SECURED PROMISSORY NOTE AND EXCLUSIVE OPTION AGREEMENT
US $80,000
Dallas,Texas
June 29, 2018
For good and valuable consideration,BFIT BRANDS, LLC, an Arizona limited liability company, (“Maker”), hereby makes and delivers this Secured Promissory Note and Exclusive Option Agreement (this “Note”) in favor ofROCKYMOUNTAINHIGHBRANDS, INC.,a Nevada corporation or its assigns (“Holder”), and hereby agree as follows:
1. Principal Obligation and Interest.For value received,Maker promises to pay to Holder, at the address set forth in Section 16 hereof or at such other place as Holder may designate in writing, in currently available funds of the United States, the principal sum ofEighty Thousand Dollars ($80,000). Maker’s obligation under this Note shall accrue interest at the rate ofeight percent (8.0%)per annum from the date hereof until paid in full.Interest shallbecomputedon thebasisof a365-day yearor366-dayyear,as applicable,andactual dayslapsed.
2. PaymentTerms.Maker agrees to remit payment in full of all principal and interest due hereunder to Holder on or before March 29, 2019.
All paymentsshallbeapplied firsttointerest, thentoprincipal,andshallbecreditedto theMaker'saccounton thedate that suchpaymentisphysically receivedby theHolder.
Maker shall have the right to prepay all or any part of the principal under this Note without penalty.
| 3. | Grant of Security Interest.As collateral security for the prompt, complete, and timely satisfaction of all present and future indebtedness, liabilities, duties, and obligations of Maker to Holder evidenced by or arising under this Note, and including, without limitation, all principal and interest payable under this Note, any future advances added to the principal amount due hereunder, and all attorneys’ fees, costs and expenses incurred by Holder in the collection or enforcement of the same (collectively, the “Obligations”), Maker hereby pledges, assigns and grants to Holder a continuing security interest and lien in all of Maker’s right, title and interest in and to the property, whether now owned or hereafter acquired by Maker and whether now existing or hereafter coming into existence or acquired, including the proceeds of any disposition thereof, described on Exhibit “A” attached hereto and incorporated herein by this reference (collectively, the “Collateral”). As applicable, the terms of this Note with respect to Maker’s granting of a security interest in the Collateral to Holder shall be deemed to be a security agreement under applicable provisions of the Uniform Commercial Code (“UCC”), with Maker as the debtor and Holder as the secured party. |
| 4. | Perfection.Upon the execution and delivery of this Note, Maker authorizes Holder to file such financing statements and other documents in such offices as shall be necessary or as Holder may reasonably deem necessary to perfect and establish the priority of the liens granted by this Note, including any amendments, modifications, extensions or renewals thereof. Maker agrees, upon Holder’s request, to take all such actions as shall be necessary or as Holder may reasonably request to perfect and establish the priority of the liens granted by this Note, including any amendments, modifications, extensions or renewals thereof. |
| 5. | Representations and Warranties ofMaker.Maker hereby represents and warrants the following to Holder: |
a. The Maker is a limited liability company validly existing and in good standing under the laws of the State of Arizona and has the requisite corporate power to own, lease and operate its properties and assets and to conduct its business as it is now being conducted.
b. Maker and those executing this Note on its behalf have the full right, power, and authority to execute, deliver and perform the Obligations under this Note, which are not prohibited or restricted under the articles of organization or operating agreement ofMaker.This Note has been duly executed and delivered by an authorized officer of Maker and constitutes a valid and legally binding obligation of Maker enforceable in accordance with its terms. The execution, delivery and performance of this Note by the Maker, and the consummation by the Maker of the transactions contemplatedhereby,have been duly and validly authorized by all necessary corporate action.
c. The execution of this Note and Maker’s compliance with the terms, conditions and provisions hereof does not conflict with or violate any provision of any agreement, contract, lease, deed of trust, indenture, or instrument to which Maker is a party or by which Maker is bound, or constitute a default thereunder or result in the imposition of any lien, charge, encumbrance, claim or security interest of any nature whatsoever upon any of the Collateral.
d. The security interest granted hereby in and to the Collateral constitutes a present, valid, binding and enforceable security interest as collateral security for the Obligations, and, except as to leased equipment or purchase-money encumbrances existing as of the date of this Note as expressly disclosed to Holder in writing, such interests, upon perfection, will be senior and prior to any liens, encumbrances, charges, title defects, interests and rights of any others with respect to such Collateral.
| 6. | Covenants of Maker. For so long as any Obligations remain outstanding: |
a. Maker shall not sell, assign or transfer any of the Collateral, or any part thereof or interest therein, except in the ordinary course of the business of Maker;
b. Maker shall pay or cause to be paid promptly when due all taxes and assessments on the Collateral; and
c. Maker shall keep Holder reasonably apprised, in writing, as to the current location of all of the Collateral, providing Holder with current information including any identifying serial numbers with respect to the Collateral so the Holder may perfect and maintain the priority of its security interest therein.
7. Defaults.The following shall be events of default under this Note:
a. Maker’s failure to remit any payment under this Note on before the date due, if such failure is not cured in full within five (5) days of written notice of default;
b. Maker’s failure to perform or breach of any non-monetary obligation or covenant set forth in this Note or in any other written agreement between Maker and Holder if such failure is not cured in full within ten (10) days following delivery of written notice thereof from Holder to Maker;
c. If Maker is dissolved, whether pursuant to any applicable articles of organization or operating agreement, and/or any applicable laws, or otherwise;
d. Defaultin theMaker’sobligationforborrowedmoney,other than thisNote, which shallcontinuefor aperiodoftwenty (20) days;
e. Thecommencementof anyactionorproceeding which affectstheCollateral ortitle thereto or theinterest ofHolder in theCollateral;
f. Theentryof adecreeororderby acourthavingjurisdictionin thepremisesadjudgingtheMaker bankruptorinsolvent,orapprovingasproperly filedapetition seeking reorganization,arrangement, adjustmentorcompositionof or inrespectof theMakerunderthefederal BankruptcyCodeor anyotherapplicablefederalorstatelaw,orappointingareceiver, liquidator,assigneeortrusteeof theMaker,or anysubstantialpartif itsproperty,ororderingthewindingup orliquidationof itsaffairs,and thecontinuanceof anysuch decreeororder unstayedand ineffectforaperiodoftwenty (60) days;
g. Maker’sinstitutionofproceedingsto beadjudicatedabankruptorinsolvent, or theconsentby it to theinstitutionofbankruptcyorinsolvency proceedings againstit,oritsfilingof apetitionoranswerorconsentseeking reorganizationorrelief underthefederalBankruptcy Codeor anyother applicablefederalorstatelaw,or itsconsentto thefilingofanysuchpetitionor to theappointmentof areceiver, liquidator,assigneeortrusteeofthecompany,or of anysubstantialpartof itsproperty,or itsmakingof anassignment for the benefitofcreditorsor theadmissionby it inwritingof itsinabilityto pay itsdebts generallyastheybecomedue,or thetakingofcorporate actionby theMakerinfurtheranceofany such action; or
8. Rights and Remedies of Holder. Upon the occurrence of an event of default by Maker under this Note, then, in addition to all other rights and remedies at law or inequity,Holder may exercise any one or more of the following rights and remedies:
a. Accelerate the time for payment of all amounts payable under this Note by written notice thereof to Maker, whereupon all such amounts shall be immediately due and payable.
b. Pursue and enforce all of the rights and remedies provided to a secured party with respect to the Collateral under the Uniform Commercial Code.
c. Make such appearance, disburse suchsums,andtake such actionasHolderdeemsreasonablynecessary,in itsdiscretion,toprotectHolder’sinterest, includingbutnot limitedto(i)disbursementofattorneys’ fees,(ii) entry upontheMaker’s propertytomakerepairsto theCollateral,and(iii)procurementofsatisfactoryinsurance. Any amounts disbursedbyHolderpursuanttothisSection,with interest thereon,shallbecome additional indebtednessof theMaker securedby theCollateralandshallbeimmediately due and payableandshallbear interest fromthedateofdisbursementat thedefault ratestatedinthisNote. NothingcontainedinthisSection shallrequireHoldertoincuranyexpenseortakeanyaction.
d. RequireMakertoassembletheCollateralandmakeitavailableto theMaker at theplaceto bedesignatedby theHolder whichisreasonablyconvenienttobothparties.TheHoldermaysellall or anypartof theCollateralas awholeor inpart eitherbypublicauction,private sale,orothermethodofdisposition.TheHoldermaybidat anypublic saleon all or anyportionof theCollateral.UnlesstheCollateral threatenstodeclinespeedilyinvalue,Holder shallgiveMaker reasonablenoticeof thetimeandplaceof anypublic sale orof thetime afterwhichanyprivate saleorother dispositionof theCollateralis to bemade,andnotice givenatleast10daysbeforethetimeof thesaleorother disposition shall beconclusivelypresumedto bereasonable.
e. Pursue any other rights or remedies available to Holder at law or inequity.
9. InterestToAccrue Upon Default.Upon the occurrence of an event of default by Maker under this Note, the balance then owing under the terms of this Note shall accrue interest at the rate of eighteen percent (18.0%) per annum from the date of default until Holder is satisfied in full.
10. Full Recourse. The liability of Maker for the Obligations shall not be limited to the Collateral, and Maker shall have full liability therefor beyond the Collateral. In the event of a default under this Note, Holder shall dispose of the Collateral prior to any disposition, by judicial process or otherwise, of any other assets of theMaker.If, after disposition of the Collateral, a deficiency balance remains under this Note, Maker may dispose of any and all other assets of the Maker by judicial levy or execution in the manner provided by applicablelaw.The officers, managers, members, employees and agents of the company shall have no personal liability associated with this Note.
11. Representation of Counsel.Maker acknowledges that they have consulted with or have had the opportunity to consult with Maker’s legal counsel prior to executing this Note. This Note has been freely negotiated by Maker and Holder and any rule of construction to the effect that any ambiguities are to be resolved against the drafting party shall not be employed in the interpretation of this Note.
12. Choice of Laws; Actions.This Note shall be constructed and construed in accordance with the internal substantive laws of the State ofTexas,without regard to the choice of law principles of said State. Maker acknowledges that this Note has been negotiated in Dallas,Texas.Accordingly, the exclusive venue of any action, suit, counterclaim or cross claim arising under, out of, or in connection with this Note shall be the state or federal courts in DallasCounty,Texas.Maker hereby consents to the personal jurisdiction of any court of competent subject matter jurisdiction sitting in DallasCounty,Texas.
13. Usury Savings Clause. Maker expressly agrees and acknowledges that Maker and Holder intend and agree that this Note shall not be subject to the usury laws of any state other than the State ofTexas. Notwithstanding anything contained in this Note to thecontrary, if collection from Maker of interest at the rate set forth herein would be contrary to applicable laws of such State, then the applicable interest rate upon default shall be the highest interest rate that may be collected from Maker under applicable laws at such time.
14. Costs of Collection.Should the indebtedness represented by this Note, or any part hereof, be collected atlaw,inequity,or in any bankruptcy, receivership or other court proceeding, or this Note be placed in the hands of any attorney for collection after default, Maker agrees topay,in addition to the principal and interest due hereon, all reasonable attorneys’ fees, plus all other reasonable costs and expenses of collection and enforcement, including any reasonable fees incurred in connection with such proceedings or collection of the Note and/or enforcement of Holder’s rights with respect to the administration, supervision, preservation or protection of, or realization upon, any Collateral securing payment hereof.
15. Miscellaneous.
a. This Note shall be binding upon Maker and shall inure to the benefit of Holder and its successors, assigns, heirs, and legal representatives.
b. Any failure or delay by Holder to insist upon the strict performance of any term, condition, covenant or agreement of this Note, or to exercise any right, power or remedy hereunder shall not constitute a waiver of any such term, condition, covenant, agreement, right, power orremedy.
c. Any provision of this Note that is unenforceable shall be severed from this Note to the extent reasonably possible without invalidating or affecting the intent, validity or enforceability of any other provision of this Note.
d. This Note may not be modified or amended in any respect except in a writing executed by the party to be charged.
e. Timeis of the essence.
16. Notices.All notices required to be given under this Note shall be given as follows or at such other address as a party may designate by written notice to the other parties:
To the Maker:
BFIT Brands, LLC
Attn: Erik Rothchild
6645 E. GeldingDr.Scottsdale, AZ 85254
To the Holder:
Rocky Mountain High Brands, Inc.
Attn: David M. Seeberger
9101 LBJ Freeway, Suite 200
Dallas, TX 75243
Notices may be transmitted by facsimile, certified mail, private delivery, or any other commercially reasonable means, and shall be deemed given upon receipt by the Party to whom they are addressed.
17. Waiverof Certain Formalities.Allpartiestothis Noteherebywaivepresentment, dishonor,noticeofdishonorandprotest. All parties hereto consentto, andHolderisherebyexpressly authorized to make, without notice, any and all renewals, extensions,modificationsorwaiversof thetime foror thetermsofpaymentof anysumorsumsdue hereunder,orunderanydocumentsorinstrumentsrelatingto orsecuringthisNote,or ofthe performanceof anycovenants, conditionsoragreements hereoforthereofor thetaking orreleaseofcollateralsecuringthisNote.Any such action takenbyHolder shallnotdischargetheliabilityof anypartytothisNote.
18. GrantofExclusiveOptionToPurchaseAllAssets.Asadditional consideration toHolder, Makerherebygrants to the Holder the irrevocable option to purchase all of the assets of the Maker for a period of three (3) months from the date of this Note (the “Option Period”), including, but not limited to, the following:
| a. | All Inventory (includingallfinished goods, packaging, workinprocess,and allraw materials) |
| c. | All rightsto the“FitWhey”Trademark;and |
| d. | All RecipesandFormulasrelatedto the“FitWhey” branded products |
| f. | AllGoodwilland allother IntangibleAssetsofMaker |
Additional terms of the asset purchase will include:
| a. | A suitable non-compete agreement to be executed by Maker and its members and executives; |
| b. | Holder will not assume any liabilities of Maker; and |
| c. | Holder shall, at the time of the asset purchase, enter into a mutually acceptable employment agreement, consulting, or similar service agreement with Erik Rothchild. |
If Holder choses to exercise this option during the Option Period, it shall do so by giving written notice thereof to the Maker in writing. The asset purchase may be documented by a comprehensive Asset Purchase Agreement to be prepared and executed by the Holder and theMaker.Upon notice of exercise of this option by the Holder, Holder and Maker shall execute such documents or other papers and take such further actions as may be reasonably required or desirable to carry out the asset purchase contemplated by this option. The total purchase price for the assets to be acquired shall be $230,000 (the “Purchase Price”), to be paid as follows:
| a. | $75,000 in cash, to be paid to Maker in installments following the effective date of the asset purchase, payable on the 15thday the month following the end of each of the Holder’s fiscal quarters. Each installment payment shall be equal to five percent (5%) of the net sales revenue generated by Maker’s business during the applicable fiscalquarter.Net sales are defined as total sales less allowances, returns, discounts, and slotting fees; and |
| b. | $75,000 worth of validly issued, fully paid, non-assessable shares of the Holder’s common stock to be issued on the effective date of the asset purchase. The shares shall be valued using the closing share price for the Holder’s common stock on the effective date of the asset sale. |
| c. | Forgiveness of the $80,000 Secured Promissory Note dated June 29, 2018 between RMHB andBFIT. |
19. NoShop.ThroughtheexpirationoftheOption Period,Maker shall not,directlyorindirectly,throughanydirector,officer,employee, agent,representativeorotherwise (andeachofsaidparties shallusereasonable effortstoinsure suchpersons shallnotdirectly orindirectly) (i)solicit,initiateorencouragethesubmissionofinquiries,proposalsoroffersfromanypersonrelatingto(a)anybusiness combination withrespectto theMaker,includingwithoutlimitationtheissuanceof anysecuritiesof theMaker;or(b)thesaleofany of theassets and/or capitalstock of theMaker(in either case,an"AlternativeTransaction"),(ii)enterintoorparticipateinanynegotiations,orinitiateanydiscussionsorcontinueanydiscussionsinitiatedbyothers, regardinganyAlternativeTransaction,orfurnishto anyother personanyinformation withrespectto theassetsorbusinessoftheMakeror itsbusinessfor thepurposesofpursuingapossibleAlternative Transaction withanyotherparty,or(iii) otherwise participatein,assist,facilitateorencourageanyeffort orattemptby anyother personto do any of theforegoing,exceptasrequiredby lawasfiduciaries.TheMaker shallpromptly notifytheHolderof anyproposalorinquiry made toit or any of itsagents,representatives, orotherwisewithrespect to any of theforegoing.
20. Due Diligence.TheMaker(anditssubsidiaries) shall affordto theofficers,attorneys, accountantsandotherauthorizedrepresentativesof theHolder reasonableaccess, duringregularbusiness hoursanduponreasonablenotice,to theMaker'sbooks,records,personnelandproperties(including, withoutlimitation,thework papers preparedbyits auditors)sothattheHoldermayhave fullopportunitytomake suchreview,examinationandinvestigationas it maydesireof theMaker's businessandaffairs.TheMakerwill causeitsemployees, accountantsandattorneystocooperatefullywith saidreview,examinationandinvestigationand tomake fulldisclosureto theHolderof allmaterialfacts affectingtheMaker'sfinancial conditionsandbusiness operations.
21. Conduct of Business of the Maker and Maintenance of its Equity Structure. During the Option Period, the Maker shall conduct its business only in the ordinary and usual course and make no material change thereto. The Maker shall not issue any more membership interests or other ownership interests, nor will it grant any options or warrants for membership interests in the Maker without the prior written consent of theHolder.
22. SpecificPerformance.The parties hereto agree that,if: (i) Maker has failed or refused to abide by the covenants set forth in Sections 19, 20, or 21, above,or (ii) upon Holder’s exercise of the option granted in Section 18, the Maker has failed or refuse to consummate the asset purchase described above,then monetary damages would not be an adequateremedy.It is expressly agreed that the Holder shall be entitled to equitable relief, including injunctive relief and specific performance of the terms of Sections 18, 19, 20, and 21, above, this being in addition to any other remedies to which it may be entitled at law or inequity.
Remainder of Page Intentionally Omitted; Signature Page to Follow
IN WITNESS WHEREOF,this Note has been executed effective the date and place first written above.
“Maker”: BFIT BRANDS, LLC
By:/s/ Tim McGeehan
| | Tim McGeehan, Majority Shareholder |
By:/s/ Erik Rothchild
| | Erik Rothchild, Co-Founder |
“Holder”: ROCKYMOUNTAINHIGHBRANDS, INC.
By:/s/Michael Welch
Exhibit “A”Collateral
Each and all of the following in which BFIT Brands, LLC, an Arizona limited liability company, has any right, title, or interest, regardless of the manner in which such items are formally held or titled; all as defined in the Texas Uniform Commercial Code - Secured Transactions (§§ 9.101, et. seq.) as of the date of this Note, and as the same may be amended hereafter:
All inventory, as defined in §9.102(48), including all finished goods held for sale, and all raw materials, packaging, and work in process, whether now existing or hereafter coming into existence or acquired, together with any and all proceeds of such inventory within the meaning of §9.102(65), including, but not limited to all:
| a. | Accounts, as defined in §9.102(2) |
| b. | Cash proceeds, as defined in §9.102(9) |
| c. | Chattel paper, as defined in §9.102(11) |
| d. | Commercial tort claims, as defined in §9.102(13) |
| e. | Deposit accounts, as defined in §9.102(29) |
| f. | Documents, as defined in §9.102(30) |
| g. | Electronic chattel paper, as defined in §9.102(31) |
| h. | General intangibles, as defined in §9.102(42) |
| i. | Instruments, as defined in §9.102(47) |
| j. | Investment property, as defined in §9.102(49) |
| k. | Noncash proceeds, as defined in §9.102(58) |
| l. | Payment intangibles, as defined in §9.102(62) |
| m. | Promissory notes, as defined in §9.102(66) |
| n. | Supporting obligations, as defined in §9.102(78); and |
| o. | Tangiblechattel paper, as defined in §9.102(79). |
