as of the Closing Time, calculated
in accordance with the template attached hereto as Schedule 3.4.
“Closing
Statement” has the meaning assigned to such term in Section 3.1(a).
“Closing
Share Value” means $8.00 per Akerna Share.
“Closing
Time” means 12:01 a.m., New York, New York time, on the Closing Date.
“COBRA”
has the meaning assigned to such term in Section 7.16(c).
“Code”
means the Internal Revenue Code of 1986, as amended.
“Company
Consultant” means any consultant or independent contractor of the Company or any of its Subsidiaries.
“Company
Employee” means any employee of Company or any of its Subsidiaries.
“Company
Plan” has the meaning assigned to such term in Section 7.16(a).
“Company
Proprietary Software” means all Software owned by the Company and/or any of its Subsidiaries, including, all current
and prior versions of any Software owned by the Company and/or any of its Subsidiaries used to operate the internal computers
and systems of the Company and/or any of its Subsidiaries or used in products and services marketed, licensed, sold or distributed
to customers of the Company and/or any of its Subsidiaries.
“Company
Tax Returns” has the meaning assigned to such term in Section 9.5(b)(i).
“Company
Transaction Expenses” means (i) all expenses and other amounts that are incurred or will be incurred prior to and through
the Closing Date or are subject to reimbursement by the Company or any of its Subsidiaries, in each case, in connection with the
consideration, review, pursuit, negotiation, preparation, execution and performance of this Agreement and the consummation of
the transactions contemplated hereby, including costs, fees, disbursements and other amounts payable to any financial advisors,
attorneys, accountants, investment banks and other advisors and service providers, (ii) any severance payments, discretionary
bonuses, retention payments and any change-of-control, success, similar payments payable to any person (including to any employee,
officer, director or manager of the Company or its Subsidiaries) as a result of or in connection with the Shareholder Parties
entering into this Agreement or by reason of the performance or consummation of the transactions contemplated by this Agreement,
including any sale bonuses, and any employer-paid portion of all employment and payroll Taxes payable in connection with any of
the payments described in this subpart (ii), and (iii) the Tail Costs, in each case for clauses (i) through (iii)
above, to the extent payable by the Company or its Subsidiaries and which have not been paid in full in cash as of the Closing.
“Confidential
Information” means any data or information concerning the Company or any of its Subsidiaries (including trade secrets),
without regard to form, regarding (for example and including, but not limited to) (a) business process models; (b) proprietary
software; (c) research, development, products, services, marketing, selling, business plans, budgets, unpublished financial statements,
licenses, prices, costs, contracts, suppliers, customers, and customer lists; (d) the identity, skills and compensation of employees,
contractors, and consultants; (e) specialized training; and (f) discoveries, developments, trade secrets, processes, formulas,
data, lists, and all other works of authorship, mask works, ideas, concepts, know how, designs, and techniques, whether or not
any of the foregoing is or are patentable, copyrightable, or registrable under any intellectual property Laws or industrial property
Laws in the United States or elsewhere. Confidential Information also includes any information or data described above which the
Company obtains from another party and which the Company treats as proprietary or reasonably designates as confidential information
whether or not owned or developed by the Company.
“Consideration”
means the Initial Consideration, as finally adjusted pursuant to Section 3.4.
“Consultant
Benefit Plan” means any consultant or independent contractor benefit, fringe benefit, supplemental unemployment benefit,
bonus, incentive, profit sharing, termination, change of control, vacation, pension, retirement, stock option, stock purchase,
stock appreciation, equity incentive, health, welfare, medical, dental, disability, life insurance or any similar plans, programs
or arrangements, other than any plan, program, or arrangement mandated by applicable Law (including plans, programs or arrangements
maintained by a Governmental Authority requiring the payment of social security taxes or similar contributions to a fund of a
Governmental Authority).
“Contract”
means any written or unwritten contract, agreement, indenture, note, bond, mortgage, loan, instrument, Lease, license or any other
legally binding commitment or undertaking.
“Current
Assets” means the current assets of the Company and its Subsidiaries; provided that, for purposes hereof, the
Current Assets shall not include (a) any Cash on Hand or Restricted Cash, (b) any deferred income Tax assets, (c) any intercompany
receivables within the Shareholder Parties, or (d) customer deposits or receivables in respect of deferred revenue items, calculated
based on the accounting books and records of the Company, in each case determined in accordance with GAAP and on a basis consistent
with the most recent audited Financial Statements delivered pursuant to Section 7.5 of this Agreement.
“Current
Liabilities” means the current liabilities of the Company and its Subsidiaries, including accrued vacation and accrued
bonus amounts in respect of any period ending on or prior to the Closing Date; provided that, for purposes hereof, the
Current Liabilities shall not include any (a) deferred income Tax Liabilities, (b) Closing Indebtedness, (c) any item taken into
account in the calculation of Cash on Hand, or (d) the Company Transaction Expenses, all determined based on the accounting books
and records of the Company in accordance with GAAP and on a basis consistent with the most recent audited Financial Statements
delivered pursuant to Section 7.5 of this Agreement.
“Customers”
has the meaning assigned to such term in Section 7.18.
“Date
of Exercise” has the meaning assigned to such term in Section 9.11(b).
“Deductible”
has the meaning assigned to such term in Section 10.3(a).
“Documents”
means this Agreement, the Escrow Agreement, the Non-Competes, the Lock-Up Agreements and all other agreements, instruments, certificates
and documents to be executed in connection herewith, to consummate the transactions contemplated hereby and thereby.
“Employee
Benefit Plan” means (a) any “employee benefit plan” as defined in Section 3(3) of ERISA (whether or not
subject to ERISA), or (b) any other employee benefit, fringe benefit, supplemental unemployment benefit, bonus, incentive, profit
sharing, termination, change of control, vacation, pension, retirement, stock option, stock purchase, stock appreciation, equity
incentive, health, welfare, medical, dental, disability, life insurance or any similar plans, programs or arrangements, other
than any plan, program, or arrangement mandated by applicable Law (including plans, programs or arrangements maintained by a Governmental
Authority requiring the payment of social security taxes or similar contributions to a fund of a Governmental Authority).
“Environment”
means any of the following media:
(a)
land, including surface land, sub-surface soil or strata and any natural or man-made structures;
(b)
water, including coastal and inland waters, surface waters, ground waters, drinking water supplies and waters in drains and sewers,
surface and sub-surface strata;
(c)
air, including indoor and outdoor air; and
(d)
fish, wildlife, plant life and other natural resources.
“Environmental
Laws” means all Laws, as in effect on the date hereof, relating to pollution, the protection of the Environment or use,
storage, handling, manufacture, processing, Releases of exposure to Hazardous Substances, including but not limited the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the Superfund Amendments and Reauthorization Act, as amended,
the Solid Waste Disposal Act, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Control
Act, the Federal Insecticide, Fungicide, and Rodenticide Act, as amended, the Clean Water Act, as amended, the Clean Air Act,
as amended, and any applicable United States federal, state or local Law having a similar subject matter.
“Environmental
Matter” means:
(a)
pollution or contamination of the Environment, including, soil or groundwater contamination or the occurrence or existence of,
or the continuation of the existence of, a Release of any Hazardous Substance;
(b)
the treatment, disposal or Release of any Hazardous Substance;
(c)
exposure of any Person to any Hazardous Substance; and/or
(d)
the violation or alleged violation of any Environmental Law or any Environmental Permit.
“Environmental
Permit” means any Permit issued, granted or required under Environmental Laws.
“ERISA”
means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.
“ERISA
Affiliate” means, with respect to the Company or any of its Subsidiaries, any Person who is required to be treated as
a single employer with the Company or any of its Subsidiaries, as applicable, pursuant to Code Section 414(b), (c), (m) or (o)
or ERISA Section 4001(b).
“Escrow
Account” means an account established by the Escrow Agent to hold the Escrow Shares in accordance with this Agreement
and the Escrow Agreement.
“Escrow
Agent” means an escrow agent to be agreed upon by Akerna and the Shareholder Representatives.
“Escrow
Agreement” means an escrow agreement among Akerna, the Shareholder Representatives and the Escrow Agent, in a form reasonably
acceptable to each of them.
“Escrow
Shares” means 195,000 Akerna Shares.
“ESOP”
has the meaning assigned to such term in Section 5.1(b)(vi).
“ESOP
Amendment” has the meaning assigned to such term in Section 5.1(b)(vi).
“Estimated
Cash on Hand” has the meaning assigned to such term in Section 3.1(a)(ii).
“Estimated
Closing Indebtedness” has the meaning assigned to such term in Section 3.1(a)(iii).
“Estimated
Company Transaction Expenses” has the meaning assigned to such term in Section 3.1(a)(iv).
“Excluded
Claims” has the meaning assigned to such term in Section 10.3(a).
“Final
Accounting Firm” has the meaning assigned to such term in Section 3.4(b).
“Final
Cash on Hand” has the meaning assigned to such term in Section 3.4(a)(iv).
“Final
Closing Date Indebtedness” has the meaning assigned to such term in Section 3.4(a)(ii).
“Final
Closing Date Transaction Expenses” has the meaning assigned to such term in Section 3.4(a)(iii).
“Final
Net Working Capital” has the meaning assigned to such term in Section 3.4(a)(i).
“Financial
Statements” has the meaning assigned to such term in Section 7.5(a).
“Fundamental
Documents” means the documents by which any Person (other than an individual) establishes its legal existence or which
govern its internal affairs, including, as applicable, articles or certificate of incorporation, memorandum of association, articles
of association, articles of organization, certificate of formation, declaration of trust, partnership agreement, by-laws, and/or
operating limited liability company agreement.
“Fundamental
Representations” means, collectively, the representations and warranties set forth in Sections 6.1 (Organization;
Capitalization), 6.2 (Authorization of Transaction), 6.3 (Non-contravention), 6.5 (Ownership of Transferred
Shares), 7.1 (Organization; Capitalization; Title to Shares), 7.2 (Authorization of Transaction), 7.3 (Non-contravention)
7.4 (Subsidiaries), 7.7 (Environmental Matters), 7.10 (Properties), 7.12 (Tax Matters), 7.13
(Intellectual Property), 7.16 (Employee and Consultant Benefits), 7.17 (No Employees) and 7.26 (Brokers;
Company Transaction Expense; Indebtedness).
“Funded
Indebtedness” means Indebtedness of the type referred to in clauses (a), (b), (c), (f),
(k) and (l) of the definition of Indebtedness.
“GAAP”
shall mean United States generally accepted accounting principles as in effect from time to time.
“General
Enforceability Exceptions” has the meaning assigned to such term in Section 6.2.
“Governmental
Authority” means any court, administrative agency or commission or other governmental or quasi-governmental authority
or instrumentality, domestic or foreign, international, provincial, federal, state, county or local.
“Hazardous
Substance” means, collectively, any (a) petroleum or petroleum products, or derivative or fraction thereof, radioactive
materials (including radon gas), asbestos in any form that is friable, urea-formaldehyde foam insulation and polychlorinated biphenyls
regulated by 40 CFR Part 761 and/or (b) any chemical, material, substance or waste, which is now defined as or included in the
definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” “toxic
substances,” “restricted hazardous wastes,” “contaminants,” or “pollutants”, or terms
of similar meaning or effect, in each case as regulated under Environmental Laws, including but not limited to materials that
are deemed hazardous pursuant to any Environmental Laws due to their ignitability, corrosivity, toxicity, reactivity, or other
harmful characteristics.
“Indebtedness”
means, with respect to the Company and any of its Subsidiaries, all Liabilities or obligations created or arising out of (a) all
indebtedness of the Company and any of its Subsidiaries for borrowed money or the deferred purchase price of property or services,
including indebtedness incurred to finance insurance premiums, and whether funded or unfunded, secured or unsecured or with recourse
or without recourse, (b) under or in connection with drawn letters of credit, performance bonds, bankers’ acceptances or
similar instruments, (c) indebtedness, obligations or Liabilities, evidenced by notes, debentures, bonds, merchant cash advance
or factoring agreements or other similar instruments for the payment of which the Company or any of its Subsidiaries is liable,
(d) customer advances or deposits and other deferred revenue items, as required to be accrued for under GAAP, (e) any conditional
sale or other title retention agreement with respect to property acquired by the Company or any of its Subsidiaries (whether or
not the rights and remedies of the Company, any of its Subsidiaries or lender under such agreement in the event of default are
limited to repossession or sale of such property), (f) all indebtedness of any such Person secured by a purchase money mortgage
or other Lien to secure all or part of the purchase price of the property subject to such mortgage or Lien, (g) related to any
earn-out or contingent payment or similar payment or obligation at the maximum payable in respect thereof; (h) arising from cash/book
overdrafts, (i) all the obligations (whether principal, interest, any purchase price to be paid to transfer the ownership of the
leased property to the Company or one of its Subsidiaries or otherwise) under leases which are, or are required to be, in accordance
with GAAP, recorded as finance or capital leases in respect of which such Person is liable as a lessee, (j) in connection with
the unwinding of any hedge, swap or other derivative transaction; (k) all interest, fees, penalties (including pre-payment penalties)
and other expenses owed (or to be owed in connection with the repayment thereof) with respect to the indebtedness referred to
above, and/or (l) all indebtedness referred to above which is directly or indirectly guaranteed by the Company or any of its Subsidiaries
or which the Company or any of its Subsidiaries has agreed (contingently or otherwise) to purchase or otherwise acquire or in
respect of which it has otherwise assured a creditor against loss.
“Indemnified
Person” means any Person entitled to indemnification under Article X hereto.
“Indemnifying
Person” means any Person with indemnification obligations under Article X hereto.
“Indemnity
Reserve Amounts” has the meaning assigned to such term in Section 10.4(g)(i).
“Initial
Consideration Amount” means:
(a)
the Base Amount;
(b)
minus the Escrow Shares; and
(d)
minus the IP Purchase Escrow Shares.
“Intellectual
Property” means any and all of the following, throughout the world, and all rights arising out of or associated therewith:
(a) all patents and applications therefor and all reissues, divisions, renewals, reexaminations, extensions, provisionals, continuations
and continuations in part thereof; (b) all inventions (whether patentable or not), invention disclosures, improvements, proprietary
information, trade secrets, know how, technology, technical data and customer lists, and all documentation relating to any of
the foregoing; (c) all copyrights, copyright registrations and applications therefor, and all derivative works thereof; (d) all
rights in and good-will associated with internet uniform resource locators, domain names, trade names, logos, slogans, designs,
common Law trademarks and service marks, trademark and service mark registrations and applications therefor; (e) all Software;
(f) all rights in databases and data collections; (g) all other proprietary rights derived under applicable state, federal or
foreign Laws; and (h) all moral and economic rights of authors and inventors, however denominated..
“Intellectual
Property Purchase Agreement” means that certain Intellectual Property Purchase Agreement, dated as of February 2, 2018,
by and between Get Solo, LLC, a New Hampshire limited liability company and CED Life Sciences, Inc., a Delaware corporation, as
amended.
“Invoices”
means final invoices in respect of all Company Transaction Expenses setting forth (a) the amounts due in respect thereof through
the Closing and (b) wire instructions for payment of such amounts.
“IP
Purchase Escrow Shares” means 375,000 Akerna Shares.
“IRS”
has the meaning assigned to such term in Section 7.16(a).
“Key
Supplier” has the meaning assigned to such term in Section 7.18.
“Latest
Balance Sheet Date” has the meaning assigned to such term in Section 7.5(a).
“Law”
means all applicable federal, state, local, municipal, foreign or other constitution, law, statute, common law, code, ordinance,
technical or other standing treaty, rule, directive, requirement or regulation, policy, determination, procedures or Order enacted,
adopted or promulgated by any Governmental Authority, including, without limitation, any laws, rules or regulations relating to
import-export and customs services rules or regulations.
“Leased
Real Property” has the meaning assigned to such term in Section 7.10(c).
“Liability”
means any liability or obligation, whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued,
disputed or undisputed, liquidated or unliquidated and whether due or to become due, regardless of when asserted.
“Licensed
Intellectual Property” has the meaning assigned to such term in Section 7.13(a)(iii).
“Licenses”
shall mean all rights and benefits under licenses, permits, quotas, authorizations, franchises, registrations and other approvals
from any Governmental Authority or from any other Person.
“Lien”
means any security interest, pledge, bailment (in the nature of a pledge or for purposes of security), mortgage, deed of trust,
the grant of a power to confess judgment, conditional sales and title retention agreement (including any lease in the nature thereof),
charge, encumbrance, assessment, levy, covenant, easement, right of way, reservation, restriction, cloud on or defect in title,
right of first refusal or first offer, equity, encroachment, burden, option, or other similar arrangement or interest in real
or personal property, including liens (statutory or otherwise), trusts, deemed trusts or other encumbrances.
“Limited
Source Supplier” has the meaning assigned to such term in Section 7.18.
“Loss”
or “Losses” means any and all damages, losses, actions, proceedings, causes of action, obligations, Liabilities,
claims, encumbrances, Liens, penalties, demands, assessments, settlements, judgments, costs and expenses, including court costs
and reasonable attorneys’ and consultants’ fees and disbursements and costs of litigation.
“Market
Price” means the 20-day volume-weighted average closing price of the Akerna Shares on the NASDAQ or other market with
higher trading volume immediately prior to the exercise of the Akerna Purchase Option.
“Material
Adverse Change” means, with respect to any Person, any material adverse change in the assets, operations, prospects
or financial condition of such Person; provided, that, for purposes of this Agreement, a Material Adverse Change shall not include
changes to the assets, operations or financial condition of the Business resulting from (a) changes to the U.S. economy, the global
economy, in each case, as a whole, or the industry or markets in which the Business operates (except to the extent such changes
disproportionately affect the Business), (b) general economic, regulatory or political conditions or changes in the countries
in which the Business operates, (c) military action or any act of terrorism, (d) changes in the debt, financing or securities
markets, or (e) changes in Law, except to the extent such material adverse change disproportionately affects or impacts the Company
or any of its Subsidiaries as compared to similarly situated companies in the Business.
“Material
Contracts” has the meaning assigned to such term in Section 7.14(a).
“Material
Employee Agreement” has the meaning assigned to such term in Section 7.16(a).
“Material
Permits” has the meaning assigned to such term in Section 7.8(b).
“Multiemployer
Plan” has the meaning set forth in Section 3(37) or 4001(a)(3) of ERISA.
“Net
Revenue” means gross revenue received by Solo for the sale of a given Solo Product, less returns and allowances and
commissions paid in respect of such Solo Product.
“Net
Working Capital” means, as of a specified time, an amount equal to Current Assets minus Current Liabilities.
“Non-Compete”
has the meaning assigned to such term in Section 4.8(e).
“Non-Escrow
Shares” shall mean a number of Akerna Shares equal to the Initial Consideration Amount.
“Option
Fee” means, for each Solo Product sold during a given Option Fee Year, the lesser of (i) one (1) cent or (ii) seven
percent (7%) of the Net Revenue received by the Company during such Option Fee Year.
“Option
Fee Term” means the period commencing on the day immediately after the Closing Date and ending on the earlier of (i)
the date Akerna no longer owns a majority of the Shares; (ii) the date (which must be at least 6 months following the Closing
Date) upon which Akerna Shares have traded above Twelve Dollars ($12.00) for twenty (20) out of thirty (30) trading days; or (iii)
December 1, 2029.
“Option
Fee Year” means each 12 month period during the Option Fee Term (or portion thereof if the Option Fee Term terminates
prior to the end of such 12 month period) commencing on the day after the Closing Date or an anniversary of the Closing Date and
ending on the next successive anniversary of the Closing Date.
“Option
Period” has the meaning assigned to such term in Section 9.11(a).
“Orders”
means judgments, writs, decrees, compliance agreements,, injunctions or orders of and Governmental Authority or arbitrator.
“Ordinary
Course of Business” means the ordinary course of business consistent with the past custom and practice of the Company
and its Subsidiaries (including with respect to quantity and frequency) with respect to the Business.
“Other
Post-Closing Amounts” has the meaning assigned to such term in Section 3.4(a).
“Outside
Date” has the meaning assigned to such term in Section 5.2(b).
“Owned
Intellectual Property” means all choate and all inchoate Intellectual Property owned by the Company or any its Subsidiaries
or subject to an obligation to assign to the Company or any of its Subsidiaries.
“Owned
Real Property” has the meaning assigned to such term in Section 7.10(b).
“Party”
means each of Akerna, the Company, the Shareholder Parties and the Shareholder Representatives, and collectively, the “Parties.”
“Pay-Off
Letters” has the meaning assigned to such term in Section 4.6.
“Pending
Claim” has the meaning assigned to such term in Section 10.4(g)(i).
“Permits”
means all permits, licenses, authorizations, registrations, franchises, approvals, certificates, variances and similar rights
obtained, or required to be obtained, from Governmental Authorities, including, without limitation, any requisite occupational
licenses, certificates of competency, manufacturing certifications and ISO certifications.
“Permitted
Liens” means (i) Liens for Taxes not yet due and payable or being properly contested in good faith by appropriate proceedings
and which are fully reserved on the books of the Company, (ii) workers or unemployment compensation Liens arising in the Ordinary
Course of Business; (iii) mechanic’s, materialman’s, supplier’s, vendor’s or similar Liens arising in
the Ordinary Course of Business securing amounts that are not yet due and payable and that are released on or before Closing,
and (iv) zoning ordinances, recorded easements and other restrictions of legal record affecting the Real Property or matters which
would be revealed by a survey, and that in either case do not, individually or in the aggregate, materially impair the current
use or occupancy of the Real Property or impair the value or marketability (or, in jurisdictions where any Lien regardless of
type or materiality defeats marketability, insurability) of title in the Real Property.
“Person”
shall be construed broadly and shall include an individual, a partnership, a corporation, a limited liability company, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization, or a Governmental Authority (or any department,
agency, or political subdivision thereof).
“Personal
Property Leases” shall mean all rights and benefits under leases of tangible personal property.
“Policies”
and “Policy” each have the meaning assigned to such term in Section 7.19(a).
“PPACA”
has the meaning assigned to such term in Section 7.16(c).
“Pre-Closing
Tax Period” means any Tax period or portion thereof ending on or before the Closing Date, including the portion of any
Straddle Period ending on the Closing Date.
“Preliminary
Net Working Capital” has the meaning assigned to such term in Section 3.1(a)(i).
“Proceeding”
means any action, dispute, suit, proceeding, complaint, charge, hearing, inquiry or investigation before or by a Governmental
Authority or arbitrator.
“Real
Property” means, collectively, the Leased Real Property and the Owned Real Property.
“Real
Property Lease” has the meaning assigned to such term in Section 7.10(b).
“Release”
means any release, spill, emission, leaking, pumping, pouring, emptying, injection, deposit, disposal, discharge, dispersal or
leaching of any Hazardous Substances into the Environment, and “Released” shall be construed accordingly.
“Release
Date” has the meaning assigned to such term in Section 10.4(g)(i).
“Representative”
means, with respect to a particular Person, any director, officer, manager, employee, agent, consultant, advisor, accountant,
financial advisor, legal counsel or other representative of such Person.
“Representative
Losses” has the meaning assigned to such term in Section 9.15(b).
“Repurchase
Date of Exercise” has the meaning assigned to such term in Section 9.12(b).
“Repurchase
Option” has the meaning assigned to such term in Section 9.12(a).
“Repurchase
Option Period” has the meaning assigned to such term in Section 9.12(a).
“Repurchase
Shares” has the meaning assigned to such term in Section 9.12(a).
“SEC
Reports” has the meaning assigned to such term in Section 8.5.
“Shareholders”
has the meaning assigned to such term in the preamble of this Agreement.
“Shareholders’
Knowledge” or “Knowledge of the Shareholders” means the actual awareness of facts or circumstances
concerning a matter by any of Ashesh C. Shah, Lokesh Chugh or Palle Pedersen or the knowledge that any of such individuals would
have after reasonable inquiry in respect of matters within their area of primary responsibility.
“Shareholder
Parties” has the meaning assigned to such term in the preamble of this Agreement.
“Shareholder
Representatives” has the meaning assigned to such term in the Recitals.
“Shareholder
Repurchase Price” has the meaning assigned to such term in Section 9.12(d).
“Shareholders”
means all of the shareholders of the Company.
“Share
Transfer” has the meaning assigned to such term in the recitals of this Agreement.
“Shares”
means all of the issued and outstanding capital stock of the Company, calculated on a fully diluted basis.
“Signing
Date” has the meaning assigned to such term in the preamble of this Agreement.
“Software”
means any computer software program, together with any error corrections, updates, modifications, or enhancements thereto, in
both machine readable form and human readable form, including all comments and any procedural code.
“Solo
Products” means the following products sold by the Company: the solo*Tag and the solo*Code.
“Straddle
Period” means any Tax Period that includes but does not end on the Closing Date.
“Straddle
Period Returns” has the meaning assigned to such term in Section 9.5(b)(ii).
“Subsidiary”
means any Person with respect to which a specified Person (or a Subsidiary thereof) has the power to vote or direct the voting
of sufficient equity interests to elect a majority of the board of directors (or equivalent with respect to a Person that is not
a corporation).
“Tail
Costs” has the meaning assigned to such term in Section 9.3.
“Tail
Policy” has the meaning assigned to such term in Section 9.3.
“Target
Working Capital” means negative Two Hundred Fifty Thousand Dollars (- $250,000), excluding December normal course consulting
expenses.
“Tax”
or “Taxes” means all taxes, charges, fees, levies, assessments, or other governmental charges (whether federal,
state, local, or non-U.S.), including, without limitation, income, excise, franchise, real or personal property, sales, transfer,
gains, gross receipts, occupation, privilege, payroll, wage, unemployment, workers’ compensation, social security, national
health contributions, pension and employment insurance contributions, use, value added, capital, license, severance, stamp, premium,
windfall profits, environmental, capital stock, profits, withholding, disability, unclaimed property, escheat, registration, customs
duties, employment, alternative or add-on minimum, estimated or other tax of any kind whatsoever (whether disputed or not, whether
payable directly or by withholding and whether or not requiring the filing of a Tax Return), including, without limitation, all
estimated taxes, deferred taxes, deficiency assessments, related charges, fees, interest, penalties, additions to tax or other
assessments.
“Tax
Period” or “Taxable Periods” means any period prescribed by any Governmental Authority for which
a Tax Return is required to be filed or a Tax is required to be paid.
“Tax
Proceeding” has the meaning set forth in 9.5(i)(i).
“Tax
Return” means any federal, state, local or non-U.S. return, estimate, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule, attachment elections and disclosures thereto, and including any
amendment thereof.
“Terminated
Agreements” means the Contracts set forth on Schedule 1(b).
“Transaction”
means the Share Transfer contemplated by this Agreement, together with any and all related transactions and proceedings contemplated
by this Agreement.
“Transfer
Taxes” means all transfer, documentary, sales, use, stamp, registration, value-added and other such Taxes, and all conveyance
fees, recording charges and other fees and charges (including any penalties and interest) arising out of or in connection with
the consummation of the transactions contemplated by this Agreement.
“Transferred
Shares” has the meaning assigned to such term in Section 2.1.
“Transition
Period” has the meaning assigned to such term in Section 9.16.
“Treasury
Regulations” means the regulations promulgated under the Code.
“WARN”
means the U.S. Worker Adjustment and Retraining Notification Act and any other similar applicable state or local “mass layoff”
or “plant closing” Law.
Article
II.
TRANSFER OF THE SHARES
2.1
Transfer of the Shares. On and subject to the terms and conditions of this Agreement, at the Closing, Akerna shall acquire
and take assignment and delivery from the Shareholders, and the Shareholders shall sell, transfer, assign, convey and deliver
to Akerna, all right, title and interest in and to 80.40% of the Shares (the “Transferred Shares”) free and
clear of Liens (the “Share Transfer”), for the Consideration.
Article
III.
CLOSING CONSIDERATION; CLOSING
3.1
Calculation of Initial Consideration.
(a)
Not less than five (5) days prior to the Closing, the Shareholder Representatives shall deliver to Akerna a statement (the “Closing
Statement”) setting forth its good faith estimate of the following:
(i)
the estimated Closing Net Working Capital (the “Preliminary Net Working Capital”);
(ii)
the amount of the estimated Cash on Hand (the “Estimated Cash on Hand”);
(iii)
an itemized list of the estimated Closing Indebtedness (the “Estimated Closing Indebtedness”);
(iv)
an itemized list of the estimated Company Transaction Expenses (the “Estimated Company Transaction Expenses”);
and
(v)
a calculation of the Initial Consideration Amount, after giving effect to the above.
in
each case together with reasonably detailed schedules and data supporting such estimates. The Shareholder Representatives shall
consider in good faith any adjustments to the Initial Consideration Amount proposed by Akerna prior to Closing. For purposes of
clarification, if the Cash on Hand is a negative number, it shall be deemed a deduction from the calculation of both the Initial
Consideration Amount and the Consideration (without duplication).
3.2
Payment of Initial Consideration Amount.
(a)
On the Closing Date, Akerna shall make the following payments:
(i)
Akerna will pay any Estimated Closing Indebtedness pursuant to the wire instructions set forth in the Pay-Off Letters.
(ii)
Akerna will pay any Estimated Company Transaction Expenses pursuant to the wire transfer instructions set forth in the Invoices.
(iii)
Akerna shall deliver the Escrow Shares and the IP Purchase Escrow Shares to the Escrow Account to be held by the Escrow Agent
in accordance with the terms and conditions of this Agreement and the Escrow Agreement.
(iv)
Akerna shall deliver the Non-Escrow Shares to the Shareholders.
(b)
In furtherance of Section 3.2(a)(iii) and (iv), Akerna shall issue in the name of each Shareholder three certificates,
one representing the pro rata portion of the Escrow Shares to which such Shareholder is entitled, one representing the pro rata
portion of the IP Purchase Escrow Shares to which such Shareholder is entitled and one certificate representing the pro rata portion
of the Non-Escrow Shares to which such Shareholder is entitled and deliver such certificates to the Shareholders or the Escrow
Agent, as the case may be.
3.3
The Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall
take place by remote delivery of documents at the offices of Dentons US LLP in Kansas City, Missouri, five (5) Business Days after
satisfaction or waiver of the conditions to Closing set forth herein, or otherwise at a time and on a date mutually agreeable
to the Parties after the conditions to Closing set forth herein are satisfied or waived. The date on which the Closing occurs
shall be referred to as the “Closing Date.”
3.4
Consideration Adjustment.
(a)
Not later than the one hundred twentieth (120th) day following the Closing, Akerna shall prepare and deliver to the Shareholder
Representatives, a schedule (the “Closing Date Schedule”) setting forth:
(i)
a calculation of the Closing Net Working Capital (the “Final Net Working Capital”) along with reasonable, written
supporting documentation;
(ii)
an itemized list of the Closing Indebtedness (“Final Closing Date Indebtedness”);
(iii)
an itemized list of the Company Transaction Expenses (“Final Closing Date Transaction Expenses”); and
(iv)
the amount of actual Cash on Hand (“Final Cash on Hand”).
The
amounts in Sections 3.4(a)(ii)-(iv) are referred to herein as the “Other Post-Closing Amounts.”
(b)
If the Shareholder Representatives disagree with the Final Net Working Capital or any of the Other Post-Closing Amounts as reflected
on the Closing Date Schedule, they shall notify Akerna in writing within fifteen (15) days after the date on which Akerna delivers
such Closing Date Schedule to the Shareholder Representatives, which shall include the items as to which it disagrees and its
calculation of such disputed amounts with reasonable supporting detail. Akerna and the Shareholder Representatives shall reasonably
cooperate to resolve any such disagreements. If Akerna and the Shareholder Representatives are unable to resolve all such disagreements
on or before the date which is fifteen (15) days following notification by the Shareholder Representatives of any such disagreements,
the Shareholder Representatives and Akerna shall retain a nationally recognized independent public accounting firm upon whom the
Shareholder Representatives and Akerna shall mutually agree, or if no such other accounting firm is willing to serve as the Final
Accounting Firm, then such other qualified Person upon whom the Shareholder Representatives and Akerna shall mutually agree (such
accounting firm or other Person being referred to as the “Final Accounting Firm”), to resolve all such disagreements,
who shall adjudicate only those items still in dispute with respect to the Closing Date Schedule and the calculation of the Final
Net Working Capital and/or any of the Other Post-Closing Amounts. The determination by the Final Accounting Firm shall be binding
and conclusive on both the Shareholder Representatives and Akerna.
(c)
The Final Accounting Firm shall offer the Shareholder Representatives and Akerna the opportunity to provide written submissions
regarding their positions on the disputed matters, which written submissions shall be provided to the Final Accounting Firm, if
at all, no later than ten (10) days after the date of referral of the disputed matters to the Final Accounting Firm. The determination
of the Final Accounting Firm shall be based solely on the provisions of this Agreement and such written submissions by the Shareholder
Representatives and Akerna and their respective Representatives and shall not be by independent investigation or review. The Final
Accounting Firm shall deliver a written report resolving only the disputed matters and setting forth the basis for such resolution
within twenty (20) days after the Shareholder Representatives and Akerna submit in writing (or have had the opportunity to submit
in writing but have not submitted) their positions as to the disputed items. In preparing its report, the Final Accounting Firm
shall not assign a value to Final Net Working Capital and/or any of the Other Post-Closing Amounts which is greater or less than
the values submitted by the Shareholder Representatives, on the one hand, or Akerna, on the other hand. The determination of the
Final Accounting Firm with respect to the correctness of Final Net Working Capital and/or any of the Other Post-Closing Amounts
shall be final and binding on the Parties. The fees, costs and expenses of the Final Accounting Firm shall be borne equally by
Akerna and the Shareholder Parties. The Final Accounting Firm shall conduct its determination activities in a manner wherein all
materials submitted to it are held in confidence and shall not be disclosed to third parties (except in connection with the enforcement
of its rights, as required by Law or to prepare its financial statements or Tax Returns). The Parties agree that judgment may
be entered upon the determination of the Final Accounting Firm in any court having jurisdiction over the Party against which such
determination is to be enforced.
(d)
The Shareholder Representatives shall be entitled to have reasonable access to the books of the Company, to the extent prepared
specifically in connection with the Final Net Working Capital, the Other Post-Closing Amounts and the Closing Date Schedule and,
upon reasonable prior notice, shall be entitled to discuss such books and records and work papers with the Company and those employees
of the Company responsible for the preparation thereof.
(e)
Payments.
(i)
Akerna shall be credited with the amount of the Final Closing Date Indebtedness, in accordance with subpart (iv) below.
(ii)
Akerna shall be credited with the amount of the Final Closing Date Transaction Expenses, in accordance with subpart (iv) below.
(iii)
the Shareholders will be credited with the amount of the Final Cash on Hand, in accordance with subpart (iv) below.
(iv)
(A)
If, after giving effect to subparts (i) through (iii) above, a net amount is due to Akerna from the Shareholders (such amount,
an “Akerna Adjustment Amount”), such amount shall be satisfied from the Escrow Funds, in which case the Shareholder
Representatives and Akerna shall promptly (but in any event within three (3) Business Days) execute and deliver a joint instruction
to the Escrow Agent instructing the Escrow Agent to release such amount from the Escrow Funds to Akerna.
(B)
If, after giving effect to subparts (i) through (iii) above, a net amount is due to the Shareholders from Akerna (such amount,
the “Shareholder Adjustment Amount”), then Akerna shall pay the Shareholder Adjustment Amount, to the Shareholders
in Akerna Shares based on the Closing Share Value within three (3) Business Days after the date such amount is finally determined
pursuant to this Section 3.4.
(v)
All amounts payable by Akerna under this Section 3.4 shall be subject to set-off for any claim of Akerna against any Shareholder
Parties.
3.5
Withholding. Akerna, Company and any Affiliate thereof shall be entitled to deduct and withhold, and Akerna, Company and
any Affiliate thereof shall deduct and withhold, any amounts they are required to deduct and withhold pursuant to any provision
of Tax Law in connection with any payments required to be made by Akerna, Company or any Affiliate pursuant to the terms of, or
in connection with any transaction contemplated by, this Agreement. To the extent that amounts are so withheld by Akerna, Company,
or any Affiliate, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the person
otherwise entitled to receive such payments pursuant to this Agreement.
3.6
Tax Treatment. The Parties intend that the Share Transfer will constitute a reorganization within the meaning of Section
368(a) of the Code for U.S. federal income Tax purposes, and the Parties agree to report the Share Transfer consistently therewith
(including the information and recordkeeping requirements of Treasury Regulations Section 1.368-3). Akerna and the Company shall
use their respective commercially reasonable efforts to cause the Share Transfer to qualify as a “reorganization”
under Section 368(a) of the Code.
Article
IV.
CONDITIONS TO OBLIGATIONS OF AKERNA
The
obligation of Akerna to consummate the transactions to be performed by it in connection with the Closing is subject to satisfaction
of the following conditions as of the Closing:
4.1
Representations and Warranties; Covenants.
(a)
(i) The Fundamental Representations of the Shareholder Parties shall be true, correct and complete in all respects, and (ii) the
other representations and warranties of the Shareholders set forth in Article VI and the other representations and warranties
of the Company set forth in Article VII shall be true, correct and complete in all respects (in the case of any representation
or warranty not qualified by the phrases “materially,” “material,” “in all material respects,”
“material adverse change,” “Material Adverse Change,” and any similar phrase) or in all material respects
(in the case of any representation or warranty qualified by the phrases “materially,” “material,” “in
all material respects,” “material adverse change,” “Material Adverse Change,” and any similar phrase),
in each case, on and as of the Closing Date, as if such representations and warranties were made as of the Closing Date (except
as to any such representation or warranty that speaks as of a specific date, which must be true and correct as of such specific
date).
(b)
The Shareholder Parties shall have performed and complied in all respects with all covenants and agreements required by this Agreement
to be performed or complied with by the Shareholder Parties on or prior to the Closing Date.
4.2
Consents. The material consents listed on Schedule 4.2, in form and substance satisfactory to Akerna, shall have
been obtained and executed copies thereof delivered to Akerna.
4.3
Absence of Material Adverse Change. Since the Signing Date, there shall have been no Material Adverse Change with respect
to the Company or its Subsidiaries.
4.4
Absence of Litigation. As of the Closing, there shall not be (a) any Order of any nature issued by a Governmental Authority
with competent jurisdiction directing that the transactions provided for herein or any material aspect of them not be consummated
as herein provided or (b) any Proceeding before any Governmental Authority pending wherein an unfavorable Order would prevent
the performance of this Agreement or the other Documents or the consummation of any aspect of the transactions or events contemplated
hereby, declare unlawful any aspect of the transactions or events contemplated by this Agreement or the other Documents, cause
any aspect of the transaction contemplated by this Agreement or the other Documents to be rescinded or affect, in any material
respect, the right of Akerna to own, operate or control the Company and the Transferred Shares.
4.5
Governmental Required Consents. All filings or registrations with any Governmental Authorities listed on Schedule 4.5
which are required for or in connection with the execution and delivery by the Shareholders and the Shareholder Representatives
of the Documents or the consummation of the transactions contemplated thereby, in form and substance satisfactory to Akerna shall
have been obtained or made and executed copies thereof delivered to Akerna.
4.6
Payoff Letters. The Shareholder Representatives shall have delivered to Akerna payoff letters duly executed by each lender,
lessor or other of the Funded Indebtedness, including those set forth on Schedule 4.6 (the “Pay-Off Letters”),
indicating that, upon payment of the amount specified in such Payoff Letter, all outstanding obligations of the Company arising
under or relating to such Funded Indebtedness shall be repaid and extinguished in full and that upon receipt of such amount such
Person shall release its Liens and other security interests in, and shall file, or authorize the Shareholder Representatives to
file, Uniform Commercial Code Termination Statements and such other documents necessary to release of record its Liens and other
security interests in the assets and properties of the Company.
4.7
Invoices. The Shareholder Representatives shall have delivered to Akerna the Invoices.
4.8
Other Documents. The Shareholder Parties or the Shareholder Representatives (as applicable) shall have delivered to Akerna
each of the following:
(a)
Written instructions to the Company to transfer the Transferred Shares to Akerna on the Company’s stock register;
(b)
Resignations of the directors and officers of the Company and its Subsidiaries set forth on Schedule 4.8(b); and
(c)
The Shareholder Representatives shall deliver to Akerna in a form reasonably satisfactory to Akerna a duly completed and executed
certification of the Company’s non-foreign status pursuant to Treasury Regulations Section 1.1445-2(b)(2);
(d)
Employment Agreements with each of Ashesh C Shah, Palle Pedersen, Kathleen Flannery, Aryeh Primus, Jamie Leo, Logan Donovan and
Vinay Shah, in a form reasonably acceptable to Akerna;
(e)
A non-competition agreement, the form of which is attached hereto as Exhibit A (each, a “Non-Compete”
and, collectively, the “Non-Competes”), duly executed by each of the Persons named on Schedule 4.8(e);
(f)
The Escrow Agreement executed by the Shareholder Representatives;
(g)
Copies of the results of a recent Uniform Commercial Code, tax and judgment lien search against the Company and its Subsidiaries
in the state and county offices listed on Schedule 4.8(g), and evidence reasonably satisfactory to Akerna that all Liens
(other than Permitted Liens not extinguished at Closing) have been or, at the Closing, will be satisfied, terminated, released
or waived, as appropriate;
(h)
Copies of resolutions of the board of directors and stockholders of the Company, authorizing the execution, delivery and performance
of this Agreement by the Company, and a certificate of the secretary of the Company, dated the Closing Date, that such resolutions
were duly adopted and are in full force and effect on the Closing Date;
(i)
A long-form good standing certificate of each of the Company and its Subsidiaries, in each case, dated no earlier than five (5)
Business Days prior to the Closing Date, issued by the Secretary of State of the jurisdiction of its formation, together with
certified Fundamental Documents of the Company and its Subsidiaries;
(j)
A certificate signed on behalf of the Company by one of its authorized officers certifying that the conditions in Section 4.1
have been satisfied;
(k)
Such signature cards for each of the bank accounts listed on Schedule 7.25, as may be necessary to remove the signing privileges
of each of the Persons designated by Akerna;
(l)
Evidence that the Terminated Agreements have been terminated in their entirety and that all obligations and Liabilities of the
Company and its Subsidiaries (including obligations to pay money) have been satisfied; and
(m)
[reserved]
(n)
Lock-up agreements with each of the Shareholders, substantially in the form attached as Exhibit B hereto (the “Lock-Up
Agreements”).
4.9
Amendment of Company Organizational Documents. The Shareholder Parties shall have amended the governing documents (i.e.
bylaws / articles of incorporation) of the Company in a form acceptable to Akerna in its sole discretion.
4.10
Preferred Equity. All outstanding preferred equity and options of the Company shall have been exercised or cancelled in
a manner acceptable to Akerna in its sole discretion, and any shares of the Company issued upon any such exercise shall be included
in the Shares.
4.11
Other Company Shareholders. Each shareholder of the Company not party hereto shall have become party to this Agreement
as a Shareholder.
Article
V.
CONDITIONS TO THE OBLIGATIONS OF THE SHAREHOLDER PARTIES; TERMINATION
5.1
Conditions to the Obligations of the Shareholder Parties. The obligation of the Shareholder Parties to consummate the transactions
to be performed by them in connection with the Closing is subject to satisfaction of the following conditions as of the Closing:
(a)
Delivery of Payments. Akerna shall have delivered the payments to be made on the Closing Date in accordance with the provisions
of Section 3.2.
(b)
Representations and Warranties; Covenants.
(i)
The representations and warranties of Akerna set forth in (i) Sections 8.1 and 8.2 shall be true, correct and complete
in all respects and (ii) the other representations and warranties of Akerna set forth in Article VIII shall be true, correct
and complete in all respects (in the case of any representation or warranty qualified by the phrases “materially,”
“material,” “in all material respects,” “material adverse change,” “Material Adverse
Change,” and any similar phrase) or in all material respects (in the case of any representation or warranty qualified by
the phrases “materially,” “material,” “in all material respects,” “material adverse
change,” “Material Adverse Change,” and any similar phrase), in each case, on and as of the Closing Date, as
if such representations and warranties were made as of the Closing Date (except as to any such representation or warranty that
speaks as of a specific date, which must be true and correct as of such specific date).
(ii)
Akerna shall have performed and complied in all respects with all covenants and agreements required by this Agreement to be performed
or complied with by Akerna on or prior to the Closing Date.
(iii)
Akerna shall have delivered to the Shareholders a certificate signed on behalf of Akerna by one of its authorized officers certifying
that the conditions in Section 5.1(b)(i) and 5.1(b)(ii) have been satisfied.
(iv)
Akerna shall have sufficient shares to cause the payment of the Initial Consideration Amount to the Shareholders.
(v)
Akerna shall deliver to the Shareholders the Escrow Agreement executed by Akerna.
(vi)
Akerna shall have caused Akerna to amend its employee stock ownership plan (“ESOP”), effective as of the Closing
Date, to provide that management and employees of the Company will be eligible to participate in Akerna’s ESOP (the “ESOP
Amendment”) and Akerna shall deliver to Shareholders the ESOP Amendment and all related documents.
(c)
Absence of Litigation. As of the Closing, there shall not be (a) any Order of any nature issued by a Governmental Authority
with competent jurisdiction directing that the transactions provided for herein or any material aspect of them not be consummated
as herein provided or (b) any Proceeding before any Governmental Authority pending wherein an unfavorable Order would prevent
the performance of this Agreement or the other Documents or the consummation of any material aspect of the transactions contemplated
hereby, declare unlawful any material aspect of the transactions or events contemplated by this Agreement or the other Documents,
or cause any material aspect of any transaction contemplated by this Agreement or the other Documents to be rescinded.
(d)
Governmental Filings. All filings or registrations with any Governmental Authorities listed on Schedule 5.1(d)
which are required for or in connection with the execution and delivery by Akerna of the Documents or the consummation of
the transactions contemplated thereby, shall have been obtained or made.
5.2
Termination. This Agreement shall terminate prior to Closing:
(a)
upon the mutual written agreement of Akerna and the Shareholders;
(b)
upon written notice from Akerna to the Shareholders if, (i) any of the Shareholder Parties shall have breached any of their representations,
warranties, covenants or obligations contained in this Agreement that would give rise to a failure of any condition precedent
set forth in Article IV which breach has not been waived by Akerna and cannot be cured, or has not been cured within thirty
(30) days after the giving of notice by Akerna specifying such breach or (ii) any of the conditions precedent set forth in Article
IV (excluding conditions that, by their nature are to be satisfied at the Closing) shall not have been satisfied on or before
December 31, 2019 (the “Outside Date”), so long as, in the case of clause (ii), Akerna is not then in
material breach of any of its representations, warranties, covenants or agreements contained in this Agreement; or
(c)
upon written notice from the Shareholders to Akerna if, (i) Akerna shall have breached any of its representations, warranties,
covenants or obligations contained in this Agreement that would give rise to a failure of any condition precedent set forth in
Article V (excluding conditions that by their nature are to be satisfied at the Closing) which breach has not been waived
by the Shareholders and cannot be or has not been cured within thirty (30) days after the giving of notice by the Shareholders
specifying such breach, or (ii) any of the conditions precedent set forth in Article V (excluding conditions that, by their
nature are to be satisfied at the Closing) has not been satisfied on or before the Outside Date, so long as, in the case of clause
(ii), none of the Shareholder Parties are then in material breach of any of their representations, warranties, covenants or
agreements contained in this Agreement.
5.3
Effect of Termination.
(a)
If this Agreement is validly terminated pursuant to, and in accordance with, Section 5.2, all further obligations of the
Parties under this Agreement shall become null and void and of no further force or effect, except that Sections 9.4(c)
(Confidential Information), 9.7 (Transaction Expenses), 11.12 (Public Announcements) and 11.7 (Governing
Law) will survive; provided, however, that nothing in this Section 5.3 will be deemed to release any Party
from any liability for fraud or any willful breach by such Party of the terms and provisions of this Agreement; provided,
further, that if this Agreement is terminated by Akerna because of the breach of this Agreement by any of the Shareholder
Parties or by the Shareholders because of the breach of this Agreement by Akerna or because one or more of the conditions to the
terminating Party’s obligations under this Agreement is not satisfied as a result of the other Party’s failure to
comply with its obligations under this Agreement, the terminating Party’s right to pursue all legal and equitable remedies
will survive such termination unimpaired.
Article VI.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
As
a material inducement to Akerna to enter into and perform its obligations under this Agreement, except as set forth in the corresponding
sections or subsections of the Schedules attached hereto, the Shareholders, on a several basis, represent and warrant to Akerna
that the statements contained in this Article VI are true, correct and complete as of the Signing Date and will be true,
correct and complete as of the Closing Date (except where expressly limited to a specific date,
in which case such statements shall be true, correct and complete only as of such specific date).
6.1
Organization; Capitalization. Each Shareholder which is an entity is duly organized, validly existing and in good standing
under the Laws of the state of its formation.
6.2
Authorization of Transaction. Each of the Shareholder Representatives (in their capacities as such and on behalf of the
Shareholders pursuant to the power of attorneys referenced in this Agreement) and each Shareholder has all requisite power and
authority to enter into, execute, deliver and perform all of its obligations under this Agreement and all other Documents to which
it is a party executed or to be executed in connection herewith, to consummate the transactions contemplated hereby and thereby
and to perform its obligations hereunder and thereunder. Each Document to which the Shareholder Representatives and/or each Shareholder
is or will be a party has been or when executed will be duly executed and delivered by the Shareholder Representatives or such
Shareholder, as the case may be, and constitutes or when executed, will constitute, the valid and legally binding obligations
of the Shareholder Representatives or such Shareholder enforceable against the Shareholder Representatives or such Shareholder,
in accordance with its terms and conditions, as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar Laws affecting the enforcement of creditors’ rights generally and by general equitable principles
(the “General Enforceability Exceptions”). The Shareholders are acquiring the Akerna Shares solely for their
own account for investment purposes and not with a view to, or for offer or sale in connection with, any distribution thereof.
The Shareholders acknowledge that the Akerna Shares are not registered under the Securities Act of 1933 (the “Securities
Act”) or any state securities laws, and that the Akerna Shares may not be transferred or sold except pursuant to the
registration provisions of the Securities Act or pursuant to an applicable exemption therefrom and subject to state securities
laws and regulations, as applicable. The Shareholders are able to bear the economic risk of holding the Akerna Shares for an indefinite
period (including total loss of their investment) and have sufficient knowledge and experience in financial and business matters
so as to be capable of evaluating the merits and risk of their investment. The Shareholders each are an “accredited
investor” and have not been offered the Akerna Shares by means of any “general solicitation” or “ general
advertising”, all such terms as defined in Regulation D under the Securities Act.
6.3
Non-contravention.
(a)
The execution, delivery and performance by the Shareholder Representatives and each Shareholder of this Agreement and each other
Document to which the Shareholder Representatives or such Shareholder, as the case may be, is a party, and the consummation of
the transactions contemplated hereby and thereby, do not and will not: (i) conflict with, (ii) result in any violation of or breach
of or default under (with or without notice or lapse of time, or both), (iii) give rise to a right of termination, cancellation,
modification or acceleration of any obligation under, (iv) require any payment, consent, notice or waiver under, (v) result in
any loss of a material benefit or right under, or (vi) result in the creation of any Lien on any equity interest or asset of the
Company or any Subsidiary, in each case, under (1) any Material Contract to which the Company or any Subsidiary is a party or
to which it or any of its assets are subject, (2) the Fundamental Documents of each Shareholder, (3) any Law or other restriction
of any Governmental Authority applicable to each Shareholder or any of its properties or assets.
(b)
Except as set forth on Schedule 6.3(b), the Shareholder Representatives are not, and no Shareholder is required to give
any notice to, make any filing with, or obtain any authorization, consent, permit or approval of any Governmental Authority or
any other Person in order for the Parties to consummate the transactions contemplated by the Documents or in order for Akerna
to conduct the Business as presently conducted in the ordinary course immediately following the Closing.
6.4
Litigation. There are no Proceedings pending or to Shareholders’ Knowledge, threatened against any Shareholder relating
to the Shares. No Shareholder is subject to or in default under any Order that would prevent, hinder or delay the consummation
of the Transaction.
6.5
Ownership of Transferred Shares. The Shareholders are the owner of all of the Transferred Shares and immediately before
the Closing the Shareholders will be the owner of all of the Transferred Shares, free and clear of all Liens. Except as set forth
on Schedule 6.5, no Shareholder is a party to any option, warrant, right, contract, call, put or other agreement providing
for the disposition or acquisition of any Transferred Shares, nor is any Shareholder a party to any voting trust, proxy or other
agreement with respect to voting any Transferred Shares with any other party.
Article
VII.
REPRESENTATIONS AND WARRANTIES REGARDING THE COMPANY
As
a material inducement to Akerna to enter into and perform its obligations under this Agreement, except as set forth in the corresponding
sections or subsections of the Schedules attached hereto, the Shareholder Parties, on a joint and several basis, represent and
warrant to Akerna that the statements contained in this Article VII are true, correct and complete as of the Signing Date
and will be true, correct and complete as of the Closing Date (except where expressly limited to a specific date,
in which case such statements shall be true, correct and complete only as of such specific date).
7.1
Organization; Capitalization; Title to Transferred Shares.
(a)
Each of the Company and each of its Subsidiaries is a legal entity, duly organized, validly existing and in good standing under
the Laws of the state of its formation and has all requisite corporate or company power and authority to own, operate, lease or
otherwise hold its properties and to carry on its business, including the Business, as presently conducted. Each of the Company
and each of its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which
the character of the properties owned, operated or leased by it or the nature of the activities conducted by it make such qualification
or licensing and good standing necessary, except for such failures to be so duly qualified or licensed and in good standing that
could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Change. Schedule 7.1(a)
lists the jurisdiction of organization of the Company and each of its Subsidiaries and each jurisdiction in which the Company
and its Subsidiaries is qualified or licensed to do business.
(b)
The authorized and outstanding equity interests of the Company and each of its Subsidiaries are as set forth on Schedule 7.1(b).
Each outstanding equity interest shown thereon, including the Transferred Shares, is duly authorized, validly issued, fully paid
and nonassessable. Except as set forth on Schedule 7.1(b) there are no outstanding or authorized (i) options, warrants,
purchase rights, subscription rights, conversion rights, exchange rights, rights of first refusal, preemptive rights, or other
contracts or commitments that require the Company or any of its Subsidiaries to issue, sell, or otherwise cause to become outstanding
any of its equity interests nor are there any securities convertible or exchangeable into any equity interest of the Company or
any of its Subsidiaries, or (ii) stock appreciation, phantom stock, profit participation or similar rights with respect to the
Company or any of its Subsidiaries.
(c)
The equity interests set forth on Schedule 7.1(b) constitute all of the issued and outstanding equity interests of the
Company and its Subsidiaries.
(d)
The copies of the minute book and equity contribution records of the Company and each of its Subsidiaries have been delivered
or made available to Akerna for inspection and are true and correct and appropriately reflect all material company action taken
by the Company and its Subsidiaries. The names of the current directors and officers (or the equivalent with respect to Company
Subsidiaries that are not corporations) of the Company and its Subsidiaries (prior to giving effect to the resignations to be
delivered pursuant to Section 4.11(b)) are set forth in Schedule 7.1(d).
7.2
Authorization of Transaction. Each of the Company and its Subsidiaries has all requisite corporate or company power and
authority to enter into, execute, deliver and perform all of its obligations under this Agreement and all other Documents to which
it is or will be a party executed or to be executed in connection herewith, to consummate the transactions contemplated hereby
and thereby and to perform its obligations hereunder and thereunder. Each Document to which the Company or any of its Subsidiaries
is or will be a party has been duly and validly authorized by all necessary action on the part of the Company and such Subsidiary,
as applicable, and each Document to which the Company or any of its Subsidiaries is a party has been or when executed will be
duly executed and delivered by the Company or its Subsidiary, as applicable, and constitutes or when executed will constitute
the valid and legally binding obligations of the Company or its Subsidiary, as applicable, enforceable against the Company or
such Subsidiary, as applicable, in accordance with its terms and conditions, subject to the General Enforceability Exceptions.
7.3
Non-contravention.
(a)
Neither the execution, delivery and performance of the Documents by the Company or any of its Subsidiaries nor the consummation
of the transactions contemplated by the Documents by the Company or any of its Subsidiaries:
(i)
violates any Law as to which the Company or any of its Subsidiaries is subject; or
(ii)
conflicts with or violates any provision of the Fundamental Documents of the Company or any of its Subsidiaries.
(b)
Except as set forth on Schedule 7.3(b), none of the Company or any of its Subsidiaries is required to give any notice to,
make any filing with, or obtain any authorization, consent, or approval of any Governmental Authority or any consent or approval
of any other Person in order for the Parties to consummate the transactions contemplated by the Documents or in order for Akerna
to conduct the Business in the Ordinary Course of Business immediately following the Closing.
(c)
The Fundamental Documents of the Company and its Subsidiaries that have been furnished or made available to Akerna are complete
and correct copies of all Fundamental Documents (including all amendments thereto) of the Company and its Subsidiaries. The Fundamental
Documents of the Company and its Subsidiaries are in full force and effect, and no other Fundamental Documents are applicable
to or binding upon the Company or its Subsidiaries. None of the Company or any of its Subsidiaries is in violation of any provisions
of its Fundamental Documents.
(d)
Assuming that all consents, approvals and authorizations contemplated by, and all filings described in, Schedule 7.3(b)
are obtained or made the execution, delivery and performance by each of the Company and each of its Subsidiaries of this Agreement
and each other Document to which it is a Party, and the consummation of the transactions contemplated hereby and thereby, do not
and will not: (i) result in any breach of or constitute a default under or give rise to any right of termination, cancellation,
modification, amendment or acceleration of (whether after the filing of notice or the lapse of time or both) any Material Contract,
(ii) require a consent or notice under, give rise to a material loss of any benefit to which the Company or any of its Subsidiaries
is entitled under, or materially impair any of its rights under any Material Contract, to which the Company or any of its Subsidiaries
is a party or by which it or any of its assets are bound or affected; or (iii) result in the creation or imposition of any Lien
(other than a Permitted Lien) on the properties or assets of the Company or any of its Subsidiaries.
7.4
Subsidiaries. Other than as set forth on Schedule 7.4, the Company does not have any Subsidiaries or own, directly
or indirectly, any stock, partnership interest, limited liability company interest or joint venture interest in, or any security
issued by, any other Person. All of the issued and outstanding equity interests of the Company’s Subsidiaries are owned
beneficially and of record by the Company and are fully paid and non-assessable. There are no outstanding or authorized (i) options,
warrants, purchase rights, subscription rights, conversion rights, exchange rights, rights of first refusal, preemptive rights,
or other contracts or commitments that require any of the Company’s Subsidiaries to issue, sell, or otherwise cause to become
outstanding any of its equity interests nor are there any securities convertible or exchangeable into any equity interest of such
Subsidiaries, or (ii) stock appreciation, phantom stock, profit participation or similar rights with respect to such Subsidiaries.
7.5
Financial Statements; Absence of Undisclosed Liabilities.
(a)
Attached hereto as Schedule 7.5(a) is a correct and complete copy of (i) the unaudited consolidated balance sheet (including
any related notes thereto) of the Company and its Subsidiaries as at December 31,2018, together with the unaudited consolidated
statement of operations and cash flows for the Company and its Subsidiaries as at December 31, 2018 and (ii) an unaudited balance
sheet of the Company and its Subsidiaries as of October 31, 2019 (the “Latest Balance Sheet Date”), together
with the unaudited statement of operations and cash flows for the ten10) months then ended (the financial statements referred
to in clauses (i) and (ii), being the “Financial Statements”). The Financial Statements were
prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as indicated in the notes
thereto), and each fairly presents in all material respects the financial position of the Company and its Subsidiaries at the
respective dates and the results of their operations and cash flows for the periods indicated, except as otherwise set forth in
the notes thereto and, in the case of interim statements, for ordinary course, year-end audit adjustments that are not, individually
or in the aggregate, material.
(b)
The Company and its Subsidiaries maintain accurate books and records reflecting their material assets and liabilities and maintain,
and have maintained for all periods reflected in the Financial Statements, proper and adequate internal accounting controls that
provide reasonable assurance that (i) material transactions are recorded as necessary to permit accurate preparation of their
financial statements and to maintain accurate accountability for their assets; (ii) the reporting of their assets is compared
with existing assets at regular intervals; and (iii) accounts, notes and other receivables and inventory are recorded accurately,
subject to the allowances for doubtful accounts included therein and proper and adequate procedures are implemented to effect
the collection thereof on a current and timely basis.
(c)
None of the Company or any of its Subsidiaries has any material Liabilities or obligations, whether accrued, absolute, fixed,
contingent, or otherwise, whether due or to become due, other than (a) Liabilities that are specifically set forth and adequately
reserved against in the Financial Statements dated as of the Latest Balance Sheet Date and specifically reflected on such Financial
Statements, (b) Liabilities incurred in the Ordinary Course of Business since the Latest Balance Sheet Date, (c) executory obligations
under Contracts to which the Company or one of its Subsidiaries is a party, but not Liabilities arising out of any breach of any
such Contract occurring on or prior to the Closing Date, and (d) Liabilities included in the calculation of Closing Net Working
Capital. None of the Company or any of its Subsidiaries is responsible for any obligations or Liabilities of any Shareholder Parties
or any of their Affiliates (other than the Company and its Subsidiaries), whether accrued, absolute, fixed, contingent, or otherwise,
whether due or to become due.
7.6
Subsequent Events. Since January 1, 2019: (a) each of the Company and its Subsidiaries has conducted its businesses in
the Ordinary Course of Business consistent with past practice, except for the negotiation, execution, delivery and performance
of this Agreement and the Documents, (b) there has not occurred any event that, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Change on the Company or its Subsidiaries, and (c) none of the Company or its
Subsidiaries has:
(i)
issued, sold, transferred, disposed of, acquired, redeemed, granted options or rights to purchase, rights of first refusal or
subscription rights, or sold any securities of the Company or its Subsidiaries (or securities convertible into or exchangeable
for capital stock, voting securities or other ownership interests or securities with profit participation features) or permitted
any reclassifications of any securities of the Company or any of its Subsidiaries, except as set forth on Schedule 6.5;
(ii)
amended or modified its Fundamental Documents in any manner, except for amendments to its Certificate of Incorporation on July
12, 2019 and September 24, 2019;
(iii)
declared, paid or otherwise set aside for payment any non-cash dividend or other non-cash distribution with respect to the Transferred
Shares or any other equity securities;
(iv)
merged or consolidated with, or acquired all or substantially all the assets of, or otherwise acquired, any business, business
organization or division thereof, or any other Person;
(v)
sold, leased, licensed, sublicensed, assigned, transferred or became subject to any Lien (other than Permitted Liens) or otherwise
disposed of any assets other than (i) the sale and/or licensing of inventory (including tests and content) and damaged or obsolete
or excess equipment; (ii) the settlement of accounts receivable; and (iii) the sale of goods, in each case in the Ordinary Course
of Business;
(vi)
canceled any material debts or claims, or suffered any material loss or waived any rights of material value (in each case outside
of the ordinary course of business consistent with past practice);
(vii)
made any loans or advances to, or guaranties of loan or advances for the benefit of, any Person;
(viii)
settled or compromised any material Proceeding;
(ix)
(A) entered into any new, or amended or terminated (other than for cause) any Material Employee Agreement; (B) granted any material
increases in the compensation perquisites or benefits to current or former officers, directors, employees or consultants, other
than normal increases in the ordinary course of business to the extent consistent with the past practice of the Company; or (C)
agreed to grant or granted any equity-related, cash-based, performance or similar awards or bonuses or any other award that, at
the option of the grantee, is to be settled in securities of the Company or any of its Subsidiaries;
(x)
(A) adopted, amended or terminated any Employee Benefit Plan (other than as required by applicable Law) or adopted or entered
into any new Employee Benefit Plan or materially increased the benefits provided under any Employee Benefit Plan (other than increases
incurred in the ordinary course of business to the extent consistent with past practice), or promised or committed to undertake
any of the foregoing in the future; or (B) entered into, amended or extended any collective bargaining or other labor agreement;
(xi)
delayed or postponed the payment of accounts payable or other Liabilities or otherwise conducted its cash management customs and
practices other than in the ordinary course of business consistent with past practice (including with respect to purchases of
supplies, repairs and maintenance, levels of capital expenditures and operation of cash management practices generally);
(xii)
accelerated or caused the acceleration of the collection or receipt of any accounts receivable or the realization of other current
assets or otherwise conduct its cash management customs and practices other than in the ordinary course of business consistent
with past practice (including with respect to pricing and credit practices and operation of cash management practices generally);
(xiii)
engaged in any promotional sales or material discount or other activity with customers outside of the Ordinary Course of Business;
(xiv)
abandoned or permitted to lapse any Owned Intellectual Property;
(xv)
entered into any transaction with or for the benefit of any Affiliate other than the transactions contemplated by this Agreement,
the other Documents and the transactions contemplated herein and therein;
(xvi)
made or changed any material Tax election, settled or compromised any material Tax claim or Tax Proceeding, consented to any waiver
of the statute of limitations period applicable to any Tax claim or Tax Proceeding, and entered into any closing agreement with
respect to material Taxes;
(xvii)
terminated the coverage of any insurance policies, or failed to maintain insurance upon all its material assets and properties
in such amounts and of such kinds comparable to that in effect as of the date hereof;
(xviii)
made any change in accounting practices or policies other than as required by applicable Law or GAAP; or
(xix)
authorized, or committed or agreed to take, any of the foregoing actions that would affect the Company or any of its Subsidiaries
or otherwise be in effect from and after the Closing.
7.7
Environmental Matters.
(a)
The Company has disclosed and made available to Akerna copies of all material records, reports, data, correspondence, and other
documents in the possession or control of any of the Shareholder Parties or any Affiliates thereof relating to Environmental Matters
with respect to the Business or the Real Property, including all such documents prepared for, submitted to, or received from,
applicable Governmental Authorities.
(b)
Except as disclosed on Schedule 7.7(b): (i) no Release of any Hazardous Substance has occurred, or, to Shareholders’
Knowledge, is threatened at, on, under, or from any Real Property, the Company, any of the Company’s Subsidiaries, or the
Business that could give rise to liability under any Environmental Law and (ii) none of the Shareholder Parties has received written
notice alleging that, the Company or any of its Subsidiaries may be responsible for any Release of Hazardous Substances with respect
to the Real Property or the Business or for any material costs or Liabilities arising under, or material violation of, Environmental
Laws with respect thereto, and no facts exist that could be reasonably likely to impose any such Liabilities.
(c)
Schedule 7.7(c) sets forth a list of all Environmental Permits held by the Company and/or its Subsidiaries and used in
connection with the Business. Such Environmental Permits constitute all the licenses and permits required under the Environmental
Laws in connection with the conduct of the Business as presently conducted. There are no legal Proceedings pending or to Shareholders’
Knowledge, threatened in respect of any such Environmental Permits, all such Environmental Permits are in full force and effect,
and timely and complete applications for renewal of such Permits have been filed with the appropriate Governmental Authorities
where required.
(d)
The Company and each of its Subsidiaries is, and has at all times been, in compliance with Environmental Laws or Environmental
Permits.
(e)
The Company and its Subsidiaries (i) are not subject to any Order, settlement agreement, consent orders, fines or penalties, in
connection with any liability or violation, alleged or otherwise, arising under Environmental Law and (ii) have not assumed, undertaken,
or provided an indemnity with respect to any liability or potential liability of any other person or entity under any Environmental
Law.
(f)
Neither this Agreement nor the consummation of the transactions contemplated hereby will result in any obligation for site-investigation
or cleanup, or notification to, or consent of, Governmental Authorities or third parties, pursuant to any of the so-called “transaction-triggered”
or “responsible party transfer” Environmental Laws.
7.8
Legal Compliance.
(a)
Each of the Company and each of its Subsidiaries is and has been operated in compliance with all, and not in violation of any,
and, to its best knowledge is not under investigation with respect to, and has not been threatened to be charged with or given
notice of any violation of any, and has not conducted any internal investigations or received any internal claims with respect
to, any violation of any, Laws applicable to the Business, the Company and/or the Company’s Subsidiaries.
(b)
Each of the Company and each of its Subsidiaries is in possession of all Permits of all Governmental Authorities and certification
organizations required and material for the conduct of the Business and operation of its facilities as now being conducted or
as may be conducted prior to the Closing (the “Material Permits”). Each of such Material Permits is set forth
on Schedule 7.8(b), true and complete copies of which have been made available to Akerna. All such Material Permits are
in full force and effect, and will not be subject to cancellation or revocation as a result of consummation of the Transactions
contemplated hereby. The Company, its Subsidiaries and each of the Company Employees are in compliance with all such Material
Permits. None of the Company or any of its Subsidiaries has received any written notice from any Governmental Authority alleging
any failure to possess any Material Permit or for any failure to keep any Material Permit in full force and effect, nor has the
Company or any of its Subsidiaries received written notice from any Governmental Authority instituting proceedings for the cancellation,
non-renewal or modification of any Material Permits. To the Company’s best knowledge, no Governmental Authority is currently
auditing the Company or any of its Subsidiaries nor has the Company or any of its Subsidiaries received any written notice that
any Governmental Authority is intending to audit the Company or any of its Subsidiaries.
(c)
Neither the Company nor any of its Subsidiaries, nor any of their current or former officers or directors, nor any of their respective
other Representatives, have received, made, offered or authorized, directly or indirectly, in connection with the operation or
maintenance of the business of the Company or any of its Subsidiaries or in connection with this Agreement or otherwise, any contribution,
bribe, rebate, payoff influence payment, kickback, other payment or gift of anything of value, regardless of what form, whether
in money, property or services (each, a “Payment”) to a government official, or to any other Person while knowing
or having reason to suspect that any part of such Payment will be given or promised to a government official, and that such Payment
would: (A) influence any act or decision of such government official in his/her or its official capacity; (B) obtain or pay for
favorable treatment for the Company or any of its Subsidiaries or other Contracts secured; (C) induce such government official
to do or omit to do any act in violation of the lawful duty of such government official; (D) induce such government official to
use his/her or its influence with any Governmental Authority, public international organization or political party, to affect
or influence such Governmental Authority, organization or party; (E) secure any improper advantage; (F) obtain special concessions
or for special concessions already obtained; or (G) otherwise be in violation of any Law, including any Anti-Bribery Law. None
of the Company or any of its Subsidiaries has received any communication that alleges that the Company or any of its Subsidiaries
or their respective Representatives is in violation of, or has liability under any such Laws.
(d)
Each of the Company and its Subsidiaries has established and maintains reasonable internal controls and procedures to ensure compliance
with all applicable Anti-Bribery Laws; and which each of the Company and its Subsidiaries reasonably believes to be adequate to
prevent Representatives and other persons acting on behalf of the Business, the Company or its Subsidiaries from bribing any person.
(e)
Neither the Company nor any of its Subsidiaries nor any of their respective Representatives is a target of U.S. economic sanctions
or trade controls, including but not limited to the List of Specially Designated Nationals and Blocked Persons administered by
the United States Treasury Department’s Office of Foreign Assets Control (the “SDN List”). Without limitation
to the foregoing, neither the Company nor any of its Subsidiaries nor any of their respective Representatives is (i) named on
the SDN List, (ii) owned or controlled, in whole or in part, by any Person named on the SDN List, or (iii) acting for or on behalf
of any Person on the SDN List.
(f)
The Business, the Company and each of its Subsidiaries have been and are in material compliance with all applicable export control,
customs, and sanctions requirements, including sanctions administered by the Office of Foreign Assets Control of the Treasury
Department, the requirements of the Export Administration Regulations (EAR), the International Traffic In Arms Regulations (ITAR)
and any orders and licenses issued thereunder, which requirements include obtaining all proper authorizations or licenses from
the Department of Commerce or the Department of State for the export or re-export of any item, product, article, commodity or
technical data.
7.9
Accounts Receivable. Schedule 7.9 sets forth a complete and accurate list of all accounts receivable set forth in
the Financial Statements dated as of the Latest Balance Sheet Date. With respect to such accounts receivable reflected on Schedule 7.9:
(a) such accounts receivable have arisen solely out of bona fide sales and deliveries of goods, performance of services and other
business transactions in the Ordinary Course of Business, (b) except to the extent of any reserve for doubtful accounts recorded
in accordance with GAAP and specifically reflected on the Financial Statements as of the Latest Balance Sheet Date, such accounts
receivable have been collected or are collectible in the Ordinary Course of Business in the book amounts thereof and (c) such
accounts receivable are not subject to valid defenses, set offs or counterclaims.
7.10
Properties.
(a)
Each of the Company and each of its Subsidiaries has good title to, or has valid leasehold interests in, all tangible and intangible
personal property and other assets used in the Business as currently conducted (the “Assets”), free and clear
of all Liens other than Permitted Liens. The Assets and the Real Property are, taken as a whole, in such condition and repair
(ordinary wear and tear excepted) as is sufficient, to operate the Business after the Closing Date in substantially the same manner
as presently conducted.
(b)
Schedule 7.10(b) sets forth a listing of any and all real property owned by the Company or any of its Subsidiaries (the
“Owned Real Property”), which schedule includes the respective street addresses thereof.
(c)
Schedule 7.10(c) sets forth a listing of any and all real property leased by the Company or any of its Subsidiaries (the
“Leased Real Property”), which schedule includes the respective street addresses thereof. The Company or the
applicable Subsidiary of the Company has a valid license or leasehold interests in all of its Leased Real Property and a valid
fee ownership interest in its Owned Real Property, subject, in each case to Permitted Liens. The Company has furnished or made
available to Akerna, true and correct copies of all leases and licenses (together with any amendments and modifications thereto)
under which the Company or any of its Subsidiaries is the landlord, sublandlord, licensor, tenant, subtenant or occupant of real
property (each a “Real Property Lease”). Each Real Property Lease was entered into at arms’ length and
in the ordinary course, is in full force and effect and, to Shareholders’ Knowledge, is valid and binding upon and enforceable
against each of the parties thereto (subject to the General Enforceability Exceptions). Neither the Company, any of its Subsidiaries,
nor to Shareholders’ Knowledge, any other party to each Real Property Lease, is in material breach or material default under
such Real Property Lease, and no event has occurred or failed to occur or circumstance exists that, with the delivery of notice,
the passage of time or both, would constitute such a material breach or material default, or permit termination, modification
or acceleration of rent under such Real Property Lease, and no party to any Real Property Lease has, since January 1, 2019, given
the Company any written notice of any claim of any such material breach, default or event. There are no Proceedings, disputes
or conditions affecting any Real Property that reasonably would be expected to materially curtail or interfere with the use of
such property.
(d)
There are no pending, or to Shareholders’ Knowledge, threatened, condemnation, eminent domain or similar proceedings, or
litigation or other proceedings affecting the Real Property or improvements thereon and the Company has not received any written
notice from a Governmental Authority of its intention to take or use any Real Property.
(e)
None of the Company or any of its Subsidiaries has received any notice of, or other writing referring to, any requirements or
recommendations by any insurance company that has issued a policy covering any part of the Real Property or by any board of fire
underwriters or other body exercising similar functions, requiring or recommending any repairs or work to be done on any part
of the Real Property, which repair or work has not been completed. The use and operation of all Real Property conform to all applicable
building, zoning, fire, health, safety and subdivision Laws, Environmental Laws and other Laws, and all restrictive covenants
and restrictions and conditions affecting title, except for such nonconformity which is not material. All public utilities (including
water, gas, electric, storm and sanitary sewage and telephone utilities) required to operate the facilities of the Company and
its Subsidiaries as currently operated are available to such facilities. None of the Company or any of its Subsidiaries has received
any written notice of any delinquent bills or invoices or any proposed, planned or actual curtailment of service of any utility
supplied to any of its facilities.
(f)
All buildings, structures, fixtures, building systems and material equipment that are part of the Real Property are, in good operating
condition and repair (ordinary wear and tear excepted), and are adequate and suitable for the operation of the Business in substantially
the same manner as presently conducted and are structurally sound and free of material defects.
(g)
Each of the Company and each of its Subsidiaries has obtained all appropriate certificates of occupancy, Licenses, easements and
rights of way, including proofs of dedication, required to use and operate the Real Property in the manner in which the Real Property
is currently being used and operated. True and complete copies of all such certificates, permits and Licenses have heretofore
been delivered to Akerna or its representatives. Each of the Company and each of its Subsidiaries has all approvals, permits and
Licenses (including any and all Environmental Permits) necessary to lease or operate the Real Property as currently leased and
operated, as the case may be, except where the failure to have any such approvals, permits or licenses is not material.
(h)
All machinery, equipment, furniture, fixtures and other personal property and all plants, buildings, structures and other facilities,
including, without limitation, office space used by the Company or any of its Subsidiaries in the conduct of its Business, are
in good operating condition and fit for operation in the ordinary course of business (subject to normal wear and tear) except
for any defects which will not interfere with the conduct of normal operations of the Company and its Subsidiaries. The Company
has delivered to Akerna or its representative true and complete copies of any leases, licenses and other material Contracts related
to the Real Property.
(i)
The Leased Real Property and the Assets are all of the real property and personal property required to conduct the Business as
presently conducted. No Shareholder Party or any of their Affiliates (other than the Company and its Subsidiaries) owns any Assets
or any other asset used in, or necessary in connection with the conduct of, the Business.
(j)
To Shareholders’ Knowledge, there are no adverse physical characteristics applicable to the Real Property, such as, without
limitation, sink holes, which would adversely affect development of the Real Property.
7.11
Inventory. All inventory is owned by the Company or its applicable Subsidiary free and clear of all Liens other than Permitted
Liens, is of a good and merchantable quality usable and salable in the Ordinary Course of Business, is fit for the purpose for
which it was manufactured, is recorded at the lower of cost or market in accordance with GAAP, and is not defective or damaged
and no such inventory is obsolete, slow-moving or will become out-of-date or expire prior to the first anniversary of the Closing
Date. None of the Company or any of its Subsidiaries has engaged in any “bill and hold” or similar arrangement, and
none of the Company or any of its Subsidiaries is in possession of any inventory with respect to which it has recognized revenue.
7.12
Tax Matters. Except as set forth on Schedule 7.12:
(a)
The Company and each of its Subsidiaries has duly and timely file or caused to be filed, or shall file or cause to be filed, all
income and other material Tax Returns that are required to be filed on or prior to the Closing Date (taking into account any applicable
extension of time within which to file) by, or with respect to, the Company and each of its Subsidiaries, and all such Tax Returns
are true, correct and complete in all material respects. All Taxes payable by or with respect to the Company and each of its Subsidiaries
on or prior to the Closing Date have been (or will be) paid prior to the Closing Date. In the case of Taxes of the Company and
each of its Subsidiaries accruing for a period (or portion thereof) ending on or before the Closing Date that are not due on or
before the Closing Date, has made adequate provision (not including any provision for deferred Taxes established to reflect timing
differences between book and Tax income) in its books and records (as applicable) and on the face of its Financial Statements
(rather than in any notes thereto) for such payment.
(b)
There are no outstanding extensions of any statute of limitations filed with any Governmental Authority responsible for assessing
or collecting Taxes in respect of any Tax Return of, or which includes, the Company or any of its Subsidiaries.
(c)
There is no audit, examination, action, suit, Proceeding, investigation, audit, claim or assessment pending or, to Shareholders’
Knowledge, proposed with respect to any Liability for Tax, or with respect to any Tax Return, of the Company or any of its Subsidiaries.
Neither the Company nor any Subsidiary was subject to an audit, examination, action, suit, Proceedings, investigation, claim or
assessment or similar proceeding by any Governmental Authority that concluded within the last year.
(d)
There are no Liens (other than Permitted Liens) for Taxes upon the Company or any of its Subsidiaries or the assets of the Company
or any of its Subsidiaries.
(e)
There is no Tax deficiency outstanding, proposed or assessed in writing against the Company or any of its Subsidiaries, nor has
the Company or any of its Subsidiaries executed any waiver or comparable consent pursuant to federal, state, local, or non-U.S.
Tax Law extending the statute of limitations on or extending the period for the assessment or collection of any Tax and no written
request for such a waiver or extension is currently pending. No claim has been made in writing by a Governmental Authority of
a jurisdiction where the Company or any of its Subsidiaries has not filed Tax Returns or has not paid Taxes claiming that the
Company or any of its Subsidiaries is or may be subject to taxation by that jurisdiction.
(f)
All Taxes that the Company or any of its Subsidiaries is (or was) required by Law to withhold or collect in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder, member, partner or other third party have been duly
withheld or collected, and have been paid over to the proper authorities to the extent due and payable (including sales tax).
(g)
Neither the Company nor any of its Subsidiaries is or will liable for the Taxes of another Person (i) under Treasury Regulations
Section 1.1502-6 (or comparable provisions of state, local or non-U.S. Law) or (ii) as a transferee or successor or by Contract
(other than Contracts with vendors, landlords or other Persons, the principal purpose of which is not to address Tax matters).
The Company is not and has never been (or required to be) a member of any consolidated, combined or unitary group for federal,
state, local or non-U.S. Tax purposes.
(h)
Neither the Company nor any of its Subsidiaries is or will not a party to, or bound by, any written material Tax allocation, indemnification
or sharing agreement (other than in each case contracts with vendors, landlords and other Persons the principal purpose of which
is not to address Tax matters), including, for the avoidance of doubt, any agreement pursuant to which the Company or any of its
Subsidiaries has any obligation to make any payment to any other Person with respect to any Taxes imposed under Sections 409A
or 4999 of the Code.
(i)
No written ruling from any Governmental Authority has been received or requested by or with respect to the Company or any of its
Subsidiaries.
(j)
The Company and each of its Subsidiaries have disclosed on its U.S. federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the meaning of Section 6662 of the Code. The Company
and each of its Subsidiaries has not entered into any transaction identified as a “reportable transaction” for purposes
of Treasury Regulations Section 1.6011-4(b).
(k)
Neither the Company nor any of its Subsidiaries is or will be required to include any item of income in, or exclude any item of
deduction from, taxable income for any Taxable Period (or portion thereof) ending after the Closing Date as a result of any (i)
change in method of accounting or use of an improper method of accounting for a Taxable Period ending on or prior to the Closing
Date or an adjustment under Section 481 of the Code (or any similar provision of state, local or non-U.S. Law), (ii) “closing
agreement” as described in Section 7121 of the Code (or any corresponding or similar provision of state, local or non-U.S.
income Tax law) executed on or prior to the Closing Date, (iii) intercompany transactions occurring at or prior to the Closing
or any excess loss account in existence at Closing described in Treasury Regulations under Section 1502 of the Code (or any corresponding
or similar provision of state, local or non-U.S. income Tax law), (iv) installment sale or open transaction disposition made on
or prior to the Closing Date, (v) prepaid amount received or deferred revenue accrued on or prior to the Closing Date, (vi) election
by the Company under Section 108(i) of the Code (or any similar provision of state, local or non-U.S. Law), or (vii) election
by the Company or an Affiliate under Section 965 of the Code.
(l)
The federal income tax classification of the Company and each of its Subsidiaries is set forth on Schedule 7.12(l).
(m)
Neither the Company nor any of its Subsidiaries is or will either a “distributing corporation” or a “controlled
corporation” within the meaning of Section 355(a)(1)(A) of the Code within the prior two year period, or in a distribution
which would otherwise constitute part of a “plan” or “series of transactions” (within the meaning of Section
355(e) of the Code) in conjunction with transactions contemplated by this Agreement.
(n)
No item will be required to be included in the gross income of the Company or any Subsidiary thereof pursuant to Section 451(b)(1)(A)
of the Code earlier than the time such item would otherwise be required to be included for U.S. federal income tax purposes in
the absence of Section 451(b)(1)(A) of the Code.
(o)
Prior to the date hereof, the Company and each of its Subsidiaries has made available to Akerna complete and accurate copies of
all income Tax Returns filed by the it on or prior to the date hereof for all Tax Periods (or portions thereof) beginning on or
after January 1, 2014.
(p)
Neither the Company nor any of its Subsidiaries is or will has been a United States real property holding corporation within the
meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(q)
Neither the Company nor any of its Subsidiaries is or will be a party to any agreement, Contract, arrangement or plan that has
resulted or could result, separately or in the aggregate, in the payment of any “excess parachute payment” within
the meaning of Section 280G of the Code (or any similar provision of state, local, or non-U.S. Tax law).
(r)
Neither the Company nor any of its Subsidiaries is or will be a party to any joint venture, partnership, or other arrangement
or Contract which could be treated as a partnership for U.S. federal income tax purposes.
(s)
None of the intangible assets of the Company or any of its Subsidiaries within the meaning of Section 197 of the Code (including
any goodwill and going concern value) was held by any member of the Company or any related person (within the meaning of Section
197(f)(9)(C) of the Code) to any member of the Company on or before August 10, 1993 or could constitute anti-churning property
under Section 197(f)(9)(A) of the Code.
(t)
All references to this Section 7.12 to the Company and its Subsidiaries shall be deemed to include any Person that has
converted, liquidated or merged into the Company or any of its Subsidiaries, as applicable.
7.13
Intellectual Property.
(a)
Schedule 7.13(a) identifies:
(i)
a complete and accurate list of all Intellectual Property owned by the Company and its Subsidiaries, including (A) registered
patents, pending patent applications, patent application being prepared, and invention disclosures (B) registered trademarks and
service marks and pending applications for trademarks and service marks, (C) unregistered trademarks, service marks, and trade
dress (D) copyright registrations and applications therefore, (E) unregistered copyrightable works which are material for the
Business, (F) registered trade names and assumed names, and (G) internet domain name registrations;
(ii)
a complete and accurate list of all Intellectual Property licenses, including each license, agreement or other permission which
any of the Company or any of its Subsidiaries has granted to any third party with respect to any Intellectual Property; and
(iii)
a complete and accurate list of each item of Intellectual Property that any third party owns and that the Company or any of its
Subsidiaries uses in connection with the Business pursuant to license, sublicense, agreement or permission excluding software
licenses for off-the-shelf software (clauses (ii) and (iii) are collectively referred to as “Licensed Intellectual
Property”).
(b)
Except as set forth on Schedule 7.13(b):
(i)
To the Knowledge of the Company and its Subsidiaries, (a) none of the Company, its Subsidiaries and/or the Business have interfered
with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property right of any third party
or committed any acts of unfair competition, (b) none of the Company or any of its Subsidiaries has received any written or other
overt charge, complaint, claim, demand or notice alleging any such interference, infringement, misappropriation, conflict or act
of unfair competition with respect to the Business, and (c) no third party is challenging the ownership, use, validity or enforceability
of any Intellectual Property owned or used by the Company or any of its Subsidiaries; and
(ii)
The Company and its Subsidiaries owns all right and title to, free and clear of any lien, or has licenses to all Intellectual
Property necessary for the conduct of its business; and
(iii)
Each item of Owned Intellectual Property is valid and subsisting. All necessary registration, maintenance and renewal fees currently
due in connection with said Owned Intellectual Property have been paid and all necessary documents, recordations and certifications
in connection with such Owned Intellectual Property have been filed with the relevant patent, copyright, trademark or other authorities
in the United States or foreign jurisdictions, as the case may be, for the purpose of maintaining and registering such Owned Intellectual
Property; and
(iv)
The Company or one of its Subsidiaries, owns, has the right to use, sell, offer to sell, license and dispose of, and has the right
to bring actions for the infringement of (including the right to recover damages for past, present, and future infringement),
and, where necessary, has made timely and proper application for, all of its Owned Intellectual Property (other than the Licensed
Intellectual Property) and has the right to use all such Owned Intellectual Property and Licensed Intellectual Property necessary
or required for the conduct of the Business as currently conducted and such rights to use, sell, offer for sale, license, dispose
of and bring actions with respect to such Intellectual Property do not require any payment of royalty fees or revenue sharing,
other than fees and payments with respect to Licensed Intellectual Property identified on Schedule 7.13(a). All application
renewal costs, fees and charges relating to the registration and maintenance of Owned Intellectual Property relating to the period
prior to the Closing Date have been paid in full; and
(v)
No Governmental Authority has any interest or right in any of the Intellectual Property owned by the Company or its Subsidiaries.
(c) The
Company and each of its Subsidiaries owns and has taken commercially reasonable measures to maintain and protect the
confidentiality of the trade secrets and Confidential Information of the Company and each of its Subsidiaries. The Company
and each of its Subsidiaries have taken commercially reasonable measures to maintain the source code for the Company
Proprietary Software in confidence and no unauthorized disclosure of such source code has occurred. Immediately after the
Closing, the Company and each of its Subsidiaries shall retain all of their respective trade secrets and Confidential
Information. The Company and each of its Subsidiaries owns, by operation of Law or by contractual assignment, all
Intellectual Property created by its employees in the scope of their employment or created by any contractor on behalf of the
Company or any such Subsidiary in the scope of such contractor’s engagement. Each Person to which the Company or any of
its Subsidiaries has disclosed any Confidential Information of the Company or its Subsidiaries is bound by a contractual
obligation or legal duty to maintain such Confidential Information in confidence. All employees working for the Company as of
the date of this Agreement, or employees who have previously worked for the Company, are or were under an obligation,
pursuant to a valid executed employment agreement, to assign all rights and interest in any Intellectual Property, developed
by said employee while working within the scope of his or her employment at the time of such development, to the Company.
(d)
Neither the Company nor any of its Subsidiaries uses open source software, freeware, GNU or Linux systems, or any modification
thereof that has resulted in any (i) restriction on the use, licensing or disclosure of any Software, or that would restrict or
prevent the operation of the Business; or (ii) requirement that the Company or any of its Subsidiaries deliver or otherwise disclose
to any third party any source code for any Company Proprietary Software or permit any licensee to modify any such source code.
7.14
Contracts and Commitments. (a) Schedule 7.14 lists all of the following Contracts to which the Company or any
of its Subsidiaries is a party or by which the Company, any of its Subsidiaries or any of their respective assets are bound (collectively,
the “Material Contracts”):
(i)
(A) Any Contract pursuant to which payments in excess of $25,000 (1) were made by the Company or any of its Subsidiaries to any
Person during the one (1) year period ended on the Latest Balance Sheet Date, or (2) are reasonably anticipated by the Company
or any of its Subsidiaries, as of the date hereof, to be made to any Person during the one (1) year period ending on the first
anniversary of the Latest Balance Sheet Date, and (B) any Contract pursuant to which payments in excess of $25,000 (A) were received
by the Company or any of its Subsidiaries during the one (1) year period ended on the Latest Balance Sheet Date or (B) are reasonably
anticipated by the Company or any of its Subsidiaries to be received during the one (1) year period ending on the first anniversary
of the Latest Balance Sheet Date by or to the Company or any of its Subsidiaries;
(ii)
any Contract relating to the hosting of any web site operated by the Company or any of its Subsidiaries in connection with the
Business;
(iii)
any Contract with any third party containing any covenant that restricts the ability of the Company or any of its Subsidiaries
to compete or conduct any business in any geographic area or market;
(iv)
any Contract which contains a “most favored customer” or similar provision;
(v)
any Contract under which the Company or any of its Subsidiaries has created, incurred, assumed, guaranteed or secured Indebtedness
currently outstanding or otherwise create or relate to any Lien on any of the Assets;
(vi)
any Contract relating to outstanding letters of credit or performance bonds or creating any Liability as guarantor, surety, co-signer,
endorser, co- maker or indemnitor, in each case in respect of the obligation of any third party to make payments or perform services;
(vii)
any Contract relating to the acquisition or disposition of any material business, operations or division (whether by merger, sale
of stock, sale of assets or otherwise);
(viii)
any collective bargaining agreement;
(ix)
any Contract relating to the acquisition, transfer, development, sharing or license of any Intellectual Property that is material
to the Business and other than non-exclusive licenses to use the Owned Intellectual Property contained in the Business’
standard customer contracts entered into in the Ordinary Course of Business, including any Contract relating to the ownership,
marketing or sale of any products, except for (A) licenses implied by the sale of goods and (B) shrink-wrap and click-wrap software
licenses, end-user licenses and licenses to software generally commercially available, in each case with a replacement cost of
less than $15,000;
(x)
any Contract concerning the establishment, control, maintenance or operation of a partnership, joint venture or limited liability
company or other similar agreement or arrangement;
(xi)
any Contract for capital expenditures or the acquisition or construction of fixed assets which require aggregate future payments
in excess of $25,000 over the remaining life of such agreement;
(xii)
any Contract relating to the settlement of any material Proceeding or the waiver or release of any material rights or material
claims in respect of any Proceeding;
(xiii)
any Contract requiring the Company or any of its Subsidiaries to indemnify any person, except for standard indemnification provisions
in Contracts entered into by the Company in the Ordinary Course of Business;
(xiv)
any Contract granting any exclusive rights to any party;
(xv)
any Contract with any Governmental Authority which is material to the Business;
(xvi)
any Contract with any director, officer or Affiliate of any Shareholder Party;
(xvii)
any Contract relating to the employment of, or the performance of services by, a Company Employee or consultant (excluding any
offer letters relating to at-will employment), or pursuant to which the Company or any of its Subsidiaries is or may become obligated
to make any severance, termination or similar payment or provide post-employment benefits to any current or former employee or
director; or pursuant to which the Company or any of its Subsidiaries is or may become obligated to make any bonus or similar
payment (other than payments constituting base salary) to any current or former employee or director;
(xviii)
any Contract (A) relating to the acquisition, issuance, voting, registration, sale or transfer of any securities, (B) providing
any person or entity with any preemptive right, right of participation, right of maintenance or any similar right with respect
to any securities or assets, or (C) providing the Company or any of its Subsidiaries with any right of first refusal with respect
to, or right to repurchase or redeem, any securities;
(xix)
any Contract granting powers of attorney or similar authorizations by the Company or any of its Subsidiaries to third parties;
(xx)
any Contract under which the amount payable by or to the Company or any Subsidiaries is dependent on the revenues, income or similar
measure of the Business, or in which the Company or any of its Subsidiaries is obligated to pay royalties, commissions or similar
payments to any Person based on the Business;
(xxi)
any Contract with any Customer or Key Supplier; and
(xxii)
any Contract not otherwise described in Schedule 7.14 entered into outside the Ordinary Course of Business that is otherwise
material to the Company, any of its Subsidiaries or the Business.
(b)
Each Material Contract was entered into at arms’ length and in the ordinary course, is in full force and effect and, is
valid and binding upon the Company or its Subsidiary, as applicable, and to Shareholders’ Knowledge, enforceable against
each of the other parties thereto (subject to the General Enforceability Exceptions). True, correct and complete copies of all
Material Contracts (including all, schedules, exhibits, amendments, supplements, renewals, extensions and guarantees thereto)
have previously been made available to Akerna.
(c)
None of the Company or any of its Subsidiaries is in default under or in material breach of nor in receipt of any claim of default
or material breach under any Material Contract; and no event has occurred which with the passage of time or the giving of notice
or both would result in a default or material breach by the Company or any of its Subsidiaries under any such Material Contract.
To Shareholders’ Knowledge, no other party to any Material Contract is in default under or in breach of such Material Contract
and no event has occurred which with the passage of time or giving of notice or both would result in a material default or breach
by any such party under any such Material Contract.
7.15
Litigation. No Proceeding is pending or, to Shareholders’ Knowledge, threatened, by or against the Company, any of
its Subsidiaries or any of their respective rights, properties, assets, directors, officers or employees or agents (in their capacity
as such). Neither the Company, any of its Subsidiaries nor any assets any of them owns or uses is subject to or in default under
any Order and there is no Order that in any manner seeks to prevent, enjoin, alter or delay the consummation of the transactions
contemplated by this Agreement. Schedule 7.15 sets forth all Proceedings instituted by or against the Company, any of its
Subsidiaries or their respective properties or assets.
7.16
Employee and Consultant Benefits.
(a)
Schedule 7.16(a) contains a true and complete list of each Employee Benefit Plan and each Consultant Benefit Plan (i) which
is now, or within the one (1) year period ending on the Closing Date was, sponsored, maintained, contributed to, or required to
be contributed to, by the Company or any of its Subsidiaries, (ii) that is provided for the benefit of any Company Employee or
any Company Consultant, or (iii) under or with respect to which the Company or any of its Subsidiaries has any current or contingent
Liability or obligation (each, a “Company Plan”), and separately identifies each such Company Plan that is
a (x) retention agreement and change of control agreement between the Company or a Subsidiary and any Company Employee or Company
Consultant and (y) management, employment, severance, or consulting agreement or Contract between the Company or any Subsidiary
and any Company Employee or Company Consultant that is not terminable at will or which provides for post-employment payments from
the Company or any Subsidiary other than in respect of accrued compensation and benefits (the agreements described in clause
(x) and (y) each, a “Material Employee Agreement”). The Company has made available to Akerna true
and complete copies of the following, if applicable, relating to each Company Plan and Material Employee Agreement: (1) the documents
embodying each Material Employee Agreement and each Company Plan, including all amendments thereto, and any trust or other funding
arrangement under any Material Employee Agreement or Company Plan; (2) the three most recent annual reports (Form 5500 Series
with applicable schedules and audit reports); (3) the most recent summary plan description (and all summaries of material modification
thereto); and (4) the most recent favorable determination letter or opinion letter from the Internal Revenue Service (the “IRS”).
(b)
Each Company Plan that is intended to be qualified under Section 401(a) of the Code is so qualified, has a received a current
favorable determination letter or opinion letter from the IRS, and nothing has occurred or is expected to occur that would adversely
affect the qualified status of any Company Plan that is intended to be qualified under the Code or any related trust.
(c)
The Company and its Subsidiaries have performed all obligations required to be performed under the terms of each Company Plan
and Material Employee Agreement and the applicable Laws, and the Company and its Subsidiaries have complied and are in compliance
with the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, Section 4980B of the Code and any regulations promulgated
thereunder and Part 6 of Subtitle B of Title I of ERISA or any comparable state law (collectively, “COBRA”),
as well as the Patient Protection and Affordable Care Act, including the Health Care and Education Reconciliation Act of 2010,
as amended and including any guidance issued thereunder (“PPACA”). The Company and its Subsidiaries have no
material Liability with respect to any “group health plan” within the meaning of Section 4980B(g)(2) of the Code maintained
by any ERISA Affiliate. The Company and its Subsidiaries have not incurred, nor is it reasonably expected to incur or to be subject
to, any Tax, penalty or other Liability that may be imposed under PPACA. Each Company Plan and Material Employee Agreement has
been established, funded and administered at all times in accordance with its terms and in compliance with all applicable Laws,
including but not limited to ERISA, PPACA and the Code.
(d)
Except as set forth on Schedule 7.16(d), neither the Company, nor any of its ERISA Affiliates has during the preceding
six (6) years sponsored, maintained, contributed to or has had any obligation to contribute to any Employee Benefit Plan or has
any Liability or obligation (including any contingent Liability or obligation) to any Employee Benefit Plan that is or was at
any time (i) a defined benefit plan within the meaning of Section 3(35) of ERISA, or which is or was subject to Section 302 or
Title IV of ERISA or Section 412 or 430 of the Code, or (ii) a Multiemployer Plan. With respect to any Multiemployer Plan listed
on Schedule 7.16(d), all required contributions to such Plan by the Company or any ERISA Affiliate have been made in a
timely manner and neither the Company nor any ERISA Affiliate has engaged in any transaction which could give rise to liability
under Section 4069 or Section 4212(c) of ERISA. Neither the Company nor any ERISA Affiliate has incurred any withdrawal liability
(including any contingent or secondary withdrawal liability) to any Multiemployer Plan, and no event has occurred, and there exists
no conditions or set of circumstances, which presents a material risk of the occurrence of any withdrawal from or the partition,
termination, reorganization or insolvency of any Multiemployer Plan which could reasonably result in any liability to the Company
or its ERISA Affiliates. None of the Company nor any ERISA Affiliate has incurred any unsatisfied liability under Title IV of
ERISA. The transaction contemplated in this Agreement does not constitute a partial or complete withdrawal within the meaning
of ERISA Sections 4201, 4203 or 4205.
(e)
There are no investigations, claims, suits, or Proceedings pending or, to Shareholders’ Knowledge, threatened (other than
routine claims for benefits) with respect to any Company Plan or the assets of any such Company Plan or related to any Material
Employee Agreement, and there are no facts that would reasonably be expected to give rise to any material Liability in the event
of any such investigation, claim, suit or Proceeding. All premiums, contributions, distributions and reimbursements required by
any Company Plan or applicable Law for which the Company or any of its Subsidiaries is responsible have been timely made thereunder.
No “prohibited transaction” within the meaning of Section 4975 of the Code or Section 406 of ERISA has occurred with
respect to any Company Plan that is not exempted pursuant to statutory or administrative prohibited transaction exemption; and
there has been no breach of fiduciary duty (as determined under ERISA) with respect to any Company Plan; and no action has occurred
nor has there been a failure to act with respect to any Company Plan that could subject the Company, Akerna or any of their respective
Affiliates or any such Company Plan to any material Tax, penalty or other Liability, for breach of fiduciary duty or otherwise,
under ERISA or any other applicable Law, whether by way of indemnity or otherwise. With respect to each Company Plan, no event
has occurred that has subjected or could subject the Company or any of its Subsidiaries to any material excise Taxes or penalties
under the Code or ERISA, including but not limited to Code Sections 4971, 4980B, 4980D, or 4980H.
(f)
None of the Company or any of its Subsidiaries maintains or contributes to any Company Plan or Material Employee Agreement which
provides, or has any Liability or obligation to provide, post-retirement or post-termination welfare benefits (e.g. life insurance,
medical or other welfare benefits (other than severance and accrued vacation and holiday pay)) to any Company Employee upon his
retirement or termination of employment or any other Person, except as may be required by COBRA (for which the covered Person
pays the full cost of coverage).
(g)
Each Contract, arrangement or plan, including any Material Employee Agreement or Company Plan, to which the Company or any of
its Subsidiaries is, or has been, a party that is or was a “nonqualified deferred compensation plan” (as defined in
Section 409A of the Code) is in documentary and operational compliance with Section 409A of the Code and the applicable treasury
guidance issued thereunder. No acts or omissions have occurred which may give rise to any taxes under Code Section 409A for which
any participant in any Material Employee Agreement, Company Plan or other Contract arrangement or plan that is a nonqualified
deferred compensation plan (within the meaning of Section 409A) may be liable.
(h)
The execution of this Agreement and the consummation of the transactions contemplated hereby, will not constitute an event under
any Company Plan or Material Employee Agreement that will result in any payment, upon a change in control or otherwise, whether
of severance, accrued vacation, or other benefit or compensation, acceleration, vesting, distribution, increase in benefits or
compensation or the obligation to fund benefits with respect to any Company Employee or any other Person.
(i)
The Company and its Subsidiaries have not made any commitment or promise (whether or not written), to establish any new Plan,
to materially modify (other than by way of termination) any Company Plan or to enter into any new Plan; nor has any intention
or commitment to do any of the foregoing been communicated. There is no provision in any Company Plan, and there has been no act
or omission by Company or its Subsidiaries, that could impair the ability of such entities (or any successor thereto) to unilaterally
amend or terminate any Company Plan.
7.17
No Employees.
(a)
The Company and its Subsidiaries do not have, and have not at any time had, any employees, whether on a full-time, part-time or
other basis, nor have any of them ever employed any individuals on any basis. The Company and its Subsidiaries have no obligation
to pay any wages, salaries, benefits, severance pay, severance benefits or any other payments or benefits, including any change
in control, retention, termination arrangements, whether written or oral upon a change of control or any other similar event.
(b)
All individuals providing services to the Company and its Subsidiaries are correctly classified as independent contractors and
the Company and its Subsidiaries have no liability in respect of the misclassification of the employment status of any independent
contractors.
7.18
Customers and Suppliers. Schedule 7.18 sets forth a list of the top twenty (20) customers (the “Customers”)
of the Business determined by sales (i) for the fiscal year ended December 31, 2018 and (ii) the ten (10) month period ending
on October 31, 2019. No such Customer has, since January 1, 2019, cancelled or terminated or modified adversely to the Company
or any of its Subsidiaries, or notified the Company or any of its Subsidiaries in writing of an intent to cancel or otherwise
terminate or modify adversely to the Company or any of its Subsidiaries, any of its Contracts, volume of business or other material
aspect of its business relationship with the Company or any of its Subsidiaries. Since January 1, 2019, no such Customer has requested
in writing any material change in pricing or modification to, or waiver of, any other material term or provision in any Material
Contract governing the relationship with such Customer. There has not occurred any event, happening, or fact which would lead
the Company to reasonably believe that any of the Customers will not continue to require substantially the same level of service
and/or product purchases from the Company or its applicable Subsidiary after the Closing on comparable terms and conditions. Schedule
7.18 sets forth a list of the top twenty (20) suppliers and vendors (the “Key Suppliers”) of the Business
determined by dollars paid (x) for the fiscal year ended December 31, 2017, (y) for the fiscal year ended December 31, 2018 and
(z) the ten (10) month period ending on October 31, 2019. There are no limited source suppliers or vendors of significant services
or materials to the Company or any of its Subsidiaries to which there are no or few practical alternatives available on comparable
terms and conditions (“Limited Source Supplier”). There has not occurred any event, happening, or fact which
would lead the Company to reasonably believe that any Key Supplier or Limited Source Supplier will not continue to supply substantially
the same level and type of products or services purchased by the Company and its Subsidiaries under similar terms and conditions.
Since January 1, 2019, no Key Supplier has requested in writing any material change in pricing or modification to, or waiver of,
any other material term or provision in any Material Contract governing the relationship with such Key Supplier. The Company and
its Subsidiaries are not, and for the past three years have not been, involved in any material dispute or Proceeding with any
Customer or Key Supplier.
7.19
Insurance.
(a)
Schedule 7.19 sets forth, as of the date hereof, an accurate and complete list of the policies of insurance currently maintained
by or for the benefit of the Company or any of its Subsidiaries (including, without limitation, the name of the carrier and the
coverage limits) (collectively, the “Policies” and, individually, a “Policy”). All such
Policies are in full force and effect. The Company has provided to Akerna a true, correct and complete copy of each such Policy.
The Company, its Subsidiaries and, to Shareholders’ Knowledge, its counterparties are not in material default under the
Policies, and no event has occurred that, with the lapse of time or the giving of notice or both, would constitute a material
default under any Policy by the Company, its Subsidiaries or, to Shareholders’ Knowledge, any other Person. No notice of
cancellation or termination has been received with respect to any such Policy (except Policies replaced in the ordinary course).
Neither Shareholder, the Company nor any of its Subsidiaries has received written notice that any of such Policies will not be
renewed (upon the same terms and conditions as are currently in effect) upon the expiration thereof.
(b)
None of the Company or any of its Subsidiaries has been refused any insurance coverage with respect to any material aspect of
its operations by any insurance carrier with which it has carried insurance since January 1, 2016 nor, since January 1, 2016,
has any insurance policy been cancelled with respect to the Company, its Subsidiaries or the Business.
(c)
As of the date hereof, there is no claim by Shareholder, the Company or any of its Subsidiaries pending under any such Policies.
All premiums due and payable under all such Policies have been paid, and Company and its Subsidiaries are otherwise in compliance
in all material respects with the terms of such policies. Since January 1, 2016, there have been no historical gaps in the insurance
policies of the Company or any of its Subsidiaries. To Shareholders’ Knowledge, none of the current insurers of the Company
or any of its Subsidiaries has filed for protection under any applicable bankruptcy laws or is otherwise in the process of liquidating.
7.20
Loans. Except as set forth in Schedule 7.20, no Company Employee, Shareholder Party or any of their respective Affiliates,
is indebted to the Company or any of its Subsidiaries nor is the Company or any of its Subsidiaries indebted to any such Persons
other than (a) for payment of salary for services rendered, (b) reimbursement for reasonable expenses incurred on behalf of the
Company or its Subsidiaries, and (c) for other employee benefits made generally available to all Company Employees.
7.21
Improper Payments.
(a)
Neither the Shareholder Parties, nor, to Shareholders’ Knowledge, any of their officers, directors, agents, Representatives
or employees acting on behalf of any of the Shareholder Parties or their Affiliates has, to obtain or retain business, directly
or indirectly offered, paid or promised to pay, or authorized the payment of, any money or other thing of value (including any
fee, gift, sample, travel expense or entertainment) or any commission payment in excess of normal, reasonable and proper amounts
payable, to:
(i)
Any person who is an official, officer, agent, employee or Representative of any Governmental Authority or of any existing or
prospective customer of the Company or any of its Subsidiaries (whether or not government-owned);
(ii)
any political party or official thereof;
(iii)
any candidate for political office or political party office; or
(iv)
any other individual or entity, while knowing or having reason to believe that all or any portion of such money or thing of value
would be offered, given or promised, directly or indirectly, to any such official, officer, agent, employee Representative, political
party, political party official or candidate, or any entity affiliated with such customer, political party official or political
office. Each of the Company and its Subsidiaries has at all times been in compliance with all Laws relating to export control
and trade embargoes, including all anti-boycott prohibitions contained in 50 U.S.C. ⸹ 2401, et. seq.
(b)
No operations of the Company or any of its Subsidiaries are in default or violation of applicable anti-money laundering statutes
of jurisdictions where the Company or any of its Subsidiaries conducts Business, the rules and regulations thereunder and any
related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Authority.
7.22
Affiliate Transactions; Affiliate Liability. Except for (a) employment relationships and compensation, benefits and travel
advances in connection therewith or (b) as disclosed on Schedule 7.22, no present equityholder, officer, member, partner
or director of the Company or any of its Subsidiaries, nor any Affiliate of any such Person, is currently a party to any Contract
with or binding upon the Company, any of its Subsidiaries or any of their respective properties or assets or has any interest
in any property or assets owned by or used in the business of the Company or any of its Subsidiaries or has engaged in any transaction
with the Company or any of its Subsidiaries within the twelve (12) months preceding the date hereof. None of the Company or any
of its Subsidiaries is directly or indirectly obligated for any Liability (including contingent Liabilities) of any of their respective
Affiliates (other than the Company and its Subsidiaries). None of the Company or any of its Subsidiaries will, after the Closing,
be directly or indirectly obligated for any Liability (including contingent Liabilities) of, or to, any of their current respective
Affiliates (other than the Company and its Subsidiaries).
7.23
Personal Property Leases. Set forth on Schedule 7.23 is a true, accurate and complete list of all Assets leased
or subleased by the Company or any of its Subsidiaries (the “Leased Personal Property”), including identification
of the lease or sublease, address of the lessor or sublessor, term and payment, having a value or maximum aggregate amount payable
by the Company or its Subsidiaries in excess of $15,000 and to which the Company or any of its Subsidiaries is a party or by which
any of its interests in the Leased Personal Property is bound. Except for the items set forth on Schedule 7.23, none of
the Company or its Subsidiaries has entered into any Personal Property Leases having a value or maximum aggregate amount payable
by the Company or any of its Subsidiaries in excess of $15,000, nor made any commitment to lease equipment or other personal property.
None of the Company or its Subsidiaries is in default with respect to any Personal Property Lease, and no event has occurred which
constitutes, or with due notice or lapse of time or both may constitute, a default by the Company or any of its Subsidiaries under
any such Personal Property Lease. To the Shareholders’ Knowledge, there exists no default by any lessor or other Person
under any such Personal Property Lease. None of the Company or its Subsidiaries has any obligation or other liability with respect
to any of such Personal Property Leases involving more than $15,000 except as expressly set forth therein. Each of the Company
or its applicable Subsidiary is in peaceable possession of the Leased Personal Property. None of such Leased Personal Property
is subject to any Licenses, use restrictions, exceptions, reservations, limitations or other impediments which materially adversely
affect the value to the Company or its Subsidiaries of the leasehold interest therein or which materially interfere with or impair
the present and continued use thereof in the usual and normal conduct of the Business as presently conducted or contemplated other
than Personal Property Leases in respect thereof. None of such Leased Personal Property is subject to any Lien which is (or after
the giving of passage of time or both) will be subject to a right of foreclosure or enforcement, termination or otherwise materially
adversely affect any Personal Property Lease to which the property is subject. The Leased Personal Property is subject to no leases
or tenancies except the Personal Property Leases pursuant to which the Company or any of its Subsidiaries is lessee and has exclusive
use of the property. There are no material physical defects or deficiencies in the condition of any property.
7.24
Licenses. Set forth on Schedule 7.24 is a true, accurate and complete list of all Licenses used or held for use
in connection with the operation of the Business (the “Material Licenses”). No Material License is held or
owned by any Affiliate of any Shareholder Party other than the Company or one of its Subsidiaries. Each Material License has been
duly obtained, is valid and in full force and effect, and is not subject to any Liens or any pending or, to the Knowledge of the
Shareholders, threatened administrative or judicial proceeding to revoke, cancel or declare such License invalid in any respect.
Each of the Material Licenses is sufficient in all material respects to permit the continued lawful conduct of the Business in
the manner now conducted by the Company or its Subsidiaries or proposed to be conducted in the future. None of the Company or
its Subsidiaries is in default or in violation with respect to any of the Material Licenses, and no event has occurred which constitutes,
or with due notice or lapse of time or both may constitute, a default by the Company or any of its Subsidiaries under, or violation
of, any such Material License.
7.25
Bank Accounts. Schedule 7.25 sets forth a true, correct and complete list of the bank accounts, lock box accounts
and other accounts maintained by or for the benefit of the Company and each of its Subsidiaries, setting forth, in each case,
the bank name, account number, account type and the names of the Persons having access to the account.
7.26
Brokers; Company Transaction Expense; Indebtedness. Except as set forth on Schedule 7.26, no broker, investment
banker or finder is entitled to any fee or commission in connection with the transactions contemplated hereby based upon arrangements
made by or on behalf of the Company or any of its Subsidiaries. Other than the Company Transaction Expenses and Indebtedness that
are set forth on Schedule 7.26, none of the Company or any of its Subsidiaries currently has or, as of the Closing will
have, any Company Transaction Expenses or Indebtedness.
7.27
Government Contracts. No Contract or other aspect of the Business of the Company or its Subsidiaries is subject to the
Federal Acquisition Regulations or other regulations of any Governmental Authority. Neither the Company nor any of its Subsidiaries
has bid on or been awarded any “small business set aside contract”, any other “set aside contract” or
other order or contract requiring small business, minority ownership or other special status at any time during the last three
(3) years. None of the Company’s or its Subsidiaries’ expected sales or orders will be lost, and the Company’s
and its Subsidiaries’ customer relations will not be damaged, as a result of the Company or its Subsidiaries continuing
its operations as an entity that does not qualify as a small business, minority owned business or business with other special
status.
Article
VIII.
REPRESENTATIONS AND WARRANTIES OF AKERNA
As
a material inducement to each of the Shareholder Parties to enter into and perform its obligations under this Agreement, Akerna
represents and warrants to the Shareholder Parties as follows:
8.1
Organization. Akerna is a Delaware corporation duly formed, validly existing and in good standing (or the equivalent thereof)
under the laws of the jurisdiction in which it was formed and has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. Akerna is duly qualified or licensed to do business
and is in good standing in each jurisdiction in which the character or location of the properties owned, leased or operated by
it or the nature of its business makes such qualification necessary, except where the failure to so qualify would not have a Material
Adverse Change on Akerna.
8.2
Authorization of Transaction. Akerna has the requisite corporate power and authority and has taken all corporate or other
action necessary to execute and deliver this Agreement and all other Documents to be delivered by Akerna as contemplated hereby,
to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and performance
of by Akerna of this Agreement and all other Documents to be delivered by Akerna as contemplated hereby, the consummation of the
transactions contemplated hereby and the performance by it of its obligations hereunder have been duly authorized and approved
by the board of directors of Akerna. No other corporate action on the part of Akerna is necessary to authorize the execution,
delivery and performance of this Agreement and the consummation of the transactions contemplated hereby. This Agreement has been,
and all other Documents to be executed and delivered by Akerna as contemplated hereby will be, duly executed and delivered by
Akerna. This Agreement constitutes a valid and binding obligation of Akerna, enforceable against it in accordance with its terms,
subject to the General Enforceability Exceptions. All of the other Documents to be delivered by Akerna as contemplated hereby
will constitute valid and binding obligations of Akerna enforceable against Akerna in accordance with their terms, subject to
the General Enforceability Exceptions.
8.3
No Restrictions Against Purchase of Shares. Except as set forth on Schedule 8.3, neither the execution, delivery
and performance of the Documents nor the consummation of the transactions contemplated thereby, nor compliance by Akerna with
any of the provisions thereof, (a) violates, conflicts with, or results in a material breach of any provision of, or constitutes
a default (or an event which, with notice or lapse of time or both, would constitute a default) under any of the terms, conditions
or provisions of the Fundamental Documents of Akerna, or under any note, bond, mortgage, indenture, deed of trust, or other agreement
to which Akerna is bound, or by which Akerna or any its properties or assets may be bound or affected, (b) violates, conflicts
with, or results in a material breach of any material agreement, lease, instrument, mortgage, license or franchise to which Akerna
is a party or by which any of its properties is bound, or (c) violates any Law applicable to Akerna or any of its properties or
assets. Except as set forth on Schedule 8.3, no consent or approval by, notice to, or registration with, any Governmental
Authority is required on the part of Akerna in connection with the execution and delivery of this Agreement or the consummation
by Akerna of the transactions contemplated hereby.
8.4
Brokers. No broker or investment banker acting on behalf of Akerna is or will be entitled to any broker’s or finder’s
fee or any other commission or similar fee directly or indirectly in connection with any of the transactions contemplated hereby.
8.5
SEC Documents.
(a) Akerna
has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC, pursuant to
Sections 13(a), 14(a) and 15(d) of the Exchange Act (the “ SEC Reports ”).
(b) As
of its respective filing date, each SEC Report complied in all material respects with the requirements of the Exchange Act
and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Report. Except to the extent that
information contained in any SEC Report has been revised or superseded by a later SEC Report, none of the SEC Reports
contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.
The consolidated financial statements of Akerna included in the SEC Reports comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with the GAAP (except, in the case of unaudited statements, as permitted by the rules and regulations
of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and
fairly present in all material respects the consolidated financial position of Akerna and its consolidated subsidiaries as of
the dates thereof and the consolidated results of their operations and cash flows for the periods shown (subject, in the case
of unaudited statements, to normal year-end audit adjustments).
8.6
Listing and Maintenance Requirements. Akerna is, and has no reason to believe that it will not in the foreseeable future
continue to be, in compliance with the listing and maintenance requirements for continued listing of the Akerna Shares on the
trading market on which the Akerna Shares are currently listed or quoted. The issuance and transfer of the Shares under this Agreement
does not contravene the rules and regulations of the trading market on which the Akerna Shares are currently listed or quoted,
and no approval of the stockholders of Akerna is required for Akerna to issue and deliver to the Shareholders the Akerna Shares
contemplated by this Agreement.
Article
IX.
ADDITIONAL AGREEMENTS
9.1
Commercially Reasonable Efforts; Third Party Consents.
(a)
Subject to the terms and conditions of this Agreement, each Party shall use commercially reasonable efforts to cause the Closing
to occur, including taking all commercially reasonable actions necessary to comply with all legal requirements that may be imposed
on it or any of its Affiliates with respect to the Closing. Each Party shall use commercially reasonable efforts to obtain each
Governmental Required Consent and each other consent of, and filing with, a Governmental Authority.
(b)
Prior to Closing, and to the extent necessary, the Shareholders shall use commercially reasonable efforts to obtain all those
consents and waivers set forth on Schedules 4.2 and 4.5, and the costs of obtaining such consents, including all
fees, charges, costs and expenses levied by a counterparty in granting its consent, including assignment fees, shall either be
paid by the Shareholders or included as a Company Transaction Expense. Akerna shall use commercially reasonable efforts, but without
liability or expense, to provide cooperation and assistance in this regard including providing to any such third party all necessary
evidence (including financial information), as required by any such third party in order to secure the necessary consents and
waivers.
9.2
Conduct of Business. During the period from the date hereof to the earlier of (i) Closing and (ii) the date that this Agreement
is terminated in accordance with Section 5.2, the Shareholders shall, and shall cause the Company and its Subsidiaries
to, conduct their operations according to their Ordinary Course of Business, and the Shareholders shall use and shall cause the
Company and its Subsidiaries to use commercially reasonable efforts, consistent with past practices, to preserve intact their
business organization, taken as a whole, to keep available the services of their current officers and employees and to preserve
the goodwill of and maintain satisfactory relationships with those Persons having business relationships with the Company and
its Subsidiaries. Without limiting the generality of the foregoing and except as otherwise expressly provided in this Agreement
or set forth in Schedule 9.2, during the period from the date hereof to the earlier of (i) Closing, and (ii) the date that
this Agreement is terminated pursuant to Section 5.2, without the prior written consent of Akerna, such consent not to
be unreasonably withheld or delayed, the Shareholders shall not, and the Shareholders shall cause the Company and its Subsidiaries
not to, do any of the following:
(a)
issue, sell, transfer, pledge, redeem or grant options or rights to purchase or sell, any securities of the Company or any of
its Subsidiaries or permit any reclassifications of any securities of the Company or any of its Subsidiaries;
(b)
amend or modify the Fundamental Documents of the Company or any of its Subsidiaries in any manner;
(c)
declare, pay or otherwise set aside for payment any cash or non-cash dividend or other cash or non-cash distribution with respect
to the Transferred Shares or other equity securities of the Company or any of its Subsidiaries;
(d)
merge or consolidate with, or acquire all or substantially all the assets of, or otherwise acquire, any business, business organization
or division thereof, or any other Person;
(e)
sell, lease, license, subject to any Lien (other than Permitted Liens) or otherwise dispose of any assets other than (i) the sale
of immaterial assets, (ii) the sale of inventory and damaged or obsolete or excess equipment or (iii) the settlement of accounts
receivable, in each case in the Ordinary Course of Business;
(f)
(i) hire any Employee (other than non-executive Employees hired for replacement purposes), (ii) terminate the employment of any
officer or executive Employee of the Company or any of its Subsidiaries (other than for cause, following notice to Akerna), (iii)
enter into any new, or materially amend, terminate (other than for cause, following notice to Akerna with respect to any officers
or executive employee) or renew any existing employment, severance, consulting or salary continuation agreements with or for the
benefit of any Company Employee, other than offer letters relating to the at-will employment of new Company Employees hired in
accordance with clause (i) above, (iv) grant any increases in the compensation, perquisites or benefits or grant any new compensation,
perquisites or benefits (including, salary, incentive compensation or other compensation or benefits or grant any new severance
not in accordance with the Company’s policies set forth on Schedule 9.2 or required by written agreements outstanding
on the date hereof and provided to Akerna, to any Company Employees, except in connection with promotions, new hires (hired in
accordance with clause (i) above) or normal increases in base salary for non-executive employees, in each case in the Ordinary
Course of Business, and except for other amounts which are to be paid by or on behalf of Shareholder, (v) agree to grant or grant
any equity-related, cash-based, performance or similar awards or bonuses or any other awards; or (vi) grant or pay any severance
or termination pay or benefits to any Company Employee except for payments made pursuant to existing policy or written agreements
outstanding on the date hereof and provided to Akerna;
(g)
(i) adopt, amend or terminate any Company Plan or adopt or enter into any new Company Plan (or any compensatory or benefit arrangement
that would be an Employee Benefit Plan if in effect on the date hereof) or increase the benefits provided under any Employee Benefit
Plan, or promise or commit to undertake any of the foregoing in the future, (ii) enter into, amend or extend any collective bargaining
or other labor agreement, (iii) amend any restrictive covenants with Company Employees; (iv) loan any funds or extend credit to
Company Employees;
(h)
materially amend, enter into or terminate any Real Property Lease or any Personal Property Lease;
(i)
enter into any transaction with or for the benefit of any Shareholder Party or any of its Affiliates other than the transactions
contemplated by this Agreement, the other Documents and the transactions contemplated therein;
(j)
make, revoke or change any material Tax election, change any annual accounting period, adopt or change any accounting method,
policy or procedure, settle or compromise any Tax claim or assessment of Taxes or refund of Taxes, consent to any extension or
waiver of the statute of limitations period applicable to any Tax claim, and enter into any closing agreement with respect to
Taxes, all to the extent related to or that they would reasonably be expected to affect Taxes payable by the Company in respect
of any taxable period (or portion thereof) beginning after the Closing Date;
(k)
abandon, cancel, allow to lapse or transfer any Owned Intellectual Property, or license the Owned Intellectual Property that is
material to or used in the business to any third party other than in the Ordinary Course of Business;
(l)
make any loans, advances, guarantees or capital contributions to or investments in any Person, other than advances for routine
business expenses made in the Ordinary Course of Business, and, in any event, not in excess of $25,000 in the aggregate;
(m)
create, incur or assume, any Indebtedness in excess of $25,000 in the aggregate;
(n)
make or authorize any payment of, or commitment for, capital expenditures in excess of $25,000 in respect of the twelve-month
period following the date hereof;
(o)
commence a Proceeding other than in such cases where a Shareholder Party in good faith determines that failure to commence such
Proceeding would result in the material impairment of a valuable aspect of the Business, provided that it consults with Akerna
prior to the commencement of such Proceeding or filing of any suit in connection therewith;
(p)
compromise or settle any Proceeding (A) resulting in an obligation of the Company or any of its Subsidiaries to pay more than
$25,000 in respect of such compromise or settlement or (B) resulting in the imposition of restrictions on the business or operations
of the Company or any of its Subsidiaries;
(q)
(A) enter into any Contract that would be deemed to be a Material Contract or (B) materially amend, terminate, or waive any material
right or remedy under, any Material Contract;
(r)
except as permitted under clause (n) above, acquire assets or make a material investment in (whether through the acquisition
of stock, assets or otherwise) any other Person, except for acquisitions of assets, inventory, equipment and software (other than
renewals or replacements thereof) (i) in the Ordinary Course of Business or (ii) in an amount not to exceed $25,000 in the aggregate;
(s)
revalue any assets of the Company or any of its Subsidiaries, including without limitation writing off a material amount of notes
or accounts receivable other than in the Ordinary Course of Business or pursuant to existing contractual obligations, or in any
case as required by GAAP;
(t)
extend the period for payment of the account payables of the Company or any of its Subsidiaries or accelerate the payment of the
account receivables of the Company or any of its Subsidiaries;
(u)
materially reduce the amount of any insurance coverage provided by the Policies;
(v)
make any change in accounting practices or policies, including with respect to revenue recognition of deferred income, except
as required by applicable Law or GAAP;
(w)
fail to pay the debts and material Taxes of Company or any of its Subsidiaries when due;
(x)
cause Company or any of its Subsidiaries to take any action which would willfully cause a breach of or inaccuracy in Article
VII;
(y)
enter into any Contracts or commitments with respect to the Real Property which will survive the Closing;
(z)
withdraw from, or fail to pay any contributions to, any Multiemployer Plan;
(aa)
modify any collective bargaining agreement; or
(bb)
authorize, or commit or agree to take, any of the foregoing actions.
9.3
Tail Policy. At or prior to the Closing Date, the Company shall obtain a director’s and officer’s liability
tail insurance policy in an amount to be agreed by Akerna and the Shareholder Representatives, on behalf of the Company and its
Subsidiaries (the “Tail Policy”) (the cost of which shall be paid by the Shareholders), which policy shall
provide coverage for all officers and directors of the Company and its Subsidiaries at any time prior to the Closing Date for
a six-year term beginning on the Closing Date. To the extent not paid by the Shareholders, the premiums therefore (the “Tail
Costs”) shall be included in the Company Transaction Expenses.
9.4
Records; Post-Closing Access to Information; Confidentiality.
(a)
For a period of five (5) years after the Closing Date, Akerna shall preserve and retain, or cause the Company to preserve and
retain, all records (including any documents relating to any governmental or non-governmental actions, suits, proceedings or investigations)
relating to the conduct of the business and operations of the Company prior to the Closing Date. If at any time after such five
year period Akerna intends to dispose of any such records, Akerna may do so if such records are first offered to the Shareholder
Representatives in writing and the Shareholder Representatives do not accept such offer within thirty (30) days of receipt of
such offer. If the Shareholder Representatives accept such offer, the Shareholders shall pay all costs and expenses associated
with the delivery of such records to it.
(b)
From and after the Closing Date, Akerna shall, and shall cause the Company to, upon execution by any Shareholder of a confidentiality
agreement reasonably acceptable to Akerna, afford such Shareholder and its counsel, accountants and other authorized Representatives,
upon reasonable prior notice, reasonable access during normal business hours to the respective premises, properties, personnel,
books and records of the Company and/or the Business and any other assets or information that such Shareholder deems reasonably
necessary in connection with the preparation of any report or Tax Return required to be filed by such Shareholder under applicable
Law or any third-party claim which is the subject of any indemnification claim under Article X (but so as not to unduly
disrupt the normal course of operations of the Company or its Subsidiaries), including preparing or defending any Tax Return and
any interim or annual report or other accounting statements.
(c)
From and after the date hereof, the Shareholder Parties shall not and shall cause their respective Affiliates and their respective
officers, and directors not to, directly or indirectly, disclose, reveal, divulge or communicate to any Person other than authorized
officers, directors and employees of Akerna or use or otherwise exploit for their own benefit or for the benefit of anyone other
than Akerna, any Confidential Information (as defined below). The Shareholder Parties and their respective Affiliates and their
respective officers and directors shall not have any obligation to keep confidential any Confidential Information if and to the
extent disclosure thereof is specifically required by Law; provided, however, that in the event disclosure is required
by applicable Law, the Shareholder Parties shall, to the extent reasonably possible, provide Akerna with prompt notice of such
requirement prior to making any disclosure so that Akerna may seek an appropriate protective order. For purposes of this Section
9.4(c), “Confidential Information” means any information with respect to the Business, including methods
of operation, customers, customer lists, products, prices, fees, costs, Intellectual Property, inventions, trade secrets, know-how,
marketing methods, plans, personnel, suppliers, competitors, markets or other specialized information or proprietary matters.
Confidential Information does not include, and there shall be no obligation hereunder with respect to, information that (i) is
generally available to the public on the date of this Agreement or (ii) becomes generally available to the public other than as
a result of a disclosure not otherwise permissible thereunder. The covenants and undertakings contained in this Section 9.4(c)
relate to matters which are of a special, unique and extraordinary character and a violation of this Section 9.4(c)
will cause irreparable injury to Akerna, the amount of which will be impossible to estimate or determine and which cannot be adequately
compensated.
9.5
Tax Matters.
(a)
Tax Indemnity. The Shareholder Parties agree, on a joint and several basis, to indemnify, defend and hold Akerna and its
Affiliates (including, following the Closing, the Company and its Subsidiaries) and their respective stockholders, directors,
members, managers, officers, employees agents, successors and assigns, harmless from and against: (i) all Taxes imposed on, asserted
against or attributable to the properties, income or operations of Shareholder and the Company or any of its Subsidiaries or any
Taxes for which Shareholder and the Company or any of its Subsidiaries is otherwise liable, for all Pre-Closing Tax Periods (in
the case of a Straddle Period, determined based on principles set forth in Section 9.5(c)); (ii) any liability for Taxes
as a result of a contractual obligation to indemnify any Person; (iii) Taxes of any Person imposed on the Shareholders or the
Company or any of its Subsidiaries as a transferee or successor where the relationship giving rise to the liability on the part
of the Shareholders or the Company or any of its Subsidiaries existed or arose on or prior to the Closing Date, or by Contract
(other than any Contract entered into in the ordinary course of business and the primary subject matter of which is not Taxes)
entered into on or prior to the Closing Date; (iv) any Taxes of any other Person for which any Shareholder or the Company or any
of its Subsidiaries (or any Subsidiary or predecessor of any such entities) is liable as a result of having been a member of an
affiliated, consolidated, combined or unitary group on or prior to the Closing Date, including pursuant to Treasury Regulations
Section 1.1502-6 or the analogous provisions of any state, local or non-U.S. Law; (v) Transfer Taxes for which the Shareholders
are responsible pursuant to Section 9.5; and (vi) any and all Losses incurred, suffered or sustained by or sought to be
imposed upon, Akerna and its Affiliates (including the Company and each of its Subsidiaries) arising out of, or resulting from
any breach of or inaccuracy in any representation or warranty (without giving effect to any “material”, “materially”,
“materiality”, “material adverse effect”, “material adverse change” or similar qualifiers
contained in any of the representations and warranties) made as of the date hereof or as of the Closing Date by the Company in
Section 7.12; and (viii) any and all Losses incurred, suffered or sustained by or sought to be imposed upon, Akerna and
its Affiliates (including the Company and each of its Subsidiaries) arising out of, or resulting from any non-fulfillment or breach
of any covenant, agreement or undertaking with respect to Taxes made by or to be performed by Shareholder, the Company or any
of its Subsidiaries, including pursuant to Section 9.6 and this Section 9.5, except to the extent such amounts mentioned
herein under this Section 9.5(a) were included as a Current Liability in Closing Net Working Capital.
(b)
Tax Returns.
(i)
The Shareholder Representatives shall prepare or cause to be prepared at their sole cost and expense and with reasonable assistance
from the Company and Akerna all required Tax Returns for the Company and each of its Subsidiaries for Tax Periods that end on
or before the Closing Date whether such Tax Returns are filed on, before or after the Closing Date (collectively the “Company
Tax Returns”); provided, however, that for each such Company Tax Return, the Shareholder Representatives
shall furnish, no later than thirty (30) days prior to the anticipated filing date for the Company Tax Return, a draft to Akerna
of all such Company Tax Returns (including copies of all work papers related thereto) and such other information regarding such
Company Tax Returns as may be reasonably requested by Akerna for Akerna’s review, comment, and consent (which consent shall
not be unreasonably withheld, conditioned or delayed), and the Shareholder Representatives shall consider in good faith comments
by Akerna provided that such comments are requested no later than fifteen (15) days after Akerna’s receipt of such draft
Company Tax Returns. Such Company Tax Returns shall be prepared in a manner consistent with past practice and custom of the Shareholder
Representatives or the Company or any of its Subsidiaries, as applicable, except as otherwise required by applicable Law. In the
event that the Shareholder Representatives and Akerna are unable to resolve any dispute with respect to such Tax Returns, they
shall not be filed absent the consent of Akerna and such dispute shall be resolved by the Final Accounting Firm in a final binding
manner; provided, however, such dispute shall not in any way disrupt or delay the timely filing of such Company
Tax Return and Akerna shall file or cause or cause to be filed any amended Tax Return as needed to conform to the Final Accounting
Firm’s final determination. The fees and expenses of the Final Accounting Firm shall be borne equally by Shareholders, on
the one hand, and Akerna, on the other hand. The Shareholders shall pay all Taxes shown as due on such Company Tax Returns.
(ii)
Akerna shall prepare or cause to be prepared and file or cause to be filed all other Tax Returns of the Company and each of its
Subsidiaries (collectively the “Akerna Tax Returns”). In the case of a Akerna Tax Return for a Straddle Period
(“Straddle Period Returns”), Akerna shall prepare or cause to be prepared such Straddle Period Returns in a
manner consistent with past practice and custom of the Company and each of its Subsidiaries unless otherwise required by applicable
Law. Akerna shall furnish a draft to the Shareholder Representatives of all such Straddle Period Returns (including copies of
all work papers related thereto) and such other information regarding such Straddle Period Returns as may be reasonably requested
by the Shareholder Representatives at least thirty (30) days prior to anticipated filing date for such Straddle Period Return,
except in the case of a Straddle Period Return due within ninety (90) days following the Closing Date, the draft shall be provided
to the Shareholder Representatives within twenty (20) days prior to the anticipated filing date and in the case of a Tax Return
that is not an income Tax Return as early as practical. The Shareholders shall pay to Akerna the portion of the Taxes shown as
due on the Straddle Period Tax Returns that are allocable to the portion of the Straddle Period ending on and including the Closing
Date prior to the due date for the filing thereof, except to the extent such Taxes were included as a liability in Closing Working
Capital and reduced the Consideration.
(c)
Straddle Periods. In the case of any Straddle Period, the amount of any Taxes and Tax liabilities of the Company or any
of its Subsidiaries not based upon or measured by income, activities, events, gain, receipts, proceeds, profits, payroll or similar
items for the portion of such Straddle Period ending on and including the Closing Date will be deemed to be the amount of such
Taxes for the entire Tax Period multiplied by a fraction, the numerator of which is the number of days in the Tax Period ending
on the Closing Date and the denominator of which is the number of days in such Straddle Period. The amount of any other Taxes
that relate to the portion of such Straddle Period ending on and including the Closing Date will be determined based on an interim
closing of the books as of the close of business on the Closing Date (and for such purpose the Taxable Period of any partnership
will be deemed to end as of the close of business on the Closing Date); provided, however, that any item determined on an annual
or periodic basis (such as deductions for depreciation or real estate Taxes) shall be apportioned on a daily basis.
(d)
Amended Returns. Except as specifically provided in Section 9.5(b)(i) and Section 9.5(b)(ii), Akerna shall
not, and shall not permit any of its Affiliates (including, after the Closing for the avoidance of doubt, the Company) to file,
re-file, supplement, or amend any Tax Return of the Company for any Taxable Period ending on or prior to the Closing, without
the Shareholders’ Representatives’ consent (not to be unreasonably withheld).
(e)
Refunds and Credits. Any refunds (including, for the avoidance of doubt, overpayments of estimated Taxes) of or credits
against Taxes (including any interest paid or credited with respect thereto) of, or with respect to, the Company or any of its
Subsidiaries that are attributable or allocable to any Pre-Closing Tax Period will be for the benefit of the Shareholders, but
only to the extent that such Tax refund (i) is not reflected in the calculation of Closing Net Working Capital, (ii) does not
result from the carryback of any Tax item from a post-Closing Tax period (or portion thereof) and (iii) is in respect of Taxes
that were paid prior to the Closing, were indemnified by the Shareholders or were included in the calculation of Closing Net Working
Capital in each case as finally determined. Akerna will pay the amount of any such refunds or credits (whether received as a refund
or as a credit against or an offset of Taxes otherwise payable for the then current fiscal year), net of reasonable expenses or
Taxes incurred by Akerna or the Company in obtaining such refund or credit, promptly after receipt thereto or utilization thereof.
To the extent a refund or credit against Taxes that gave rise to a payment hereunder is subsequently disallowed or otherwise reduced,
the Shareholders shall pay to Akerna the amount of such disallowed or reduced refund or credit against Taxes.
(f)
Cooperation and Tax Record Retention. Each Party, shall cooperate and shall cause its respective Affiliates to cooperate
with each other Party and with each other Party’s agents, including accounting firms and legal counsel, in connection with
any Tax Proceeding in respect of Taxes assessed or proposed to be assessed against the Company or any of its Subsidiaries or the
preparation of any Tax Return. Such cooperation shall include each Party making such information and documents in its possession
relating to the Company or any of its Subsidiaries reasonably necessary in connection with any such Tax Proceeding available to
the other Party. The Parties shall retain all Tax Returns, schedules, and work papers, and all material records and other documents
relating thereto, until the expiration of the applicable statute of limitations (including, to the extent noticed by any Party,
any extensions thereof) of the Tax Period to which such Tax Returns and other documents and information relate. Each of the Parties
shall also make available to the another Party, as reasonably requested and available on a mutually convenient basis, personnel
responsible for preparing, maintaining, and interpreting information and documents relevant to Taxes to provide reasonable explanation
of any documents or information provided hereunder. Any information or documents provided under this Agreement shall be kept confidential
by the Party receiving such information or documents, except as may otherwise be necessary in connection with the filing of Tax
Returns or in connection with a Tax Proceeding.
(g)
Tax Sharing Agreements. All Tax sharing Contracts or similar Contracts with respect to or involving the Company or any
of its Subsidiaries shall be terminated as of the Closing and, after Closing, the Company and each of its Subsidiaries shall not
be bound by nor have any liabilities under any such agreements (whether for the current year, a past year or a future year).
(h)
Tax Certificates. To the extent available, the Shareholder Representatives or Akerna (as the case may be) shall provide
the other Party with any certificates or other document from any Governmental Authority or any other person (other than a Party)
as may be necessary to mitigate, reduce or eliminate any Tax liability of the Company or any of its Subsidiaries.
(i)
Tax Proceedings.
(i)
In the event that a Party (or any Affiliate thereof) receives notice from any Governmental Authority of any proposed audit, assessment,
examination, claim or other controversy or proceeding relating to an amount of Taxes of the Company or any of its Subsidiaries
(a “Tax Proceeding”) with respect to which any other Party may incur liability hereunder, such Party shall
promptly notify the applicable Party of such Tax Proceeding. Such notice shall contain factual information (to the extent known)
describing any asserted Tax liability in reasonable detail and shall be accompanied by copies of any notice or other documents
received from any Governmental Authority with respect to such matter. If any Party, receives written notice of an asserted Tax
liability with respect to a matter for which it has a right to indemnification hereunder (and the other Party does not have knowledge
of the asserted Tax liability) and fails to provide the other Party with notice thereof within 30 days in the manner described
in the preceding sentence and as a result such other Party is actually and materially prejudiced by such failure to notify, then
such other (indemnifying) Party shall be relieved of its indemnification obligations with respect to such asserted Tax liability
to the extent of such prejudice.
(ii)
At their election, the Shareholder Representatives shall, at the sole expense of the Shareholders, control any Tax Proceedings
related to Taxes with respect to a Taxable Period ending on or prior to the Closing Date; provided, that the Shareholder Representatives
must control such Tax Proceeding in good faith and with reasonable diligence thereafter to preserve the Shareholders’ rights.
The Shareholder Representatives shall keep Akerna fully and timely informed with respect to the commencement, status and nature
of any such Tax Proceeding. The Shareholder Representatives shall, in good faith, allow Akerna to make comments to the Shareholder
Representatives regarding the conduct of or positions taken in any such proceeding. Akerna shall, at its sole expense, be entitled
to fully participate in any such Tax Proceeding. Akerna shall have the right to consent to any settlement with respect to any
such Tax Proceeding (provided such consent cannot be unreasonably withheld, conditioned or delayed). In the case that Akerna controls
such Tax Proceeding because the Shareholder Representatives concede or lose their right to control such Tax Proceeding, Akerna
shall keep the Shareholder Representatives fully and timely informed with respect to the commencement, status and nature of any
such Tax Proceeding and Shareholder Representatives shall be entitled to fully participate in any such Tax Proceeding and shall
have the right to consent to the settlement of any such Tax Proceeding (provided such consent cannot be unreasonably withheld,
conditioned or delayed).
(iii)
Except as provided in Section 9.5(i)(ii), Akerna shall control in good faith any audit or examination by any Governmental
Authority, initiate any claim for refund, amend any Tax Return, and contest, resolve and defend against any assessment for additional
Taxes, notice of Tax deficiency or other adjustment of Taxes of or relating to, the income, assets or operations the Company or
any of its Subsidiaries for all Taxable Periods, provided, however, Akerna shall keep the Shareholder Representatives
informed with respect to the commencement, status and nature of any Tax Proceeding related to the Straddle Period and the Shareholder
Representatives shall be entitled to participate fully in any such Tax Proceeding and shall have the right to consent to the settlement
of any such Tax Proceeding, which consent shall not be unreasonably withheld, delayed or conditioned.
(iv)
Akerna shall bear its expenses incurred in connection with any Tax Proceeding and the Shareholders shall bear its expenses incurred
in connection with any such Tax Proceeding; provided, however, if Akerna controls a Tax Proceeding with respect
to a Pre-Closing Tax Period that the Shareholder Representatives could have controlled pursuant to the terms of this Agreement
but did not elect to control or lost its right to control, then the Shareholders shall bear the reasonable costs and expenses
of such Tax Proceeding and reimburse Akerna for its expenses with respect thereto.
(j)
Conflicts. To the extent of any inconsistencies between any provision of Section 9.5 and Article X, the provisions
of Section 9.5 shall control.
9.6
Transfer Taxes. All Transfer Taxes shall be borne and paid by Shareholders when due. The Shareholders shall, at their own
expense, timely file any tax return or other document with respect to such Taxes or fees (and Akerna shall cooperate with respect
thereto as necessary.)
9.7
Transaction Expenses. Except as otherwise provided herein, Akerna shall pay all of its expenses in connection with the
transactions contemplated hereby and the Shareholder Parties shall pay all of their expenses incurred in connection with the transactions
contemplated hereby, including without limitation, all attorneys’ fees and expenses and accountants’ fees and expenses.
9.8
Broker’s Fees. Each of the Parties shall be responsible for, and shall hold each of the other Parties harmless against,
any fees or commissions for which such Party is liable to any broker, finder or agent with respect to the transactions contemplated
by this Agreement. The Shareholder Parties agree that for purposes hereof, the Shareholders shall hold Akerna, the Company and
the Company’s Subsidiaries harmless from any such claim made against the Company or any of its Subsidiaries.
9.9
Further Assurances. Each Party hereto agrees that such Party shall, from time to time after the date of this Agreement,
execute and deliver such other documents and instruments and take such other actions as may be reasonably requested by any other
Party to carry out the transactions contemplated by this Agreement.
9.10
Pre-Closing Distribution. The Company may, prior to the Closing, so long as the Company has no Indebtedness, distribute
up to $50,000 of cash to a trust established by the Company for the benefit of the Company shareholders who sell the Transferred
Shares (the “Shareholder Trust”). Any director of the Company prior to Closing may act as a trustee of such
trust.
9.11
Akerna Purchase Option.
(a)
Grant of Purchase Option. Subject to the terms and conditions of this Agreement, the Shareholders hereby grant to Akerna,
during the time period commencing on the Closing Date and ending on the twelve-month anniversary of the Closing Date (the “Option
Period”) the option to purchase all (but not less than all) shares of the Company then held by Shareholders (the “Akerna
Option Shares”) for the Akerna Option Price (as defined below) (the “Akerna Purchase Option”); provided,
that Akerna shall obtain the approval of its shareholders to the exercise of the Akerna Purchase Option prior to exercising such
option (which approval may be obtained at any time on or after the date of this Agreement and prior to the exercise of the Akerna
Purchase Option). All of such Shares shall be delivered free of liens, encumbrances or options.
(b)
Manner of Exercise. Akerna may exercise the Akerna Purchase Option by delivering written notice of exercise to the Company
and to the Shareholders within the Option Period. The date of Company’s or the Shareholders’ receipt of such notice
shall be the “Date of Exercise.”
(c)
Closing; Payment of Akerna Option Price. Upon exercise of the Akerna Purchase Option, the purchase and transfer of the
Akerna Option Shares will take place remotely via the exchange of documents and signatures against payment of the Akerna Option
Price by wire transfer as instructed by the Shareholders at a closing, if the Akerna Option Price is paid in cash (the “Akerna
Option Closing”), or by delivery of a certificate representing the pro rata portion to which each Shareholder is entitled
in respect of the Akerna Shares if the Akerna Option Price is paid in Akerna Shares. The Akerna Option Closing will take place
at 10:00 A.M. Eastern Standard Time on the date which is no later than sixty (60) days after the Date of Exercise (the “Akerna
Option Closing Date”) or at such other date and place as is mutually agreed upon by the parties.
(d)
Akerna Option Price. The Akerna Option Price may be paid, at the sole option of Akerna, in either cash or Akerna Shares
in an amount equal to either (a) if Akerna Shares are trading at an amount less than or equal to $16.00 per share, the greater
of (i) 800,000 Akerna Shares or (ii) the difference between the number of Akerna Shares worth $20,000,000 valued at Market Price
and 1,950,000 Akerna Shares, or (b) if Akerna Shares are trading at more than $16.00 per share, the number of Akerna Shares equal
to the (A) difference between (i) the product of the Market Price and 1,950,000 Akerna Shares and (ii) $44,000,000, divided by
(B) the Market Price.
(e)
Shareholder IP Funding Obligation. Shareholders agree that they shall bear the economic burden of any and all payments
in respect of the Intellectual Property Purchase Agreement. Such payments shall be made from funds generated from the IP Purchase
Escrow Shares and shall be completed prior to the date which is twelve (12) months from the Closing Date. Following satisfaction
of the payment obligations of the Company under the Intellectual Property Purchase Agreement, any IP Purchase Escrow Shares remaining
(or funds remaining in escrow in respect of such IP Purchase Escrow Shares) shall be distributed to the Shareholders. Each of
Akerna and the Shareholder Representatives shall promptly execute and deliver a joint written direction to the Escrow Agent to
release the IP Purchase Escrow Shares (or funds in respect of such IP Purchase Escrow Funds) in accordance with the provisions
of this Section 9.11(e).
9.12
Shareholder Repurchase Option.
(a)
Grant of Repurchase Option. Subject to the terms and conditions of this Agreement, in the event the Akerna Purchase Option
is not exercised by the Akerna during the Option Period and consummated within ninety (90) days after the Date of Exercise, Akerna
hereby grants to the Shareholders, during the time period commencing on the day following the expiration of the Option Period
and ending on the three month anniversary of such date (the “Repurchase Option Period”), the option to purchase
an amount between Forty percent (40%) and Fifty five percent (55%) of the outstanding Shares of the Company (the “Repurchase
Shares”) from Akerna (the “Repurchase Option”) for the Shareholder Repurchase Price (as defined below).
All of such Shares shall be delivered free of liens, encumbrances or options.
(b)
Manner of Exercise. The Shareholders may exercise the Repurchase Option by delivering written notice of exercise to Akerna,
along with proof of a bona fide financing offer, within the Repurchase Option Period. The date of Akerna’s receipt of such
notice shall be the “Repurchase Date of Exercise.”
(c)
Closing; Payment of Shareholder Repurchase Price. Within ninety (90) days following exercise of the Repurchase Option,
the purchase and transfer of the Repurchase Shares will take place remotely via the exchange of documents and signatures against
payment of the Shareholder Repurchase Price by wire transfer as instructed by Akerna at closing, with such closing to take place
at 10:00 A.M. Eastern Standard Time on the date which is no later than sixty (60) days after the Repurchase Date of Exercise or
at such other date and place as is mutually agreed upon by the parties.
(d)
Shareholder Repurchase Price. The Shareholder Repurchase Price will equal the lesser of (a) the product of (X) Twenty Million
Dollars ($20,000,000) and (Y) the percentage of the Company’s Shares to be repurchased from Akerna, or (b) the difference
between (i) the product of (X) Twenty Million Dollars ($20,000,000) and (Y) the percentage of the Company’s Shares to be
repurchased from Akerna and (ii) the product of (A) One Million Nine Hundred and Fifty Thousand (1,950,000) Akerna Shares and
(B) $8.00 minus the Market Price.
9.13
Akerna Additional Capital Contribution. Following the Closing Date, Akerna will make additional capital contributions to
the Company of an aggregate of Two Million Four Hundred Thousand Dollars ($2,400,000) (the “Additional Capital Contribution”).
Akerna’s first Additional Capital Contribution payment will be in the amount of $250,000 and will be made by Akerna within
two (2) Business Days following the Closing Date, with the remainder of the Additional Capital Contribution to be paid based on
a budget developed within 30 days of the Closing Date; provided, however, that while the budget is being developed, Akerna will
continue to make additional capital contributions of at least $250,000 per month.
9.14
Payments to The London Fund. Following Closing, Akerna will cause the Company to pay to ACS Pedersen LLC (d/b/a The London
Fund SPV 10, LLC) a transaction fee in the amount of Two Hundred Fifty Thousand Dollars ($250,000), to be paid in four quarterly
payments of Sixty-Two Thousand Five Hundred Dollars ($62,500) each, the first payment to be made on the first Business Day of
the month following the Closing, and quarterly thereafter.
9.15
Appointment of Shareholder Representative.
(a)
By approving this Agreement and the transactions contemplated hereby and by virtue of the consummation of the transfer of the
Shares, each Shareholder shall have irrevocably authorized and appointed the Shareholder Representatives as such Person’s
representative, agent and attorney-in-fact to act on behalf of such Person, by majority vote, for all purposes in connection with
this Agreement and the agreements ancillary hereto, including the exercise of the power to: (a) give and receive notices and communications
on behalf of the Shareholders; (b) review, negotiate and settle the Target Working Capital and each all payments of consideration
related thereto; (c) authorize distribution of the Escrow Shares to an Akerna Indemnified Party; (d) object to distributions and
set-offs; (e) agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with governmental
orders with respect to such claims; (f) compromise any indemnity claim on behalf of the Shareholders and to transact matters of
arbitration, litigation or other actions; (g) execute and deliver all amendments, waivers, ancillary agreements and documents
that the Shareholder Representatives deem necessary or appropriate in connection with the consummation of the transactions contemplated
by this Agreement; (h) execute and deliver all amendments and waivers to this Agreement that the Shareholder Representatives deem
necessary or appropriate; (i) defend, settle, or compromise any claim, action or legal proceeding for which any Akerna Indemnified
Party may be entitled to indemnification hereunder; (j) do or refrain from doing any further act or deed on behalf of the Shareholders
that Shareholder Representatives deem necessary or appropriate in their sole discretion relating to the subject matter of this
Agreement as fully and completely as the Shareholders could do if personally present; (k) receive service of process in connection
with any claims under this Agreement; (l) pay such amounts as the Shareholder Representatives shall determine to any Person pursuant
to arrangements between the Shareholder Representatives and any such Person; and (m) take all actions necessary or appropriate
in the judgment of the Shareholder Representatives for the accomplishment of the foregoing and any other actions or matters contemplated
by this Agreement or the agreements ancillary hereto on behalf of the Shareholders. After the Closing, notices or communications
to or from the Shareholder Representatives shall constitute notice to or from each Shareholder.
(b)
Indemnification of Shareholder Representatives. The Shareholder Representatives will incur no liability of any kind to
the Shareholders with respect to any action or omission by such Shareholder Representative in connection with its services pursuant
to this Agreement and any agreements ancillary hereto, except in the event of liability directly resulting from such Shareholder
Representative’s gross negligence or willful misconduct. The Shareholder Representatives shall not be liable to the Shareholders
for any action or omission pursuant to the advice of counsel. The Shareholders shall severally (and not jointly) indemnify, defend
and hold harmless the Shareholder Representatives from and against any and all losses, liabilities, damages, claims, penalties,
fines, forfeitures, actions, fees, costs and expenses (including the fees and expenses of counsel and experts and their staffs
and all expense of document location, duplication and shipment) (collectively, “Representative Losses”) arising
out of or in connection with the Shareholder Representatives’ execution and performance of this Agreement and any agreements
ancillary hereto, in each case as such Representative Loss is suffered or incurred; provided, that in the event that any such
Representative Loss is finally adjudicated to have been directly caused by the gross negligence or willful misconduct of such
Shareholder Representative, such Shareholder Representative will reimburse the Shareholders the amount of such indemnified Representative
Loss to the extent attributable to such gross negligence or willful misconduct.
(c)
Reliance. Each of the Escrow Agent and Akerna may rely upon any decision, act, consent or instruction of the Shareholder
Representatives as being the decision, act, consent or instruction of each and every Shareholder. The Escrow Agent and Akerna
are hereby relieved from any liability to any Person for any acts done by them in accordance with such decision, act, consent
or instruction of the Shareholder Representatives.
9.16
Management of the Company Post-Closing. Subject to the terms of his Employment Agreement, Ashesh C. Shah shall serve as
Chief Executive Officer of the Company following the Closing. For the period between the Closing and the earlier to occur of (i)
Akerna’s exercise of the Akerna Purchase Option and the closing thereof; (ii) Shareholders’ exercise of the Repurchase
Option and the closing thereof; or (iii) the expiration of the Repurchase Option (the "Transition Period"), the
Board of Directors of the Company shall consist of four persons nominated by Akerna and three persons nominated by the Shareholder
Representatives, who shall constitute a Special Committee of the Board of Directors of the Company. In the event any member of
the Special Committee dies or resigns, the remaining members shall appoint a person to fill the vacancy, and Akerna shall cause
such person to be elected to the Company’s Board of Directors. During the Transition Period, the Special Committee shall
have sole authority to make all decisions on behalf of the Company concerning transactions between Akerna and the Company, including,
without limitation, (a) enforcement of any obligations of Akerna with respect to the Additional Capital Contribution, and (b)
the License Agreement referred to in Section 9.17 below. The Board of Directors of the Company shall adopt resolutions
in customary form appointing the Special Committee, and empowering it to hire, on terms and conditions acceptable to the Special
Committee and at the Company’s expense, legal and financial advisors who are independent of Akerna and the Company to assist
the Special Committee in the fulfillment of its duties, as described above, and to enter into, on behalf of the Company, agreements
to retain such advisors, which may include, among other things, indemnification arrangements that are acceptable to the Special
Committee; and that, to the fullest extent permitted by applicable law, the deliberations and records of the Special Committee
shall be confidential and, without limiting the generality of the foregoing, all statutory and common law privileges shall be
available with respect to legal advice rendered to, and documents prepared by counsel to assist the Special Committee in its deliberations.
During the Transition Period, (x) Akerna shall not sell any of the Transferred Shares, (y) shall not sell substantially all of
the Company’s assets, and (z) shall not issue additional equity securities of the Company or options to purchase equity
securities of the Company without the approval of the Special Committee, which shall not be unreasonably withheld.
9.17
License Agreement. At the Closing Akerna and the Company shall enter into a License Agreement on terms acceptable to Akerna
and the Company under which Akerna will grant the Company a license to use and exploit data collected by Akerna and its subsidiaries.
9.18
Data Project. Following the Closing the Company shall, subject to and in accordance with the Company’s business plan
and budget, pursue a project to develop and provide comprehensive data driven cannabis market insights and consumer research information
to various participants in the cannabis industry based on terms to be set forth in a separate agreement.
9.19
Option Fees. Following the Closing, during the Option Fee Term, the Company will pay to the Shareholder Trust, in cash,
within thirty (30) days following the end of each Option Fee Year, an aggregate amount equal to the Option Fee accrued for Solo
Products sold during such Option Fee Year.
9.20
Certain Obligations. Each of the Shareholders party to this Agreement as of the date hereof shall use best efforts to cause
those shareholders of the Company not party hereto to become party to this Agreement as a Shareholder prior to the Closing.
Article
X.
INDEMNIFICATION
10.1
Survival. The representations and warranties of the Shareholders contained in Article VI and of the Shareholder
Parties contained in Article VII shall survive the Closing until the twelve (12) month anniversary of the Closing Date;
provided, however, that claims for Losses based on fraud shall survive the Closing indefinitely and claims for Losses
based on the representations and warranties set forth in Section 6.2 and Section 6.5 shall survive until the expiration
of the applicable statute of limitations with respect thereto. The covenants to be performed after the Closing, including as set
forth in Section 9.5, shall survive until fully performed. The representations and warranties of Akerna contained in Article
VIII hereof shall survive the Closing for twelve (12) months after the Closing Date.
10.2
Shareholder Indemnification. Subject to Section 10.3, from and after the Closing, the Shareholder Parties, on a
several (and not joint) basis, agree to indemnify Akerna, its Affiliates, the Company, the Company’s Subsidiaries, their
members and any of their successors and assigns, and any of their respective agents, employees, Representatives, officers, managers
and directors (the “Akerna Indemnified Parties”), against, and hold Akerna Indemnified Parties harmless from,
any and all Losses suffered by any Akerna Indemnified Party to the extent arising out of:
(a)
any breach of or any inaccuracy in any representation or warranty made by (A) each Shareholder in Article VI of this Agreement
or (B) the Shareholder Parties in Article VII of this Agreement;
(b)
any breach of or failure by the Shareholder Parties or any of their respective Affiliates to perform any covenant, agreement or
obligation set out in this Agreement;
(c)
any Company Transaction Expenses that remain unpaid as of immediately prior to the Closing and are not taken into account in the
final determination of the Other Post-Closing Amounts;
(d)
any Indebtedness that remains unpaid as of immediately prior to the Closing and is not taken into account in the final determination
of the Other Post-Closing Amounts;
(e)
any demand, claim, suit, cause of action, proceeding or assessment brought by any current or former member, equity holder, warrantholder
or option holder of any Shareholder Party or any Affiliate of any Shareholder Party (in such Person’s capacity as such)
against Akerna, the Company or any of its Subsidiaries in connection with this Agreement, the transactions contemplated hereby
or thereby, including any claim that the Consideration or any other amount was not properly distributed to such Person; and
(f)
any amounts payable pursuant to Section 9.5.
10.3
Limitations on Losses.
(a)
Deductible. Akerna Indemnified Parties shall have the right to remedies under Section 10.2(a) if, and only to the
extent that, Akerna Indemnified Parties shall have incurred as to all matters giving rise to indemnification under Section
10.2(a), indemnifiable Losses in excess of an amount equal to $250,000 (the “Deductible”); provided,
however, that once Losses exceed the Deductible, the Akerna Indemnified Parties shall be entitled to recover all such Losses
including the Deductible; provided, further, that, for the avoidance of doubt, the Deductible shall not apply to
claims for Losses incurred with respect to the Fundamental Representations, claims for indemnity under Sections 10.2(b)-(g),
claims based on fraud or willful misconduct or claims for indemnification for any Taxes, whether pursuant to Section 9.5
of this Agreement or otherwise (collectively, the “Excluded Claims”).
(b)
Cap. Subject to the terms of Section 9.11(e) (pursuant to which the IP Purchase Escrow Shares are available solely
to satisfy the payment obligations under the Intellectual Property Purchase Agreement and the Shareholders’ obligation to
cause such payment), no Losses shall be recoverable by Akerna Indemnified Parties pursuant to this Agreement in excess of the
Escrow Amount (the “Cap”), which shall be satisfied solely from the Akerna Shares comprising the Escrow Shares;
provided, however, that the Cap shall not apply to Losses suffered or incurred by Akerna Indemnified Parties arising out of claims
based on (i) a breach of the representations and warranties set forth in Section 6.2 and/or Section 6.5 or (ii)
fraud or willful misconduct; provided, however, all such claims shall be limited with respect to each Shareholder to such Shareholders’
pro rata portion of the Consideration.
10.4
Indemnification Procedures.
(a)
Computation of Losses.
(i)
Recovery hereunder may not be obtained hereunder for the same Loss more than once.
(ii)
For purposes of (A) determining whether a breach has occurred and (B) calculating Losses in connection with a claim for indemnification
under this Article X, each of the representations and warranties that contains any qualifications as to “material,”
“materiality” or “Material Adverse Change” or similar qualifications shall be deemed to have been given
as though there were no such qualifications.
(b)
Exclusive Remedy. The sole and exclusive liability and responsibility of the Shareholder Parties to Akerna Indemnified
Parties under or in connection with this Agreement, or the transactions contemplated hereby or thereby, and the sole and exclusive
remedy of Akerna Indemnified Parties and the Shareholder Parties with respect to any of the foregoing, shall be as set forth in
Article X of this Agreement or as set forth in any of the Documents. Notwithstanding the foregoing, (i) this Article
X shall not prevent or restrict the right of any Party to obtain injunctive relief or specific performance from a court of
competent jurisdiction and (ii) in the case of fraud or willful misconduct by the Company or any Shareholder, the foregoing provisions
shall not be exclusive as to the Company or any Shareholder, but shall be in addition to any other rights or remedies to which
Akerna Indemnified Parties and their respective assigns, as the case may be, may be entitled at law or in equity.
(c)
Net Losses. Notwithstanding anything contained herein to the contrary, the amount of any Losses incurred or suffered by
an Indemnified Person shall be calculated after giving effect to any insurance proceeds actually received by the Indemnified Person
with respect to such Losses, net of the costs associated with the recovery thereof. If any such proceeds are received by an Indemnified
Person with respect to any Losses after an Indemnifying Person has made a payment to the Indemnified Person with respect thereto,
the Indemnified Person shall pay to the Indemnifying Person the amount of such proceeds, benefits or recoveries, net of the costs
associated with the recovery thereof.
(d)
Claims. Subject to the applicable time periods set forth in this Article X, and as promptly as is reasonably practicable
after becoming aware of a claim for indemnification under this Agreement that does not involve a third party claim, or the commencement
of any suit, action or proceeding of the type described in Section 10.4(e), the Indemnified Person shall give notice to
the Indemnifying Person of such claim, which notice shall, to the extent such information is reasonably available, specify the
facts alleged to constitute the basis for such claim, the representations, warranties, covenants and obligations alleged to have
been breached and the amount that the Indemnified Person seeks hereunder from the Indemnifying Person, together with such information,
to the extent such information is reasonably available, as may be necessary for the Indemnifying Person to determine that the
limitations in Section 10.3 have been satisfied or do not apply.
(e)
Notice of Third Party Claims; Assumption of Defense. The Indemnified Person shall give notice as promptly as is reasonably
practicable after receiving notice thereof, to the Indemnifying Person of the assertion of any claim, or the commencement of any
suit, action or Proceeding, by any Person not a party hereto in respect of which indemnity may be sought under this Agreement
(which notice shall, to the extent such information is reasonably available, specify in reasonable detail the nature and amount
of such claim together with such information as may be necessary for the Indemnifying Person to determine that the limitations
in Section 10.3 have been satisfied or do not apply). Failure of the Indemnified Person to give the Indemnifying Person
notice as provided herein shall not relieve the Indemnifying Person of any of its obligations hereunder, except to the extent
that the Indemnifying Person is actually prejudiced by such failure. The Indemnifying Person may, at its own expense, (i) participate
in the defense of any such claim, suit, action or proceeding, or (ii) upon notice to the Indemnified Person at any time during
the course of any such claim, suit, action or Proceeding, assume the defense thereof with counsel reasonably acceptable to the
Indemnified Person and shall thereafter keep the Indemnified Person reasonably informed with respect thereto; provided,
however, that the Indemnifying Person shall not be entitled to assume the defense of any claim if (A) such claim primarily
seeks an injunction or equitable relief against the Indemnified Person, (B) to the extent the Indemnified Person has been advised
by counsel in writing (with a copy provided to the Indemnifying Person) that a conflict exists between the Indemnified Person
and the Indemnifying Person in connection with the defense of the third party claim, (C) the third party claim consists of a criminal
Proceeding or regulatory Proceeding or (D) the amount of such claim, together with the amount of all then pending claims, exceeds
the then remaining balance of the Escrow Shares. If the Indemnifying Person assumes such defense, the Indemnified Person shall
have the right (but not the duty) to participate in the defense thereof and to employ counsel, at its own expense, separate from
the counsel employed by the Indemnifying Person. Whether or not the Indemnifying Person chooses to defend or prosecute any such
claim, suit, action or Proceeding, all of the Parties shall cooperate in the defense or prosecution thereof.
(f)
Settlement or Compromise. Any settlement or compromise made or caused to be made by the Indemnified Person or the Indemnifying
Person, as the case may be, of any such claim, suit, action or Proceeding of the kind referred to in Section 10.4(e) shall
also be binding upon the Indemnifying Person or the Indemnified Person, as the case may be, in the same manner as if a final,
non-appealable judgment or decree had been entered by a court of competent jurisdiction in the amount of such settlement or compromise;
provided, that (i) the Indemnifying Person shall not be entitled to enter into any settlement or compromise unless: (A)
the Indemnified Party shall receive an unconditional release as part of any such settlement or compromise, (B) no obligation,
restriction or Loss shall be imposed on the Indemnified Person as a result of such settlement or compromise without its prior
written consent, which consent shall not be unreasonably withheld, conditioned or delayed, (C) no injunction or equitable relief
shall be imposed on the Indemnified Person as a result of such settlement or compromise, (D) such settlement or compromise provides
solely for the payment of money by the Indemnifying Party (or, in the case of a Shareholder, by the Escrow Agent from the Escrow
Shares and the amount to be paid does not exceed the remaining Escrow Shares less the amount of any other pending claims) and
the Indemnifying Party (or Escrow Agent) makes such payment (less any applicable Deductible), and (ii) the Indemnified Person
will not compromise or settle any claim, suit, action or Proceeding without the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld, conditioned or delayed.
(g)
Release of Escrow Shares
(i)
On the first Business Day following the date twelve (12) months after the Closing Date (the "Release Date"),
Akerna and the Shareholder Representatives shall deliver to the Escrow Agent a joint notice instructing the Escrow Agent to deliver
to the Shareholders: (i) the Escrow Shares remaining in the Escrow Account minus (ii) the sum of all amounts (the “Indemnity
Reserve Amounts”) asserted in good faith by a Akerna Indemnified Party in respect of a claim for indemnification under
this Agreement for which such Akerna Indemnified Party shall have delivered a notice to the Shareholder Representatives in accordance
with the terms of this Agreement and which claims remain outstanding (each, a “Pending Claim”). Any Claim not
duly asserted prior to the Release Date shall be forever barred.
(ii)
After the Release Date, following final resolution of all Pending Claim matters for which an Indemnity Reserve Amount has been
established and payment thereupon, upon request by the Shareholder Representatives, the Shareholder Representatives and Akerna
shall instruct the Escrow Agent under the Escrow Agreement to deliver to the Shareholders the excess of any Escrow Shares remaining
in the Escrow Account.
(h)
Payment. Once it has been determined (by mutual agreement of Akerna and the Shareholder Representatives, including as a
result of failure to dispute an indemnity claim, or under a final adjudication or determination) that the Shareholder Parties
are obligated to indemnify a Akerna Indemnified Party under this Article X (a “Determined Claim” and,
the Losses payable in connection therewith, the “Determined Losses”), then the Determined Losses shall be payable
as follows:
(i)
first, Akerna and the Shareholders shall promptly issue a joint written direction to the Escrow Agent to release the amount
of such Determined Losses to Akerna from the Escrow Shares; and
(ii)
finally, with respect to any Determined Losses for claims based on fraud or willful misconduct for which the Akerna Indemnified
Parties have not fully recovered after giving effect to subpart (h)(i) of this Section 10.4 (including any Determined Losses
for claims based on fraud or willful misconduct), the Shareholder Parties shall, on a several basis, pay to Akerna the amount
of such remaining Determined Losses claims based on fraud or willful misconduct promptly in cash by wire transfer of immediately
available funds.
(i)
Tax Treatment of Indemnification Payments. Any indemnification payments pursuant to this Agreement shall be treated
as an adjustment to the Consideration by the Parties for Tax purposes, unless otherwise required by Law.
Article
XI.
MISCELLANEOUS
11.1
No Third Party Beneficiaries. Except as expressly set forth in Sections 9.4(a) and 10.2, this Agreement is
intended to be solely for the benefit of the Parties to this Agreement, and shall not confer any rights or remedies upon any Person
other than the Parties and their respective successors and permitted assigns, personal Representatives, heirs and estates, as
the case may be. For purposes of clarification, the Indemnified Persons constitute third party beneficiaries of this Agreement
and are entitled to enforce the terms of Article X.
11.2
Entire Agreement. This Agreement and the other Documents referred to herein constitute the entire agreement among the Parties
and supersede any prior correspondence or documents evidencing negotiations between the Parties, whether written or oral, and
all understandings, agreements or representations by or among the Parties, written or oral, that may have related in any way to
the subject matter of any Document.
11.3
Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Parties and their respective
successors and permitted assigns and heirs. No Party may assign either this Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other Parties; provided, however, that (a) Akerna may, without
the need for further consent from the Shareholders or the Shareholder Representatives (i) assign any or all of its rights and
interests hereunder to one or more of its Affiliates; (ii) designate one or more of its Affiliates to perform its obligations
hereunder after the Closing; (iii) assign any or all of its rights hereunder in connection with a sale of all or substantially
all its business or all or substantially all of the Business (whether by merger, sale of stock or assets, recapitalization or
otherwise); and/or (iv) collaterally assign its rights hereunder to any lenders or financing sources, provided that in
any or all of such cases Akerna nonetheless shall remain responsible together with such assignee or designee for the performance
of all of its obligations hereunder.
11.4
Counterparts; Execution. This Agreement may be executed in counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument. This Agreement and each of the other Documents may be transmitted
by facsimile machine or by electronic mail or transmission and any Party’s signature appearing on a faxed copy of this Agreement
or an electronically transmitted copy of this Agreement shall be treated as an original signature for all purposes under applicable
Law, including, without limitation, for admission into evidence in any legal proceeding.
11.5
Headings. The article and section headings contained in this Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this Agreement.
11.6
Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing. Any notice, request,
demand, claim or other communication hereunder shall be deemed given when delivered personally to the recipient on a Business
Day prior to 5:00 P.M. local time, otherwise on the next Business Day, transmitted by electronic mail to the intended recipient
on a Business Day prior to 5:00 P.M. local time, otherwise on the next Business Day at the email address set forth therefor below
(with electronic confirmation of receipt and hard copy to follow), or one (1) Business Day after deposit with a nationally recognized
overnight delivery service for overnight delivery (receipt requested) and addressed to the intended recipient as set forth below:
If
to Akerna, to:
1601
Arapahoe St
Denver CO 80202
Attention:
Jessica Billingsley
Email: jlb@akerna.com
with
a copy to:
Dentons
US LLP
233
South Wacker Drive, Suite 5900
Chicago,
IL 60606-6361
Attention: Eric P. Berlin
Email: eric.berlin@dentons.com
If
to the Shareholder Representatives, to:
12
Heath Hill
Brookline,
MA 02445
Attention:
Ashesh C Shah
Email:
44
Cypress St
Brookline,
MA 02445
Attention:
Palle Pedersen
Email:
629
Allston Street
Houston,
TX 77007
Attention:
Lokesh Chugh
Email: lokesh@thelondonfund.com
with
a copy to:
Haddan
& Zepfel LLP
610
Newport Center Drive, Suite 330
Newport
Beach, CA 92660
Attention:
Robert J. Zepfel
Email: rjz@haddanzepfel.com
Any
Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set
forth above using any other means, but no such notice, request, demand, claim or other communication shall be deemed to have been
duly given unless and until it actually is confirmed as received by the intended recipient. Any Party may change the address to
which notices, requests, demands, claims, and other communications hereunder are to be delivered by giving the other Party notice
in the manner herein set forth.
11.7
Governing Law. This Agreement will be governed by and construed in accordance with the Laws of the State of Delaware without
regard to conflicts of laws principles that would require the application of the Law of any other jurisdiction, and the obligations,
rights and remedies of the Parties under this Agreement shall be determined in accordance with such Law.
11.8
Amendments and Waivers. No amendment or waiver of any provision of this Agreement shall be valid unless the same shall
be in writing and signed by Akerna and the Shareholder. No waiver or failure to enforce by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
11.9
Specific Performance. Each of the Parties agrees that this Agreement is intended to be legally binding and specifically
enforceable pursuant to its terms and that Akerna and Shareholder would be irreparably harmed if any of the provisions of the
Agreement are not performed in accordance with their specific terms and that monetary damages would not provide adequate remedy
in such event. Accordingly, in addition to any other remedy to which a non-breaching party may be entitled at law, a non-breaching
party shall be entitled to injunctive relief without the posting of any bond or other security to enjoin or prevent breaches of
this Agreement and to specifically enforce the terms and provisions hereof, and the breaching party waives the defense that an
adequate remedy at law may exist.
11.10
Incorporation of Exhibits and Schedules. The Exhibits, Schedules and other attachments identified in this Agreement are
part of this Agreement as if set forth in full herein.
11.11
Exclusive Submission to Jurisdiction; Waiver of Jury Trial.
(a)
ANY LEGAL SUIT, ACTION OR PROCEEDING ARISING OUT OF OR BASED UPON THIS AGREEMENT, THE OTHER DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY SHALL BE INSTITUTED IN THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA OR THE COURTS OF THE STATE OF DELAWARE,
IN EACH CASE LOCATED IN WILMINGTON, DELAWARE AND EACH PARTY HERETO IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF SUCH COURTS
IN ANY SUCH SUIT, ACTION OR PROCEEDING. SERVICE OF PROCESS, SUMMONS, NOTICE OR OTHER DOCUMENT BY MAIL WITH DELIVERY CONFIRMATION
TO SUCH PARTY’S ADDRESS SET FORTH HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS FOR ANY SUIT, ACTION OR OTHER PROCEEDING
BROUGHT IN ANY SUCH COURT. THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR ANY PROCEEDING IN SUCH COURTS AND IRREVOCABLY WAIVE AND AGREE NOT TO PLEAD OR CLAIM IN ANY SUCH COURT THAT ANY
SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(b)
EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT OR THE OTHER DOCUMENTS IS
LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH SUCH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER DOCUMENTS
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY HERETO CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE OF
ANY OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT SEEK TO ENFORCE THE FOREGOING
WAIVER IN THE EVENT OF A LEGAL ACTION, (B) SUCH PARTY HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (C) SUCH PARTY MAKES THIS
WAIVER VOLUNTARILY AND (D) SUCH PARTY HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS IN THIS SECTION 11.11(b).
11.12
Public Announcements. The Shareholder Parties and Akerna each agree that they and their Affiliates shall not issue any
press release or otherwise make any public statement or respond to any media inquiry with respect to this Agreement or the transactions
contemplated hereby without the prior approval of Akerna and the Shareholders, which shall not be unreasonably withheld or delayed,
except as may be required by Law, including the Securities Exchange Act of 1934 and the regulations promulgated thereunder, or
by any stock exchanges having jurisdiction over Shareholder, Akerna or their respective Affiliates.
11.13
Construction. The Parties have participated jointly in the negotiation and drafting of this Agreement. If an ambiguity
or question of intent arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement.
The word “including” shall mean including without limitation and the word “herein” shall mean “in
this Agreement,” in each case, for any and all purposes in this Agreement. If any payment is required to be made or other
action is required to be taken pursuant to this Agreement on a day which is not a Business Day, then such payment or action shall
be made or taken on the next Business Day. Any reference in this Agreement to any statute or any section thereof shall, unless
otherwise expressly stated, be deemed to be a reference to such statute or section as amended, restated or re-enacted from time
to time. All currency amounts contained herein refer to United States Dollars.
11.14
Severability. It is the desire and intent of the Parties that the provisions of this Agreement be enforced to the fullest
extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly,
if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction in accordance with Section
11.11 to be invalid, prohibited or unenforceable for any reason, such provision, as to such jurisdiction, shall be ineffective,
without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of this Agreement.
Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable
in such jurisdiction, it shall be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting
the validity or enforceability of such provision.
[Remainder
of page intentionally left blank. Signature pages follow.]
IN
WITNESS WHEREOF, the Parties have executed this Stock Purchase Agreement as of the date first above written.
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AKERNA:
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By:
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/s/
Jessica Billingsley
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Name:
Jessica Billingsley
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Title:
Chief Executive Officer
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SHAREHOLDERS:
The
Shareholders are executing this Agreement by their agent and attorney in fact, the Shareholder Representatives, having provided
a valid and binding power of attorney to the Shareholder Representatives to execute this Agreement on their behalf.
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COMPANY:
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SOLO
SCIENCES, INC.
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By:
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/s/
Ashesh C. Shah
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Name:
Ashesh C. Shah
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Title:
Chief Executive Officer
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SHAREHOLDER
REPRESENTATIVES (both in their capacities as Shareholder Representatives and on behalf of all Shareholders who have delivered
an executed power of attorney to the Shareholder Representatives to execute this Agreement, including, without limitation, those
Shareholders listed on Schedule 1):
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/s/
Ashesh C. Shah
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ASHESH
C. SHAH
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/s/
Lokesh Chugh
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LOKESH
CHUGH
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/s/
Palle Pedersen
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PALLE
PEDERSEN
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YOUR
VOTE IS IMPORTANT. PLEASE VOTE TODAY.
Vote by Internet —QUICK★★★EASY
IMMEDIATE — 24 Hours a Day, 7 Days
a Week or by Mail
AKERNA CORP.
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Your Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned your proxy card. Votes submitted electronically over the Internet must be received by [●], Mountain Time on [●].
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INTERNET/MOBILE –
https://ir.akerna.com/proxy-statement
Use the Internet to vote your proxy. Have your proxy card available
when you access the above website. Follow the prompts to vote your shares
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MAIL – Mark, sign and date your proxy card and return it in the postage-paid envelope provided
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