Common use of Earnout Stock Clause in Contracts

Earnout Stock. (i) Subject to the terms and conditions of this Section 5(g), the Company Members shall earn up to a number of shares of Parent Common Stock (or, following the consummation of a Qualifying Acquisition, shares of the publicly listed company that acquired Parent) equal to the Earnout Stock Consideration, based on the Company achieving certain Earnout Milestones. The total “Earnout Stock Consideration” shall be a number of shares of Parent Common Stock (or, following the consummation of a Qualifying Acquisition, shares of the publicly listed company that acquired Parent) calculated by dividing (i) $17,500,000 by (ii) a per share value that is equal to FMV. (ii) The “Earnout Milestones” are as follows: (1) 25% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company building out a wholesale Flower Sales Department achieving $20,000,000 in revenue (as determined in accordance with GAAP) during fiscal year 2020 (the “Flower Sales Milestone”); (2) 50% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company achieving $75,000,000 in revenue (as determined in accordance with GAAP during fiscal year 2020) (the “Revenue Milestone”); (3) 5% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company’s cannabis derived terpene “Flavor Factory” achieving an average of 50,000 grams of cannabis derived terpene production capacity per month in California during fiscal year 2020 (the “Flavor Factory Production Milestone”) ; and (4) 20% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company’s cannabis derived terpene “Flavor Factory” achieving an average of 10,000 grams of cannabis derived terpene sales per month in California over three consecutive months during fiscal year 2020 (the “Flavor Factory Sales Milestone”). (iii) In the event that the Flower Sales Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) the revenue (as determined in accordance with GAAP) of the wholesale Flower Sales Department during fiscal year 2020 (the “Flower Sales Revenue”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Flower Sales Milestone multiplied by (a) the Flower Sales Revenue divided by (b) $20,000,000, in accordance with Section 5(b)(v). (iv) In the event that the Revenue Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) the revenue (as determined in accordance with GAAP) of the Company during fiscal year 2020 (the “Company Revenue”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Revenue Milestone multiplied by (a) the Company Revenue divided by (b) $75,000,000, in accordance with Section 5(b)(v). (v) In the event that the Flavor Factory Production Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) Parent’s reasonable calculation of the highest number of grams of cannabis derived terpene production achieved in a month in California over during fiscal year 2020 at the Company’s cannabis derived terpene “Flavor Factory” (the “Flavor Factory Production Volume”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Flavor Factory Production Milestone multiplied by (a) the Flavor Factory Production Volume divided by (b) 50,000 grams, in accordance with Section 5(b)(v). (vi) In the event that the Flavor Factory Sales Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) Parent’s reasonable calculation of the average number of grams of cannabis derived terpene sales per month in California over the final three months of fiscal year 2020 at the Company’s cannabis derived terpene “Flavor Factory” (the “Flavor Factory Sales Volume”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Flavor Factory Sales Milestone multiplied by (a) the Flavor Factory Sales Volume divided by (b) 50,000 grams, in accordance with Section 5(b)(v).

Earnout Stock. (ia) Subject to the terms and conditions of this Section 5(g)2.7, the Company Members shall earn up to a number of shares of Parent Common Stock (or, following the consummation of a Qualifying Acquisition, shares of the publicly listed company that acquired Parent) equal to the Earnout Stock Consideration, based on the Company achieving certain Earnout Milestones. The total “Earnout Stock Consideration” that may be payable hereunder shall be a number of shares of Parent Common Stock (or, following the consummation of a Qualifying Acquisition, shares of the publicly listed company that acquired Parent) calculated by dividing (i) $17,500,000 by (ii) a per share value that is equal to FMV. (iib) The “Earnout Milestones” are as follows: (1i) 25% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company building out a wholesale Flower Sales Department achieving $20,000,000 in revenue (as determined in accordance with GAAP) during fiscal year 2020 (the “Flower Sales Milestone”); (2ii) 50% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company achieving $75,000,000 in revenue (as determined in accordance with GAAP during fiscal year 2020) 2020 (the “Revenue Milestone”); (3iii) 5% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company’s cannabis derived terpene “Flavor Factory” achieving an average of 50,000 grams of cannabis derived terpene production capacity per month in California during fiscal year 2020 (the “Flavor Factory Production Milestone”) ); and (4iv) 20% of the Earnout Stock Consideration shall become issuable to the holders of Company Interests upon the Company’s cannabis derived terpene “Flavor Factory” achieving an average of 10,000 grams of cannabis derived terpene sales per month in California over three consecutive months during fiscal year 2020 (the “Flavor Factory Sales Milestone”)]. (iiic) Promptly following the achievement of any Earnout Milestone, Parent shall provide written notice to the Representative that such Earnout Milestone has been achieved. (d) In the event that the Flower Sales Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) the revenue (as determined in accordance with GAAP) of the wholesale Flower Sales Department during fiscal year 2020 (the “Flower Sales Revenue”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Flower Sales Milestone multiplied by (a) the Flower Sales Revenue divided by (b) $20,000,000, in accordance with Section 5(b)(v2.3(c)(v). (ive) In the event that the Revenue Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) the revenue (as determined in accordance with GAAP) of the Company during fiscal year 2020 (the “Company Revenue”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Revenue Milestone multiplied by (a) the Company Revenue divided by (b) $75,000,000, in accordance with Section 5(b)(v2.3(c)(v). (vf) In the event that the Flavor Factory Production Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) Parent’s reasonable calculation of the highest number of grams of cannabis derived terpene production achieved in a month in California over during fiscal year 2020 at the Company’s cannabis derived terpene “Flavor Factory” (the “Flavor Factory Production Volume”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Flavor Factory Production Milestone multiplied by (a) the Flavor Factory Production Volume divided by (b) 50,000 grams, in accordance with Section 5(b)(v2.3(c)(v). (vig) In the event that the Flavor Factory Sales Milestone is not achieved, then within 30 days following the end of fiscal year 2020, Parent shall provide written notice to the Representative setting forth (i) Parent’s reasonable calculation of the average number of grams of cannabis derived terpene sales per month in California over the final three months of fiscal year 2020 at the Company’s cannabis derived terpene “Flavor Factory” (the “Flavor Factory Sales Volume”) and (ii) the portion of the Earnout Stock Consideration issuable for the full Flavor Factory Sales Milestone multiplied by (a) the Flavor Factory Sales Volume divided by (b) 50,000 grams, in accordance with Section 5(b)(v2.3(c)(v). (h) After receipt of the notice regarding Flower Sales Revenue or the Company Revenue (each an “Earnout Statement”), the Representative will have 30 days (the “Earnout Review Period”) to review the Earnout Statement. Subject to the execution of a customary nondisclosure agreement, the Representative and his, her or its legal, accounting and/or financial advisors shall be given reasonable access during normal business hours (or such other times as the parties may agree) to the books and records of Parent and the Surviving Company to the extent the same are necessary for the proper calculation of the Flower Sales Revenue or the Company Revenue. The Representative may dispute items reflected in the Earnout Statement on the basis that they were not prepared in accordance with the requirements set forth in this Section 2.7 or that the same contain mathematical errors. Unless the Representative delivers written notice to Parent on or prior to the end of the Earnout Review Period specifying in reasonable detail the amount, nature and basis of each disputed item, the Representative and the Company Members will be deemed to have accepted and agreed to the Earnout Statement, which shall then be final and binding upon all the parties. If the Representative so notifies Parent of his objection to the Earnout Statement, the Representative and Parent must, for 30 days (or such longer period as the Representative and Parent may agree in writing) following such notice (the “Earnout Resolution Period”), attempt in good faith to resolve their differences and any resolution by them as to any disputed amount is final, binding and conclusive on the parties. (i) If, at the conclusion of the Earnout Resolution Period, there are any amounts remaining in dispute as to applicable the Earnout Statement, the Representative and Parent will select a mutually agreeable nationally recognized firm of independent certified public accountants with nationwide audit, accounting and valuation practices to resolve any remaining objections. The accounting firm will resolve any such objections and determine, in accordance with the requirements set forth in this Section 2.7, the items and amounts in dispute. The parties will provide the accounting firm, within ten (10) days of its selection, with a definitive statement of the position of each party with respect to each unresolved objection and will advise the accounting firm that the parties accept the accounting firm as the appropriate Person to determine the correct items and amounts for all purposes relevant to the resolution of the unresolved objections. The Representative and Parent, as applicable, will provide the accounting firm access to the books and records of Parent and/or the Surviving Company related to the calculation of the Flower Sales Revenue or the Company Revenue. The accounting firm will have 30 days to carry out a review of the unresolved objections and prepare a written statement of its determination regarding each unresolved objection. The determination of the accounting firm will be set forth in writing and will, absent manifest error, be conclusive and binding upon the parties. Parent will revise the Earnout Statement as appropriate to reflect the resolution of any objections to the Earnout Statement pursuant to this Section 2.7. (j) If the Representative and Parent submit any unresolved objections to an accounting firm for resolution as provided in this Section 2.7, each party will bear its own costs and expenses, and pay one half of the fees and expenses of the accounting firm. (k) The applicable portion of any Earnout Stock Consideration issuable pursuant to Sections 2.7(c)(j) above shall be issued to each Company Member upon the later of the Relevant Date and final determination of achievement of the applicable Earnout Milestone. If the Earnout Stock Consideration issuable in connection with a Liquidity Event is the result of the closing of a QA, then such shares shall be issued to each Company Member in proportion and at such times as any lock-up restriction applicable to such shares is released. Any Earnout Stock Consideration due hereunder shall be issued to the Company Members promptly following, but in any event within 10 calendar days thereof, any date such shares are required to be issued in accordance with this Section 2.7(k). Following achievement of the applicable Earnout Milestone, the Representative may waive such issuance restrictions at any time with respect to all or any portion of the issuable shares; provided, that, in no event shall any Earnout Stock Consideration be issued prior to the expiration or waiver of the Rescission Right. (l) Until December 31, 2020, Parent shall not take any action in bad faith whose purpose is to intentionally minimize or intentionally interfere with the achievement of any Earnout Milestone. Notwithstanding the foregoing, for the avoidance of doubt, subject to Section 6.4, Parent shall have sole discretion over all matters relating to the Company Products and shall be under no obligation to operate (or cause to be operated) Parent or the Surviving Company to achieve any Earnout Milestone, including any specific level of revenue, production capacity or sales.