EXHIBIT 10.1
EXCHANGE OPTION
This Agreement is made as of February 24, 2014 by and between Erin
Phillips, Shawn Phillips and Strainwise, Inc. (the "Company") to establish the
terms and conditions by which the Company will have the option to acquire
medical and recreational marijuana stores owned by Erin or Shawn Phillips.
1. Erin Phillips and Shawn Phillips (the "Phillips") do, by this Agreement,
grant the Company the option ("Exchange Option") to acquire medical or
recreational marijuana stores (the "Captive Stores") now owned, or that may
become owned, by the Phillips in the future. The Exchange Option may be
exercised by the Company anytime within six months from the date that laws or
regulations permit the Company to own all or a part of the Captive Stores.
2. Upon the exercise of the Exchange Option, the Phillips will be obligated
to exchange the Captive Stores (or such percentage interest in the Captive Store
that the Company can legally acquire) for shares of the Company's common stock
(the "Exchange Shares").
3. The number of the Exchange Shares to be issued to the Phillips will be
determined by the following formula:
5 x A x B
---------
C
Where:
A = the combined EBITDA of the Captive Stores for the immediately
preceding twelve (12) month period from the date the Exchange Option is
exercised.
B = The percentage in the Captive Stores that can be acquired by the
C ompany.
C = the average closing price on the Pink Sheets, OTC Bulletin Board,
NASDAQ Markets, or NYSE/MKT for the ninety (90) days preceding the date
the Exchange Option is exercised;
Combined EBITDA will be determined using generally accepted accounting
principles, consistently applied.
4. Notwithstanding the above, the number of Exchange Shares will be
reduced, if necessary, such that, following the issuance of the Exchange Shares,
the total number of shares of the Company's common stock owned by the Phillips,
together with any shares issuable upon the exercise of any option or warrants
held by the Phillips, or any shares issuable upon the conversion of any
securities owned by the Phillips, will not exceed 85% of the Company's
outstanding shares of common stock.
5. Any advances to the Phillips and/or accounts receivable from the
Phillips, or any distributions to them in excess of the capital account of any
Captive Store at the time of the completion of the exchange, will (i) be
personally guaranteed by both Shawn and Erin Phillips, (ii) will be payable 36
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months from the date of the completion of the Mandatory Exchange, and (iii) will
bear interest, to be adjusted monthly, at the LIBOR rate plus 3%.
6. If the Exchange Option is exercised, the following is an example of the
number of Exchange Shares to be issued to the Phillips, assuming the Company can
legally acquire a 50% interest in the Captive Stores:
o Combined EBITDA for the immediately preceding twelve (12) month period
- $80,000,000;
o Fifty percent of the combined EBITDA - $80,000,000 X 50% =
$40,000,000;
o Combined EBITDA multiplied by 5 times - 40,000,000 X 5 = 200,000,000;
o Average market price for the preceding ninety (90) day period - $20;
and
o Number of Exchange Shares to be issues to Phillips - 10,000,000
7. The parties understand that the Captive Stores may not be owned equally
by Erin and Shawn Phillips. In such a case:
o the Exchange Shares to be issued to Erin Phillips will be based upon
the percentage of the combined EBITDA of the Captive Stores owed by
Erin Phillips; and
o the Exchange Shares to be issued to Shawn Phillips will be based upon
the percentage of the combined EBITDA of the Captive Stores owed by
Shawn Phillips
8. The Exchange Shares will be "restricted shares", as that term is defined
in Rule 144 of the Securities Exchange Commission. At the option of the holder
of the Exchange Shares, the Exchange Shares will be included in the first
registration statement filed by the Company with the Securities and Exchange
Commission following the exercise of the Exchange Option, excluding any
registration statement on Form S-4, S-8, or any other inapplicable form (the
"piggy-back" registration rights). Notwithstanding the above, the underwriter of
any public offering conducted by the Company may limit the Exchange Shares which
may be sold due to market conditions.
9. No shareholder of the Company will be granted piggyback registration
rights superior to those of the Exchange Shares. The Company will pay all
registration expenses (exclusive of underwriting discounts and commissions and
special counsel to the Phillips). The registration rights may be transferred
provided that the Company (i) is given prior written notice; (ii) the transfer
is in connection with a transfer of not less than 1,000,000 shares of the
Company's common stock; and (iii) the transfer is to no more than three persons.
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10. Any disputes, claims or controversies concerning this Agreement will be
settled by binding arbitration in Denver, Colorado in accordance with the rules
of the American Arbitration Association.
11. All notices required or permitted to be given under this Agreement
shall be in writing and shall be delivered by hand or mailed by United States
mail, registered or certified, return receipt requested, postage prepaid,
addressed as follows:
In case of notice to the Company:
Strainwise, Inc.
1350 Independence St., Suite 300
Lakewood, CO 80125
In case of notice to the Phillips:
8468 Lewis Ct
Arvada, CO 80005
The address of either party hereto may be changed by written notice to the
other party hereto given in the manner hereinabove described. All such notices
shall be deemed to have been given when delivered or mailed as aforesaid.
12. This Agreement contains the entire Agreement and understanding between
the parties hereto, and supersedes all prior agreements or understandings
between the parties. No representations were made or relied upon by either
party, other than those that are expressly set forth. The section headings
throughout this Agreement are for convenience and reference only, and shall in
no way be deemed to define, limit, or add to the meaning of any provision of
this Agreement. This Agreement and any provision hereof, may not be waived,
changed, modified, or discharged orally, but only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, or discharge is sought. Except as otherwise expressly provided
herein, no waiver of any covenant, condition, or provision of this Agreement
shall be deemed to have been made unless expressly in writing and signed by the
party against whom such waiver is charged; and (i) the failure of any party to
insist in any one or more cases upon the performance of any of the provisions,
covenants, or conditions of this Agreement or to exercise any option herein
contained shall not be construed as a waiver or relinquishment for the future of
any such provisions, convenants, or conditions, (ii) the acceptance of
performance of anything required by this Agreement to be performed with
knowledge of the breach or failure of a covenant, condition, or provision hereof
shall not be deemed a waiver of such breach or failure, and (iii) no waiver by
any party of one breach by another party shall be construed as a waiver with
respect to any other or subsequent breach. This Agreement shall inure to and be
binding upon the heirs, executors, personal representatives, successors and
assigns of each of the parties to this Agreement. The invalidity or
unenforceability of any provision of this Agreement shall not affect the
validity or enforceability of any other provisions of this Agreement which shall
continue in full force and effect except for any such invalid or unenforceable
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provision. The agreement will be governed by the laws of Colorado, without
giving effect to conflict of law rules.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement the
day and year first above written.
STRAINWISE, INC.
By: /s/ Shawn Phillips
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Shawn Phillips, Chief Executive
Officer
/s/ Shawn Phillips
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Shawn Phillips
/s/ Erin Phillips
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Erin Phillips
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