As filed with the Securities and Exchange Commission on June 13, 2019
Registration Statement No. ___________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
UBID HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 5961 | 45-2482974 | ||
|
(State or other jurisdiction of incorporation or organization) |
(Primary Standard Industrial Classification Code Number) |
(I.R.S. Employer Identification No.) |
566 West Adams Street
Suite 260
Chicago, IL, 60661
(773) 272-5000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Ketan Thakker, CEO
566 West Adams Street
Suite 260
Chicago, IL, 60661
(773) 272-5000
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
Ernest M. Stern, Esq.
Culhane Meadows PLLC
1101 Pennsylvania Avenue, N.W.
Suite 300
Washington, D.C. 20004
(301) 910-2030
Approximate Date of Proposed Sale to the Public: As soon as practicable after the effective date of this registration statement.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ¨
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ¨ | Accelerated filer Accelerated filer | ¨ |
| Non-accelerated filer | x | Smaller reporting company | x |
| Emerging growth company | x |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act. x
CALCULATION OF REGISTRATION FEE
| Title of each Class of Securities to be Registered |
Shares to be Registered(1) |
Proposed Maximum Aggregate Offering Price Per Share(2) |
Maximum Aggregate Offering Price(1)(2) |
Amount of Registration Fee(2) |
||||||||||||
| Shares of Common Stock, par value $.001, held by FirstFire Global Opportunities Fund | 500,000 | $ | 0.043 | $ | 21,500 | $ | 2.61 | |||||||||
| Shares of Common Stock, par value $.001, held by Fourth Street Fund, LP | 8,520,218 | $ | 0.043 | $ | 366,369 | $ | 44.40 | |||||||||
| Shares of Common Stock, par value $.001 held by Darren Bankston | 3,300,000 | $ | 0.043 | $ | 141,900 | $ | 17.20 | |||||||||
| Shares of Common Stock, par value $.001, underlying FirstFire Global Opportunities Fund Convertible Note (3) | 7,333,333 | $ | 0.043 | $ | 315,333 | $ | 38.22 | |||||||||
| Shares of Common Stock issuable upon exercise of First Fire Global Opportunities Fund Warrant (4) | 5,250,000 | $ | 0.050 | $ | 262,500 | $ | 31.82 | |||||||||
| Shares of Common Stock, par value $.001, underlying Auctus Fund, LLC Convertible Note (3) | 9,250,000 | $ | 0.043 | $ | 397,750 | $ | 48.21 | |||||||||
| Shares of Common Stock issuable upon exercise of Auctus Fund, LLC Warrant (5) | 7,000,000 | $ | 0.060 | $ | 420,000 | $ | 50.90 | |||||||||
| TOTAL | 41,153,551 | $ | 1,925,352 | $ | 233.35 | |||||||||||
| (1) | Pursuant to Rule 416 under the Securities Act, this registration statement shall be deemed to cover additional securities (i) to be offered or issued in connection with any provision of any securities purported to be registered hereby pursuant to terms which provide for a change in the amount of securities being offered or issued to prevent dilution resulting from stock splits, stock dividends, or similar transactions and (ii) of the same class as the securities covered by this registration statement issued or issuable prior to completion of the distribution of the securities covered by this registration statement as a result of a split of, or a stock dividend on, the registered securities. |
| (2) | Estimated solely for the purpose of calculating the amount of the registration fee, based upon the average of the high and low prices of the common stock, as reported by OTC:QB Market on June 6, 2019, in accordance with Rule 457(c) promulgated under the Securities Act of 1933, as amended. |
| (3) | Represents a good faith estimate of the shares of common stock underlying the convertible note issued by the registrant in a private placement, assuming for purposes hereof that (x) such note is convertible at $0.043 per share, the initial conversion price, and (y) interest on such note accrues through November 13, 2019, without taking into account the limitations on the conversion of such note set forth in such note. |
| (4) | Represents a good faith estimate of the shares of common stock underlying the convertible note issued by the registrant in a private placement, assuming for purposes hereof that (x) such note is convertible at $0.043 per share, the initial conversion price, and (y) interest on such note accrues through April 9, 2020, without taking into account the limitations on the conversion of such note set forth in such note. |
| (5) | Represents a good faith estimate of the shares of common stock underlying the warrant issued by the registrant in a private placement. |
___________________
This Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED June 13, 2019
Prospectus
55,820,218 Shares of Common Stock
uBid Holdings, Inc.
This prospectus covers 12,320,218 shares of our common stock that may be offered for resale or otherwise disposed of by FirstFire Global Opportunities Fund, LLP (“FirstFire Global”), Auctus Fund, LLC (“Auctus” or the “Auctus Fund”), Fourth Street Fund, LP and Darren Bankston, including their pledgees, assignees or successors-in-interest (collectively, the “Selling Securityholders”). This prospectus also covers the initial issuance of 43,500,000 shares of our common stock underlying the convertible notes and the privately held warrants held by FirstFire Global and Auctus. This is the initial public offering of our common stock.
We will not receive any proceeds from the sale or other disposition of the securities by the Selling Securityholders. However, we will receive up to approximately $682,000 in gross proceeds upon the cash exercise of the warrant covering certain of the securities offered for resale. We will use any such proceeds for working capital.
We are an “emerging growth company” under the Federal securities laws and will be subject to reduced public company reporting requirements as set forth on page 5 of this prospectus. Our common stock is quoted under the symbol “UBID” on the OTC:QB Market. On June 6, 2019, the last reported sale price of our common stock was $0.043.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 11 in this prospectus for a discussion of information that should be considered in connection with an investment in our securities.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this prospectus is June 13, 2019
ADDITIONAL INFORMATION
You should rely only on the information contained or incorporated by reference in this prospectus and in any accompanying prospectus supplement. No one has been authorized to provide you with different information. The shares are not being offered in any jurisdiction where the offer is not permitted. You should not assume that the information in this prospectus or any prospectus supplement is accurate as of any date other than the date on the front of such documents.
TABLE OF CONTENTS
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The following summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that may be important to you. You should read this entire prospectus carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and related notes included elsewhere in this prospectus. In this prospectus, unless otherwise noted, the terms “the Company,” “we,” “us,” and “our” refer to uBid Holdings, Inc., and its subsidiary, SkyAuction.com, Inc.
The Company
Overview
We are a participatory ecommerce company with over two decades of experience in both b2c auctions and fixed price sales. Our focus has been on connecting consumers with high value products and services in a unique, engaging purchase format. Auctions allow consumers an opportunity to establish pricing at substantial savings to those found via normal retail outlets both online and in brick and mortar store locations. Our online marketplaces provide (i) manufacturers, retailers, distributors and other suppliers with what we believe is an efficient and economical channel for maximizing revenue on their merchandise while at the same time moving new, overstock, close-out and recertified products and providing consumers and businesses with a convenient method for obtaining this merchandise virtually anytime and anywhere at substantial savings, and (ii) since our recent acquisition of SkyAuction.com, Inc. (“SkyAuction”), travel products and services.
Recent Mergers and Acquisitions
Effective November 5, 2018, we entered into a merger agreement (the “uBid Merger Agreement”) dated October 23, 2018, whereby all of the shareholders of uBid Holdings, Inc. (“uBid”), a privately held Delaware corporation, exchanged all of their shares of common stock for newly issued shares of Incumaker common stock (the “uBid Merger”). As a result of the uBid Merger, (i) uBid Holdings, Inc. (“uBid”) shareholders acquired 85.7% of the fully diluted shares of Incumaker, (ii) the business of uBid will continue as the existing business operations of Incumaker and (iii) Incumaker will be managed by uBid’s management after effectiveness of the Merger under Delaware law. The transaction has been accounted for as a reverse merger.
On November 12, 2018, we entered into a reverse triangular merger transaction (the “SkyAuction Merger”) among SkyAuction.com, Inc. (“SkyAuction”), SA Acquisition Corp. and Incumaker whereby all of the shareholders of SkyAuction exchanged all of their shares of common stock for newly issued shares of Incumaker common stock in accordance with the terms of the Agreement and Plan of Merger among these companies (the “SkyAuction Merger Agreement”). SkyAuction was the surviving corporation after merging with SA.com Acquisition Corp. and remains as a wholly-owned subsidiary of Incumaker. As a result of the SkyAuction Merger, SkyAuction acquired 40.25% of the issued and outstanding shares of Incumaker. Pursuant to the terms of the SkyAuction Merger Agreement, each outstanding share of common stock of SkyAuction.com (“SkyAuction Shares”) was entitled to receive approximately 96 shares of Incumaker common stock, par value $.001 per share, and $1.45 in cash to be paid under the terms of a promissory note (the “Promissory Note”) in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger (the “SkyAuction Merger”). The secured note issued to SkyAuction provides for repayment in full at the third anniversary date of the closing date of the SkyAuction Merger, such principal amount to be reduced by 15% of each capital raise we complete (less any finder’s or underwriter’s fees) and interest at 3% per annum payable at our discretion in common stock or cash. The Promissory Note was secured by all assets of SkyAuction under the terms of a Guaranty Agreement. SkyAuction and uBid have amended the Promissory Note to extend the date of the first payment of principal in the amount of $500,000 from 120 days from the date of Closing as that term is defined in the Merger Agreement or March 13, 2019, to date when we have raised sufficient financing to make such payment. Under the terms of the SkyAuction Merger Agreement, we issued Michael Hering, President of SkyAuction, a warrant to acquire 5,000,000 shares of our common stock. The warrant is exercisable for three years at an exercise price of $.05 per share. The transaction has been accounted for as purchase of a business.
Recent Financings
On November 13, 2018, under the terms of a Securities Purchase Agreement between us and FirstFire Global Opportunities Fund, LLC (“FirstFire Global”), we issued a senior convertible note to FirstFire Global in the principal amount of $220,000, bearing interest at 8% per annum, and with a 12 month maturity date. The convertible note is subject to a 10% original issue discount. We are required to file a resale registration statement within 90 days from the effective date of the convertible note or February 13, 2019, and to have that registration statement declared effective 180 days after the effective date of the convertible note or May 13, 2019, but those dates have been extended to accommodate the filing date of this Registration Statement without any penalties under the Securities Purchase Agreement. The registration statement registers (i) three times the number of shares of our common stock issuable to FirstFire Global upon conversion of the convertible note, (ii) three times the number of warrant shares issuable under a three year warrant that we have issued to FirstFire Global to purchase that number of shares of our common stock equal to the lesser of (a) 125% of the number of shares upon conversion of the convertible note issued to FirstFire Global or (b) 5,250,000 shares of our common stock at an exercise price of $.05 and (iii) the 500,000 commitment shares of our common stock that we issued to FirstFire Global for making this loan. The principal amount of the convertible note is convertible after 180 days from the date of the convertible note into our shares of common stock at the lower of (i) $0.05 or (ii) 70% multiplied by the average of the three (3) lowest volume weighted average prices of the Common Stock during the 21 consecutive trading day period immediately preceding the trading day that the Company receives a notice of conversion. The convertible note may be prepaid at 115% of the principal amount at any time 180 days after the date of the convertible note. FirstFire Global shall have the right to participate in any of our future offerings for a period of 18 months from the date of the convertible note for an amount equal to the principal amount of the convertible note.
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Under the terms of the Securities Purchase Agreement we issued to FirstFire Global a warrant (the “FirstFire Warrant”) to purchase 5,250,000 shares of our common stock at an exercise price of $.05 per share for an exercise period of three years from November 13, 2018.
On January 18, 2019, we entered into a note financing with Horberg Enterprise under which we issued a promissory note in the principal amount of $100,000, bearing interest of 6% per annum with a maturity date of January 18, 2020.
On April 9, 2019, we entered into a convertible note financing with Auctus under which we issued a convertible promissory note in the principal amount of $277,500 from which will be deducted $27,500 as a due diligence fee and $4,000 for Auctus’ legal fees, bearing interest of 8% per annum with a maturity date of April 9, 2020. The note is convertible into shares of our common stock at a conversion price equal to the lesser of: (i) $0.06 or (ii) the Variable Conversion Price (defined as 70% multiplied by the average of the three lowest volume weighted average prices of our shares of common stock during the ten consecutive trading day period immediately preceding the trading day that we receive Auctus’ notice of conversion). We are required at all times to have coverage of any potential conversion equal to three times the shares of our common stock into which the unpaid principal and accrued interest of the note is convertible. The initial coverage has been set at 28,750,000 shares. We issued a warrant to Auctus (the “Auctus Warrant”) exercisable for three years to purchase 7,000,000 shares that we will register under the 1933 Act at an exercise price of $0.06 per share. We are authorized to prepay this convertible loan commencing on the date of the note and ending 180 days after the date of the note by paying 115% of the outstanding principal amount of the note together with accrued and unpaid interest thereon.
Recent Name Change
On February 11, 2019, FINRA announced the change of our name from Incumaker, Inc. to uBid Holdings, Inc. and the change of our trading symbol from QMKR to UBID.
Corporate Strategy
Our objective is to leverage the uBid technology and SkyAuction.com platforms and familiar website domain names, product manufacturer relationships, warehousing and distribution logistics, and customer base to enhance our position as a leading online auction and e-commerce marketplace for consumers and businesses. The key elements of our growth strategy are:
| ● | Seek to Increase Customer Repeat Visits. We believe that our auction and bargain-sale format, regular rotation of merchandise and easy-to-navigate websites provides our customers with clear and detailed information about our products, including multiple photographs of items, and encourages our customers to return on a frequent basis. Repeat orders accounted for approximately 50% of total customer orders for each of the years ended December 31, 2016 and 2017 and the year ended December 31, 2018. We will seek to significantly increase repeat visits by our customers. | |
| ● | Leverage Our Combination with SkyAuction. With our acquisition of SkyAuction, we intend to incorporate SkyAuction’s online auction engine for marketing and selling travel products and packages into our overall operations to diversify our product offerings. We also intend to use SkyAuction’s sales, marketing and operations management expertise to streamline, and reorganize our public offers, consumer communications and develop ongoing, forward looking strategy for our overall company. | |
| ● | Increase Breadth of Our Merchandise. We plan to expand the variety and breadth of merchandise that we provide to our customers, adding products that we believe will continue to attract and maintain a loyal customer base. We plan to offer a wide array of consumer products, fashion and accessories as well as products for home, health, lifestyle and of course travel and related services. | |
| ● | Develop New Strategic Supplier Relationships. We plan to develop additional strategic relationships with manufacturers, retailers, distributors and other suppliers. These relationships will include initiatives to expand our development of departments on our websites for companies that do not have effective distribution channels for their merchandise. We believe that we can effectively provide suppliers with an attractive additional distribution channel without requiring them to make any incremental capital investment. |
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| ● | Enter into More Strategic Partnership Arrangements. We intend to develop brand specific relationship with manufactures and retailers to encourage and incorporate their direct brand presence via auction offers on our site. These strategic partnerships will help provide members with reliable name recognized branded products offering these partners end to end control and all competent elements of how their products are offered at auction. | |
| ● | Improved User Experience and Personalization. We believe that given the frequency of use of our platforms on mobile devices, to stay competitive we need to continue to spend time and resources improving user satisfaction of our platforms by improving usability, accessibility and navigation. |
| ● | Enhance and Expand our Relationships with Our Travel Suppliers. We are actively working to enhance our relationships with our travel suppliers in order to increase the number and quality of travel products and services available to our customers. We intend to leverage our success in marketing and distributing travel inventory to establish relationships with new suppliers and to obtain additional inventory from current suppliers. We believe that by adding new suppliers we will be able to provide our customers with a broader variety of travel products and services. |
| ● | Increase Our Secondary Sales Capabilities: By leveraging interest and the initial purchase preferences of our customers we will use the data acquired to offer a broad range of “suggested allied purchases” to our customers via a newly engaged retargeting program. This will give customers an advertising purview of other products and services popularly sold together with their initial purchases. This will be varied in our consumer product offers and will closely mirror destination purchase preferences for travel and related consumers. |
| ● | Expand Internationally: Auctioning is recognized internationally as a proven method for purchasing goods and services at advantageous prices. Our vision is to maximize our deployment within North America as our primary demographic target and take our proven expertise and relationships into various international growth areas as soon as logistical conditions exist to ensure delivery and customer service quality is secure. |
| ● | Develop Additional Revenue Streams: We believe that significant additional opportunities exist to expand revenue opportunities beyond our current listed product and service categories to our base of consumers in current and by expanding our site categories. Experiences, brand specific products as well as “flash sale” or “limited sale” opportunities, could provide ongoing, high margin revenue potential for our existing consumer base as well as helping to entice a new consumer demographic predicated on the varying appeal of each new product. |
| ● | Further Develop Our Technology. We plan to devote significant resources to enhance our technology platform and to further integrate our systems with our operations. We also plan to further improve functionality for users of our website. We believe these investments will enhance customer experience and stimulate sales. We also believe that the further integration of our front-end and back-office operations will enable us to reduce operating costs, enhance customer service, improve our capabilities to manage our inventory and increase our individually targeted marketing capabilities. |
| ● | Strengthen the ubid.com Brand: We are working on an extensive reinvigoration program to educate and inform the customers of our company as well as potential new customers to our core values as well as cost savings auctions can provide. Our brand identity will be focused on our commitment to value, selection, quality, excitement, fun, and of course the benefit of being part of the uBid community. We will demonstrate the extensive experience of our leadership uniquely positions us to deliver on this core value system for each and every one of our customers on each and every purchase. We will be communicating these values in all of our corporate communications, and in all company advertising and promotions. |
| ● | Increase our Marketplace Impact: Create strategic commercial and non-commercial relationships and affiliations to increase company awareness and activity frequency. Working with traditional allied companies with whom we have commercial ties we hope to use our commercial activities to grow our credibility and meaningfulness as a resource partner and market influencer. Also, by working through non-commercial organizations to provide resources for charitable and philanthropic purposes, we hope to leverage our position to provide “good works” that help the communities we are a part of and add a dimension of compassion and social responsibility to our commercial impact. |
Implications of Being an Emerging Growth Company
As a company with less than $1.0 billion in revenue during our most recently completed fiscal year, we qualify as an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended, which we refer to as the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable, in general, to public companies that are not emerging growth companies. These provisions include:
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| · | Reduced disclosure about our executive compensation arrangements; |
| · | No non-binding shareholder advisory votes on executive compensation or golden parachute arrangements; |
| · | Exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting; and |
| · | Reduced disclosure of financial information in this prospectus, limited to two years of audited financial information and two years of selected financial information. |
As a smaller reporting company, each of the foregoing exemptions is currently available to us. We may take advantage of these exemptions for up to five years or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.0 billion in annual revenues as of the end of a fiscal year, if we are deemed to be a large-accelerated filer under the rules of the Securities and Exchange Commission, or if we issue more than $1.0 billion of non- convertible debt over a three-year-period.
The JOBS Act permits an emerging growth company to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision. Therefore, we will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
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Corporate Information
We were incorporated in the State of Delaware on April 13, 2011. Our principal executive office is located at 566 West Adams Street, Suite 260, Chicago, IL 60661, and our telephone number is (773) 272-5000. Our subsidiary, SkyAuction, has its principal executive office at 241 North Avenue West, Westfield, New Jersey 07090. Our Internet website is www.ubidholdings.com, www.ubid.com, and www.skyauction.com. The information on, or that can be accessed through, our website is not part of this prospectus, and you should not rely on any such information in making the decision whether to purchase our common stock.
The Offering
| Common Stock to be Sold | 55,820,218 shares by held by FirstFire Global, Auctus, Fourth Street Fund, LP and Darren Bankston (collectively, the “Selling Securityholders”) composed of 500,000 shares we issued to FirstFire Global and the shares to be issued upon conversion of the FirstFire convertible note, the shares to be issued upon conversion of the Auctus convertible note, exercise of the FirstFire Warrant and the Auctus Warrant, 8,520,218 shares of common stock that we issued to Fourth Street Fund, LP and 3,300,000 shares of common stock that we issued to Darren Bankston. |
| Common Stock Outstanding | 446,856,939 as of June 6, 2019 (1) |
| (1) | Does not include 22,250,000 shares issuable upon exercise of outstanding warrants or upon exercise of 3,000,000 options as of June 6, 2019. |
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| Use of Proceeds | We will not receive any of the proceeds from the sale or other disposition of the securities by the Selling Securityholders. However, we will receive up to approximately $682,000 in gross proceeds upon the cash exercise of the FirstFire Warrant and Auctus Warrant covering certain of the securities offered for resale. We will use any such proceeds for working capital. See “Use of Proceeds”. |
| Dividend Policy | We have never declared any cash dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in financing the growth of our business and do not anticipate paying any cash dividends for the foreseeable future. See “Dividend Policy”. |
| OTC:QB Symbol | UBID |
| Risk Factors | You should carefully consider the information set forth in this prospectus and, in particular, the specific factors set forth in the “Risk Factors” section beginning on page 11 of this prospectus before deciding whether or not to invest in our common stock. |
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Summary Financial Information
The summary financial information set forth below is derived from the more detailed audited consolidated financial statements of the Company appearing elsewhere in this prospectus. You should read the summary consolidated financial information below in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements, including the notes to such financial statements.
| Statement of Operations Data: | Three Months Ended | Three Months Ended | Year Ended | |||||||||||||
| March 31, 2019 | March 31, 2018 | December 31, 2018 | December 31, 2017 | |||||||||||||
| (unaudited) | (unaudited) | |||||||||||||||
| Revenues, net | $ | 1,103,000 | $ | - | $ | 567,000 | $ | 7,000 | ||||||||
| Cost of Revenues | 714,000 | - | 362,000 | - | ||||||||||||
| Gross Profit | 389,000 | - | 205,000 | 7,000 | ||||||||||||
| Total Operating Expenses | 1,670,000 | 116,000 | 1,283,000 | 1,191,000 | ||||||||||||
| Loss from Operations | (1,281,000 | ) | (116,000 | ) | (1,078,000 | ) | (1,184,000 | ) | ||||||||
| Other Income (expense) | (289,000 | ) | (28,000 | ) | (102,000 | ) | 146,000 | |||||||||
| Net (Loss) Income | $ | (1,570,000 | ) | $ | (144,000 | ) | $ | (1,180,000 | ) | $ | (1,330,000 | ) | ||||
| Basic and Diluted | ||||||||||||||||
| Net Loss Per Share | $ | (0.00 | ) | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.01 | ) | ||||
| Weighted Average Number of Shares Outstanding | 437,477,884 | 202,110,632 | 232,201,182 | 202,110,632 | ||||||||||||
Balance Sheet Data:
| March 31, 2019 | December 31, 2018 | December 31, 2017 | ||||||||||
| (unaudited) | ||||||||||||
| Cash | $ | 134,000 | $ 1 17,000 | $ | 43,000 | |||||||
| Other Current Assets | 883,000 | 1,236,000 | 10,000 | |||||||||
| Other Assets | 30,000 | - | - | |||||||||
| Security Deposits | 6,000 | 6,000 | - | |||||||||
| Goodwill | 4,578,000 | 4,578,000 | - | |||||||||
| Intangible Assets, net | 5,684,000 | 6,313,000 | - | |||||||||
| Total Assets | $ | 11,315,000 | $ 1 2,250,000 | $ | 53,000 | |||||||
| Total Current Liabilities | $ | 7,386,000 | $ | 6,987,000 | $ | 1,890,000 | ||||||
| Total Long Term Liabilities | - | - | - | |||||||||
| Common Stock | 447,000 | 432,000 | 202,000 | |||||||||
| Additional Paid-In Capital | 42,594,000 | 42,373,000 | 34,323,000 | |||||||||
| Accumulated other comprehensive income | ||||||||||||
| Accumulated Deficit | (39,112,000 | ) | (37,542,000 | ) | (36,362,000 | ) | ||||||
| Total Stockholdings Equity (Deficiency) | 3,929,000 | 5,263,000 | (1,837,000 | ) | ||||||||
| Total Liabilities and Stockholders’ Equity | $ | 11,315,000 | $ 1 2,250,000 | $ | 53,000 | |||||||
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WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-1 with the SEC registering under the Securities Act the common stock being offered under this prospectus. This prospectus, which is a part of such registration statement, does not include all of the information contained in the registration statement and its exhibits. For further information regarding us, the Selling Securityholders and our common stock, you should consult the registration statement and its exhibits.
Statements contained in this prospectus concerning the provisions of any documents are summaries of those documents and are not necessarily complete, and we refer you to the documents filed with the SEC for more information. The registration statement and any of its amendments, including exhibits filed as a part of the registration statement or an amendment to the registration statement, are available for inspection and copying as described below.
We will distribute annual reports to our stockholders, including financial statements audited and reported on by an independent registered public accounting firm. Any or all reports and other documents we will file with the SEC, as well as any or all of the documents incorporated by reference in this prospectus or the registration statement we filed with the SEC registering for sale the shares of our common stock being offered pursuant to this prospectus, are available at the SEC’s website www.sec.gov, as well as our websites www.ubidholdings.com and www.ubid.com. If you do not have Internet access, requests for copies of such documents should be directed to Ketan Thakker, the Company’s President and CEO, at uBid Holdings, Inc., 566 West Adams Street, Suite 260, Chicago, IL 60661; Tel: (773) 272-5000.
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Investing in our common stock involves a high degree of risk. Prospective investors should carefully consider the risks described below, together with all of the other information included or referred to in this prospectus, before purchasing shares of our common stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. In such case, the trading price of our common stock could decline and investors in our common stock could lose all or part of their investment.
Risks Related to Our Company and Our Business
We have a history of annual net losses which may continue and which may negatively impact our ability to achieve our business objectives, and we received a going concern qualification in our 2018 and 2017 audits.
For the three months ended March 31, 2019, we had net revenue of $1,103,000 compared to net revenue of $0 for the three months ended March 31, 2018 and a net loss of $1,570,000 for the three months ended March 31, 2019 and $144,000 for the three months ended 2018. At March 31, 2019, we had a working capital deficiency of $6,369,000 compared to $5,634,000 as of December 31, 2018. Our independent registered public accounting firm, in their report dated May 15, 2019, expressed substantial doubt about our ability to continue as a going concern due to our recurring losses from operations, negative cash flows from operations and net capital deficiency. There can be no assurance that our future operations will result in net income. Our failure to increase our revenues or improve our gross margins will harm our business. We may not be able to sustain or increase profitability on a quarterly or annual basis in the future. If our revenues grow more slowly than we anticipate, our gross margins fail to improve or our operating expenses exceed our expectations, our operating results will suffer.
We do not have access to any credit facility or other arrangement for borrowing funds.
We currently do not have access to a credit facility or to the proceeds of any mortgage indebtedness or other secured or unsecured indebtedness for borrowed money. We may be unable to obtain financing on favorable terms, or at all. Our lack of any credit facility or other ready access to borrowed funds could have a material adverse effect on our ability to fund additional losses in the near future, or to respond to unexpected cash requirements or other liquidity issues that we may face from time to time. Our inability to generate sufficient cash flow from operations or obtain financing on acceptable terms would have a material adverse effect on our financial results, business and prospects.
Our financial results as an online retailer fluctuate and may be difficult to forecast, and this may cause a decline in the trading price of our stock.
Our revenues, expenses and operating results are difficult to predict given our limited history of current operations. We expect that our operating results will continue to fluctuate in the future due to a number of factors, some of which are beyond our control. These factors include, but are not limited to:
| ● | our ability to increase our brand awareness; | |
| ● | our ability to attract visitors to our websites and convert those visitors into bidders, buyers and customers; | |
| ● | our ability to increase our customer base; | |
| ● | our ability to sell products at auction at the price targets we set; | |
| ● | the amount and timing of costs relating to the expansion of our operations, including sales and marketing expenditures; | |
| ● | our ability to introduce new types of merchandise, service offerings or customer services in a competitive environment; | |
| ● | our ability to control our gross margins due to variable costs like shipping; | |
| ● | technical difficulties consumers might encounter in using our websites; | |
| ● | our ability to manage third-party outsourced operations; | |
| ● | our ability to sell our inventory in a timely manner and maintain customer satisfaction; | |
| ● | delays in shipments as a result of computer systems failures, strikes or other problems with our delivery service or credit card processing providers; | |
| ● | the availability and pricing of merchandise from manufacturers, retailers, distributors and other suppliers; |
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| ● | the amount of returns of our merchandise; | |
| ● | product obsolescence and price erosion; | |
| ● | consumer confidence in encrypted transactions on the Internet; and | |
| ● | effectiveness of offline advertising in generating additional traffic to our websites. |
Due to all of these factors, our operating results may fall below the expectations of investors, which could cause a decline in the trading price of our common stock.
We rely on our relationships with manufacturers, distributors, retailers and other suppliers to obtain sufficient quantities of quality merchandise and travel products on acceptable terms. If we fail to maintain our supplier relationships on acceptable terms, our sales and profitability could suffer.
We do not have contracts with manufacturers or wholesalers that guarantee the availability of merchandise for a set duration. Our contracts or arrangements with suppliers do not provide for the continuation of particular pricing practices, for the availability of any specific products and generally may be terminated by either party. Our current suppliers may not continue to sell their overstock and close-out inventory to us on current terms or at all, and we may not be able to establish new supply relationships. Our relationships with suppliers do not restrict the suppliers from selling their respective inventory to other traditional or online merchandise liquidators or retailers, which could in turn limit the selection of products available on our websites. If we are unable to develop and maintain relationships with suppliers that will allow us to obtain sufficient quantities of merchandise on acceptable commercial terms, such inability could harm our business, prospects, financial condition and results of operations.
Some of our suppliers, such as airlines and hotel and resort companies, offer their products or services directly to customers through the Internet. It is also possible that suppliers may choose not to distribute their products and services through our website, or through the Internet at all. Suppliers could elect to pursue relationships with our competitors, to develop or acquire services that compete with our services or to sell exclusively through other sales and distribution channels. If airlines and other travel suppliers choose to distribute all or substantial quantities of their products and services through alternative channels, we may be unable to maintain or expand our supplier relationships or selection of products and services. In addition, most of our travel service supplier arrangements are short-term in nature and can be terminated by either party at any time or upon short notice. If one or more of our suppliers were to cancel any of these arrangements or were to refuse to renew or were to renegotiate arrangements on terms substantially less favorable to us, we could lose important sources of our products and services.
We depend upon third-party delivery services to deliver products to our customers on a timely and consistent basis. Deterioration in our relationship with any one of these third parties could decrease our ability to track shipments, cause shipment delays and increase our shipping costs and the number of damaged products.
We rely upon multiple third parties for the shipment of products to customers. We cannot be sure that these relationships will continue on terms we find acceptable, or at all. Unexpected increases in shipping costs or delivery times, particularly during the holiday season, could harm our business, prospects, financial condition and results of operations. If our relationships with these third parties are terminated or impaired or if these third parties are unable to deliver products for us, whether through labor shortage, slow-down or stoppage, deteriorating financial or business condition, responses to terrorist attacks, natural disasters, or for any other reason, we would be required to use alternative carriers for the shipment of products to our customers. In addition, conditions such as adverse weather or natural disasters can prevent any carriers from performing their delivery services, which can have an adverse effect on our customers’ satisfaction with our company. In any of these circumstances, we may be unable to engage alternative carriers on a timely basis, upon terms we find acceptable, or at all. Changing carriers, or absence of carrier availability, could have a negative effect on our business, prospects, financial condition and results of operations.
Our business is often seasonal and reliant generally on the holiday season, causing potential slow-downs over several periods.
Our results of operations historically have been seasonal because the majority of our suppliers build their inventories for the holiday season leading to post-holiday overstock, which provides us with purchasing opportunities in the first quarter of the year. In addition, many of our customers reduce their internet usage with the onset of good weather during the summer months, and on and around national holidays. We have historically experienced our strongest quarter of online sequential growth in our first and fourth fiscal quarters due to the holiday season. Accordingly, our business is in large part subject to seasonality and may incur significant slow-downs over several periods within the calendar year.
We intend to make acquisitions that could disrupt our operations and adversely impact our business and operating results.
We intend to attempt to acquire complementary e-commerce businesses and to support the transition and integration of acquired operations with our ongoing business as a part of our growth strategy. Other than as disclosed herein, we currently have no binding commitments or agreements with respect to any such acquisitions and there can be no assurance that we will eventually consummate any acquisitions. The process of integrating acquired assets into our operations may result in unforeseen operating difficulties and expenditures and may absorb significant management attention that would otherwise be available for the ongoing development of our business. In addition, we have limited experience in performing acquisitions and managing growth. There can be no assurance that the anticipated benefits of any acquisition will be realized. In addition, future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which could materially and adversely affect our operating results and financial position. In addition, acquisitions also involve other risks, including risks inherent in entering markets in which we have no or limited prior experience and the potential loss of key employees.
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A significant number of merchandise returns could harm our business, financial condition and results of operations.
We generally allow our customers to return products, subject to the terms of our returns policies. If merchandise returns are significant, our business, prospects, financial condition and results of operations could be harmed. Further, we modify our policies relating to returns from time to time and any policies intended to reduce the number of product returns may result in customer dissatisfaction and fewer repeat customers.
Our pricing strategy may not meet customers’ price expectations or result in net income.
Demand for our products is generally highly sensitive to price. Our pricing strategies have had, and may continue to have, a significant impact on our net sales and net income. We often offer discounted prices and free or discounted shipping as a means of attracting customers and encouraging repeat purchases. Such offers and discounts may reduce our margins. In addition, our competitors’ pricing and marketing strategies are beyond our control and can significantly impact the results of our pricing strategies. If we fail to meet our customers’ price expectations in any given period, or if our competitors decide to engage in aggressive pricing strategies, our business, prospects, financial condition and results of operations would suffer.
If the products that we offer on our online marketplaces do not reflect our customers’ tastes and preferences, our sales and profit margins would decrease.
Our success depends in part on our ability to offer products that reflect consumers’ tastes and preferences. Consumers’ tastes are subject to frequent, significant and sometimes unpredictable changes. Because some of the products that we sell consist of manufacturers’ and retailers’ overstock and close-out inventory, we have limited control over some of the specific products that we are able to offer for sale. If our merchandise fails to satisfy customers’ tastes or respond to changes in customer preferences, our sales could suffer and we could be required to mark down unsold inventory, as we have in the past, which would depress our profit margins. In addition, any failure to offer products in line with customers’ preferences could allow our competitors to gain market share. This could have an adverse effect on our business, prospects, financial condition and results of operations.
Our plans for expansion cannot be implemented if we lose our key personnel or cannot recruit additional personnel.
We depend substantially on the continued services, specialized knowledge and performance of our senior management, particularly Ketan Thakker, our President and CEO of uBid, Salvatore Esposito, Chief Operating Officer, and Michael Hering, Chief Merchandising Officer. While we have an employment agreement with Ketan Thakker but not with Messrs. Hering and Esposito, Mr. Thakker’s employment agreement does not prevent him from terminating his employment with us at any time. As a result, these executives may elect to pursue other opportunities at any time. If one or more of these individuals choose to leave our company, we may lose a significant number of supplier relationships and operating expertise which they have developed over many years and which would be difficult to replace. The loss of the services of any executive officer or other key employee could hurt our business.
In addition, as our business expands, we will need to add new information technology and engineering personnel to maintain and expand our website and systems and customer support personnel to serve our growing customer base. If we are unable to hire and successfully train employees or contractors in these areas, users of our website may have negative experiences and we may lose customers, which would diminish the value of our brand and harm our business. The market for recruiting qualified information technology and other personnel is extremely competitive, and we may experience difficulties in attracting and retaining employees. Should we fail to retain or attract qualified personnel, we may not be able to compete successfully or implement our plans for expansion.
We have an evolving business model with still untested growth initiatives.
We have an evolving business model and intend to implement new strategies to grow our business in the future. Among other strategies for organic growth, we intend to recruit additional vendors to sell products on our websites, to add new product categories to our websites and to increase email and internet advertising. There can be no assurance that we will be successful in developing new product categories or in entering new specialty markets such as charity auctions, hosting third-party websites or in implementing any other growth strategy. Similarly, there can be no assurance that we already have or will be able to obtain or retain any employees, consultants or other resources with any specialized skills or relationships to successfully implement our strategies in the future.
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To obtain future revenue growth and achieve and sustain profitability, we will have to attract and retain customers on cost-effective terms.
Our success depends on our ability to attract and retain customers on cost-effective terms. We have relationships with online services, search engines, affiliate marketing websites, directories and other website and e-commerce businesses to provide content, advertising banners and other links that direct customers to our websites. We rely on these relationships as significant sources of traffic to our websites and to generate new customers. Further, many of the parties with which we may have online-advertising arrangements could provide advertising services for other online or traditional retailers and merchandise liquidators. As a result, these parties may be reluctant to enter into or maintain relationships with us. Failure to achieve sufficient traffic or generate sufficient revenue from purchases originating from third parties may result in termination of these relationships by these third parties. If we are unable to develop or maintain these relationships on acceptable terms, our ability to attract new customers and our financial condition could be harmed. If the underlying technology’s development evolves in a manner that is no longer beneficial to us, our financial condition could be harmed. In addition, certain online marketing agreements may require us to pay upfront fees and make other payments prior to the realization of the sales, if any, associated with those payments. Accordingly, if these relationships or agreements that we may enter into in the future fail to produce the sales that we anticipate, our results of operations will be adversely affected. We cannot give any assurance that we will be able to increase our revenues, if at all, in a cost-effective manner.
We rely upon paid and natural search engines like Google, Bing and Yahoo to rank our product offerings and may at times be subject to changes in search algorithms and ranking penalties if they believe we are not in compliance with their guidelines.
We rely on paid and natural search engines to attract consumer interest in our product offerings. Potential and existing customers use search engines provided by search engine companies, including Google, Bing and Yahoo, which use algorithms and other devices to provide users a natural ranked listing of relevant Internet sites matching a user’s search criteria and specifications. Generally, Internet sites ranked higher in the paid and natural search results lists furnished to users attract the largest visitor share among similar Internet sites. Among retail internet sites, those sites achieving the highest natural search ranking often benefit from increased sales. Natural search engine algorithms utilize information available throughout the Internet, including information available on our websites. Rules and guidelines of these natural search engine companies govern our participation on their sites and how we share relevant Internet information that may be considered or incorporated into the algorithms utilized by these sites. If we fail to present, or improperly present, our websites’ information for use by natural search engine companies, or if any of these natural search engine companies determine we have violated their rules or guidelines, or if others improperly present our websites’ information to these search engine companies, or if natural search engine companies make changes to their search algorithms, we may fail to achieve an optimum ranking in natural search engine listing results, or we may be penalized in a way that could harm our business, prospects, financial condition and results of operations.
Some shoppers may not utilize the search engines at all, and we may be unable to reach some of those shoppers.
Large marketplace websites and sites which aggregate marketplace sellers with a large product selection are becoming increasingly popular, and we may not be able to place our products on these sites to take advantage of their internal search platforms. Further, some shoppers may begin their searches at a competitor’s website and may not utilize traditional search engines at all. Our inability to place products on or access these sites may have a material adverse effect on our business.
More individuals are using mobile devices to access the Internet and versions of our service developed or optimized for these devices may not gain widespread adoption by users of such devices.
Mobile devices are increasingly used for e-commerce transactions. A significant and growing portion of our users access our platforms through mobile devices. We may lose users if we are not able to continue to meet our users’ mobile and multi-screen experience expectations. If we are unable to attract and retain a substantial number of mobile device users to our online marketplaces and services, we may fail to capture a sufficient share of an increasingly important portion of the market for online services. Our ability to successfully address the challenges posed by the rapidly evolving market for mobile transactions is crucial to our continued success, and any failure to continuously increase the volume of mobile transactions effected through our platforms could harm our business.
We rely on third-party systems to conduct our business, and our revenues and market share may decrease if these systems are unavailable in the future or if they no longer offer quality performance.
We rely on third-party computer systems and third-party service providers, including the central reservation systems of airlines and hotels, to make airline ticket and hotel room reservations and credit card verifications and confirmations, to host our website and to advertise and deliver the products sold on our website to customers. We also rely on third-party licenses for components of the software underlying our technology platform. Any interruption in our ability to obtain the products or services of these or other third parties or deterioration in their performance could impair the timing and quality of our own service. If our service providers fail to deliver high-quality products and services in a timely manner to our customers, our services will not meet the expectations of our customers and our reputation and brand will be damaged. Furthermore, if our arrangements with any of these third parties are terminated, we may not find an alternate source of systems support on a timely basis or on terms as advantageous to us.
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We are subject to cyber security risks and risks of data loss or other security breaches.
Our business involves the storage and transmission of users’ proprietary information, and security breaches could expose us to a risk of loss or misuse of this information, and to resulting claims, fines, and litigation. We have been subjected to a variety of cyber-attacks, which have increased in number and variety over time. We believe our systems are probed by potential hackers virtually 24/7, and we expect the problem will continue to grow worse over time. Cyber-attacks may target us, our customers, our suppliers, banks, credit card processors, delivery services, e-commerce in general or the communication infrastructure on which we depend. Any compromise of our security could result in a violation of applicable privacy and other laws, significant legal and financial exposure, damage to our reputation, and a loss of confidence in our security measures, any of which could have a material adverse effect on our financial results and business. Moreover, any insurance coverage we may carry may be inadequate to cover the expenses and other potential financial exposure we could face as a result of a cyber-attack or data breach.
We may not be able to compete successfully against existing or future competitors including larger, well-established and well-financed e-commerce companies and traditional retailers building up their own online operations.
The online retail market is rapidly evolving and intensely competitive. Barriers to entry are minimal, and current and new competitors can launch new websites at a relatively low cost. We currently compete with numerous competitors, including:
| ● | liquidation online retailers such as Liquidity Services; | |
| ● | e-commerce websites such as eBay, Priceline, Etsy, GroupOn, Overstock.com, Wayfair and Zulily; and | |
| ● | private sale sites such as Rue La La and Gilt Groupe. |
We expect the online retail market to become even more competitive as traditional retailers continue to develop services that compete with our services. In October 2016, for instance, Wal-Mart Stores Inc. announced that it will direct billions of dollars in annual capital spending toward boosting e-commerce sales, and spent $3.3 billion to buy online retailer Jet.com and nearly doubled its investment in Chinese online retailer JD.com Inc. In addition, manufacturers and retailers may decide to create their own websites to sell their own overstock and close-out inventory as well as the excess inventory of third parties. Competitive pressures created by any one of our competitors, or by our competitors collectively, could harm our business, prospects, financial condition and results of operations.
Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. In addition, online retailers may be acquired by, receive investments from, or enter into other commercial relationships with larger, well-established and well-financed companies. Some of our competitors may be able to secure merchandise from manufacturers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to website and systems development than we do. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise. We cannot provide assurance that we will be able to compete successfully against existing or future competitors.
Our competitors may directly increase our marketing costs and also may cause us to decrease certain types of marketing.
In addition to competing with us for customers, suppliers, and employees, our competitors may directly increase our operating costs, by driving up the cost of various forms of online advertising, as has happened recently, or otherwise. We may elect to decrease our use of sponsored search or other forms of marketing from time to time to decrease our costs, which may have a material adverse effect on our financial results and business. We may also elect to spend additional amounts on sponsored search or other forms of marketing from time to time to increase traffic to our Website, or to take other actions to increase traffic and/or conversion, and the additional expenditures may have a material adverse effect on our financial results and business.
Our business depends on effective marketing, including marketing via email and social networking messaging, and we intend to increase our spending on marketing and branding, which may adversely affect our financial results.
We depend on effective marketing and high customer traffic. We depend on email to promote our site and offerings and to generate a substantial portion of our revenue. If a significant portion of our target customers no longer utilize email, or if we are unable to effectively and economically deliver email to our potential customers, whether for legal, regulatory or other reasons, it would have a material adverse effect on our business. We also rely on social networking messaging services for marketing purposes, and anything that limits our ability or our customers’ ability or desire to utilize social networking services could have a material adverse effect on our business. If we are unable to develop, implement and maintain effective and efficient cost-effective advertising and marketing programs, it would have a material adverse effect on our financial results and business. Further, as part of our growth strategies, we intend to increase our spending on marketing and branding initiatives significantly, which may adversely affect our financial results. There is no assurance that any increase in our marketing or branding expenditures will result in increased market shares or will ultimately have a positive effect on our financial results.
Our operating results depend on our websites, network infrastructure and transaction-processing systems. Capacity constraints or system failures would harm our business, prospects, financial condition and results of operations.
Any system interruptions that result in the unavailability of our website marketplaces or reduced performance of our transaction systems would reduce our transaction volume and the attractiveness of the services that we provide to suppliers and third parties and would harm our business, prospects, financial condition and results of operations.
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We use internally developed systems for our websites and certain aspects of transaction processing, including databases used for internal analytics and order verifications. We have experienced periodic systems interruptions due to server failure and power failure, which we believe will continue to occur from time to time. Our transaction processing systems and network infrastructure may be unable to accommodate increases in traffic in the future. We may be unable to project accurately the rate or timing of traffic increases or successfully upgrade our systems and infrastructure to accommodate future traffic levels on our websites. In addition, we may be unable to upgrade and expand our transaction processing systems in an effective and timely manner or to integrate any newly developed or purchased functionality with our existing systems.
If we do not respond to rapid technological changes, our services could become obsolete and we could lose customers.
To remain competitive, we must continue to enhance and improve the functionality and features of our e-commerce businesses. We may face material delays in introducing new services, products and enhancements. If this happens, our customers may forego the use of our websites and use those of our competitors. The Internet and the online commerce industry are rapidly changing. If competitors introduce new products and services using new technologies or if new industry standards and practices emerge, our existing websites and our proprietary technology and systems may become obsolete. Our failure to respond to technological change or to adequately maintain, upgrade and develop our computer network and the systems used to process customers’ orders and payments could harm our business, prospects, financial condition and results of operations.
Use of social media may adversely impact our reputation.
There has been a marked increase in the use of social media platforms and similar devices, including blogs, social media websites and other forms of Internet-based communications that allow individuals access to a broad audience of consumers and other interested persons. Consumers value readily available information concerning retailers, manufacturers, and their goods and services and often act on such information without further investigation, authentication and without regard to its accuracy. The availability of information on social media platforms and devices is virtually immediate as is its impact. Social media platforms and devices immediately publish the content their subscribers and participants post, often without filters or checks on accuracy of the content posted. The opportunity for dissemination of information, including inaccurate information, is seemingly limitless and readily available. Information concerning our company may be posted on such platforms and devices at any time. Information posted may be adverse to our interests, may be inaccurate, and may harm our performance, prospects or business. The harm may be immediate without affording us an opportunity for redress or correction. Such platforms also could be used for the dissemination of trade secret information or otherwise compromise valuable company assets, all of which could harm our business, prospects, financial condition and results of operations.
We may experience unexpected expenses or delays in service enhancements if we are unable to license third-party technology on commercially reasonable terms.
We rely on a variety of technology that we license from third parties, such as Microsoft. These third-party technology licenses might not continue to be available to us on commercially reasonable terms or at all. If we are unable to obtain or maintain these licenses on favorable terms, or at all, we could experience delays in completing and developing our proprietary software.
If we fail to forecast our revenue accurately due to lengthy sales cycles, or if we fail to match our expenditures with corresponding revenue, our operating results could be adversely affected.
We may be unable to prepare accurate internal financial forecasts or replace anticipated revenue that we do not receive as anticipated. As a result, our operating results in future reporting periods may be significantly below the expectations of the public market, equity research analysts or investors, which could harm the price of our common stock.
If one or more states successfully assert that we should collect sales or other taxes on the sale of our merchandise or the merchandise of third parties offered for sale on our websites, our business could be harmed.
We have not collected and do not collect sales or other similar taxes for physical shipments of goods into states other than Illinois. An increasing number of states and foreign jurisdictions have considered or adopted laws or administrative practices, with or without notice, that impose new taxes on all or a portion of gross revenue or other similar amounts or impose additional obligations on remote sellers and online marketplaces to collect transaction taxes such as sales, consumption, value added, or similar taxes. Additionally, a June 2018 U.S. Supreme Court decision held that states can require remote sellers to collect state and local sales taxes, which, given the scope of our operations, could increase the complexity and risks for us to comply with such laws. We may not have sufficient lead time to build systems and processes to collect these taxes properly, or at all. Failure to comply with such laws or administrative practices, or a successful assertion by such states or foreign jurisdictions requiring us to collect taxes where we do not, could result in substantial tax liabilities, including for past sales, as well as penalties and interest. In addition, if the tax authorities in jurisdictions where we are already subject to sales tax or other indirect tax obligations were successfully to challenge our positions, our tax liability could increase substantially. Our business could be harmed if one or more states or any foreign country successfully asserts that we should collect sales or other taxes on the sale of merchandise sold through our websites.
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We could be subject to additional sales tax or other tax liabilities.
We are also subject to U.S. (federal and state) and foreign laws, regulations, and administrative practices that require us to collect information from our customers, vendors, merchants, and other third parties for tax reporting purposes and report such information to various government agencies. The scope of such requirements continues to expand, requiring us to develop and implement new compliance systems. Failure to comply with such laws and regulations could result in significant penalties.
The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80% of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.
We are subject to payments-related risks.
We accept payments using a variety of methods, including credit card, and debit card, credit accounts (including promotional financing), gift cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. For existing and future payment options we offer to our customers, we may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that could result in significant costs and reduce the ease of use of our payments products), as well as fraud. For certain payment methods, including credit and debit cards, we pay interchange and other fees, which may increase over time and raise our operating costs and lower profitability. We rely on third parties to provide certain Amazon-branded payment methods and payment processing services, including the processing of credit cards, and debit cards., electronic checks, and promotional financing. In each case, it could disrupt our business if these companies become unwilling or unable to provide these services to us. We also offer co-branded credit card programs, which could adversely affect our operating results if terminated. We are also subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which could change or be reinterpreted to make it difficult or impossible for us to comply. If we fail to comply with these rules or requirements, or if our data security systems are breached or compromised, we may be liable for card issuing banks’ costs, subject to fines and higher transaction fees, and lose our ability to accept credit and debit card payments from our customers, process electronic funds transfers, or facilitate other types of online payments, and our business and operating results could be adversely affected..
In addition, we provide regulated services in certain jurisdictions because we enable customers to keep account balances with us and transfer money to third parties, and because we provide services to third parties to facilitate payments on their behalf. In these jurisdictions, we may be subject to requirements for licensing, regulatory inspection, bonding and capital maintenance, the use, handling, and segregation of transferred funds, consumer disclosures, and authentication. We are also subject to or voluntarily comply with a number of other laws and regulations relating to payments, money laundering, international money transfers, privacy and information security, and electronic fund transfers. If we were found to be in violation of applicable laws or regulations, we could be subject to additional requirements and civil and criminal penalties or forced to cease providing certain services.
We could be liable for fraudulent or unlawful activities of sellers.
The law relating to the liability of providers of online payment services is currently unsettled. In addition, governmental agencies could require changes in the way this business is conducted. Under our seller programs, we may be unable to prevent sellers from collecting payments, fraudulently or otherwise, when buyers never receive the products they ordered or when the products received are materially different from the sellers’ descriptions. Under our A2Z Guarantee, we reimburse buyers for payments up to certain limits in these situations, and as our third-party seller sales grow, the cost of this program will increase and could negatively affect our operating results. We also may be unable to prevent sellers on our sites or through other seller sites from selling unlawful goods, selling goods in an unlawful manner, or violating the proprietary rights of others, and could face civil or criminal liability for unlawful activities by our sellers.
If we do not begin to generate significant revenues, we will still need to raise additional capital to meet our long-term business requirements. Any such capital raising may be costly or difficult to obtain and would likely dilute current stockholders’ ownership interests. If we are unable to secure additional financing in the future, we will not be able to continue as a going concern.
If we do not begin to generate significant revenues from our operations we will need additional capital, which may not be available on reasonable terms or at all. The raising of additional capital will dilute current stockholders’ ownership interests. We may need to raise additional funds through public or private debt or equity financings to meet various objectives including, but not limited to:
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| ● | maintaining enough working capital to run our business; | |
| ● | pursuing growth opportunities, including more rapid expansion; | |
| ● | acquiring complementary businesses and technologies; | |
| ● | making capital improvements to improve our infrastructure; | |
| ● | responding to competitive pressures; | |
| ● | complying with regulatory requirements for advertising or taxation; and | |
| ● | maintaining compliance with applicable laws. |
Any additional capital raised through the sale of equity or equity-linked securities may dilute current stockholders’ ownership percentages and could also result in a decrease in the fair market value of our equity securities because our assets would be owned by a larger pool of outstanding equity. The terms of those securities issued by us in future capital transactions may be more favorable to new investors, and may include preferences, superior voting rights and the issuance of warrants or other derivative securities, which may have a further dilutive effect that is different from or in addition to that reflected in the capitalization described in this report.
Further, any additional debt or equity financing that we may need may not be available on terms favorable to us, or at all. If we are unable to obtain required additional capital, we may have to curtail our growth plans or cut back on existing business and we may not be able to continue operating if we do not generate sufficient revenues from operations needed to stay in business.
We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we issue, such as convertible notes and warrants, which may adversely impact our financial condition.
Because many of our offers use a no-reserve auction process, we may sell some of our travel products and services below our cost, which may cause our business to suffer.
Many of our auctions start with a low bid. If the bidding level does not meet or exceed our cost, we will incur a loss on the auction. Several factors can cause this situation to occur, such as a lack of interest on the part of bidders, a perception that the travel product or service offered is too expensive relative to other options available, or technical problems with the Internet or our website.
Due to the expiring nature of our inventory, our business may suffer if are unable to sell our inventory in a timely manner.
The travel industry suffers from numerous inefficiencies relating to the expiring nature of travel products and services. An airline seat or hotel room that remains unsold past the date of its availability will not generate any revenue for the supplier. We purchase some of our inventory from our suppliers prior to its sale on our auction site. If we overestimate the demand for a certain product and are unable to sell it before the inventory expires, we will suffer a loss which may harm our operating results and revenues.
The market for online retail and travel products and services is highly competitive, and if we do no compete effectively, we may lose customers.
The market for online new, overstock, close-out, recertified and travel products and services is highly competitive, and we expect competition to intensify in the future. Some of our competitors and potential competitors have significantly greater financial resources and name recognition than we do. In addition, many of these companies have more technical, marketing and sales personnel and more established customer support and services than we do. They may also have the ability to enter into strategic or commercial relationships with larger, more established and well-financed companies. Potential competitors, such as online providers of indirect goods and services, may incorporate online retail and travel-related services into their existing product offerings. Our failure to compete effectively could harm our business and operating results. Increased competition is likely to result in reduced gross profits, loss of market share and dilution of our brand name, which could harm our revenues and operating results.
Our insurance coverage and indemnity rights may not adequately protect us against loss.
The types, coverage, or the amounts of any insurance coverage we may carry from time to time may not be adequate to compensate us for any losses we may actually incur in the operation of our business. Further, any insurance we may desire to purchase may not be available to us on terms we find acceptable or at all. We are not indemnified by all of our suppliers, and any indemnification rights we may have may not be enforceable or adequate to cover actual losses we may incur as a result of our sales of their products. Actual losses for which we are not insured or indemnified, or which exceed our insurance coverage or the capacity of our indemnitors or our ability to enforce our indemnity agreements, could have a material adverse effect on our business.
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Current and future laws could negatively affect our auctions business in particular.
Many states and other jurisdictions have regulations governing the conduct of traditional “auctions” and the liability of traditional “auctioneers” in conducting auctions. These types of regulations may become applicable to online auction sites. We are aware that several states and some foreign jurisdictions have attempted to impose such regulations on other companies operating online auction sites or on the users of those sites. In addition, some states have laws or regulations that do expressly apply to online auction site services. We may incur costs in complying with these laws. We may, from time to time, be required to make changes in our business that may increase our costs, reduce our revenues and cause us to prohibit the listing of some items in certain locations, or make other changes that may adversely affect our auctions business.
Risks Related to Our Common Stock
Our securities are “Penny Stock” and subject to specific rules governing their sale to investors.
The SEC has adopted Rule 15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to the Company, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require that a broker or dealer approve a person’s account for transactions in penny stocks; and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.
In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience objectives of the person; and make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form sets forth the basis on which the broker or dealer made the suitability determination; and that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for Company’s shareholders to sell shares of our common stock.
Disclosure also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.
There is very limited recent trading activity in our common stock and there is no assurance that an active market will develop in the future.
There is limited trading activity in our common stock. Further, although our common stock is currently quoted on the “pink sheets” maintained by OTC Markets, Inc., trading of our common stock may be extremely sporadic. For example, several days may pass before any shares may be traded. As a result, an investor may find it difficult to dispose of, or to obtain accurate quotations of the price of, the common stock. We intend to cause our common stock to trade on the OTCQB Venture Market following the Merger but there are no assurances this will occur. There can be no assurance that following the Merger a more active market for the common stock will develop, or if one should develop, there is no assurance that it will be sustained. This severely limits the liquidity of the common stock and would likely have a material adverse effect on the market price of the common stock and on our ability to raise additional capital.
Because we became public by means of a merger, we may not be able to attract the attention of major brokerage firms.
Additional risks may exist since we became public through a “Merger” with a publicly traded company. Securities analysts of major brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our common stock. No assurance can be given that brokerage firms will want to conduct any secondary offerings on behalf in the future.
Compliance with the reporting requirements of federal securities laws can be expensive.
We currently file quarterly and annual reports in compliance with the Alternative Reporting Standards of OTC Markets. We intend to become a full reporting company and become subject to the information and reporting requirements of the Exchange Act and other federal securities laws, and the compliance obligations of the Sarbanes-Oxley Act. The costs of preparing and filing annual and quarterly reports and other information with the SEC and furnishing audited reports to stockholders are substantial.
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Applicable regulatory requirements, including those contained in and issued under the Sarbanes-Oxley Act of 2002, may make it difficult for us to retain or attract qualified officers and directors, which could adversely affect the management of our business and our ability to obtain or retain listing of our Common Stock.
Once we, uBid and SkyAuction, become fully reporting companies under Section 13 of the Securities Exchange Act of 1934, as amended, following our merger with a public company, we may be unable to attract and retain those qualified officers, directors and members of board committees required to provide for effective management because of the rules and regulations that govern publicly held companies, including, but not limited to, certifications by principal executive officers. The enactment of the Sarbanes-Oxley Act has resulted in the issuance of a series of related rules and regulations and the strengthening of existing rules and regulations by the SEC, as well as the adoption of new and more stringent rules by the stock exchanges. The perceived increased personal risk associated with these changes may deter qualified individuals from accepting roles as directors and executive officers.
Further, some of these changes heighten the requirements for board or committee membership, particularly with respect to an individual’s independence from the corporation and level of experience in finance and accounting matters. We may have difficulty attracting and retaining directors with the requisite qualifications. If we are unable to attract and retain qualified officers and directors, the management of our business and its ability to obtain or retain listing of our shares of common stock on any stock exchange (assuming the Company elects to seek and are successful in obtaining such listing) could be adversely affected.
We may have undisclosed liabilities and any such liabilities could harm our business, prospects, financial condition and results of operations.
Even though Incumaker represented in the uBid Merger Agreement that it had no liabilities at the closing of the uBid Merger, there can be no assurance that there are no unknown liabilities. Any such liabilities of Incumaker that survive the uBid Merger could harm our business, prospects, financial condition and results of operations upon our acceptance of responsibility for such liabilities.
If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or detect fraud. Consequently, investors could lose confidence in our financial reporting and this may decrease the trading price of our stock.
We must maintain effective internal controls to provide reliable financial reports and detect fraud. We have been assessing our internal controls to identify areas that need improvement. Failure to identify and thereafter implement required changes to our internal controls or any others that we identify as necessary to maintain an effective system of internal controls, if any, could harm our operating results and cause investors to lose confidence in our reported financial information. Any such loss of confidence would have a negative effect on the trading price of our stock.
The price of our common stock may become volatile, which could lead to losses by investors and costly securities litigation.
The trading price of our common stock is likely to be highly volatile and could fluctuate in response to factors such as:
| · | actual or anticipated variations in our operating results; | |
| · | announcements of developments by us or our competitors; | |
| · | regulatory actions regarding our products; | |
| · | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; | |
| · | adoption of new accounting standards affecting our industry; | |
| · | additions or departures of key personnel; | |
| · | introduction of new products by us or our competitors; | |
| · | sales of our common stock or other securities in the open market; and | |
| · | other events or factors, many of which are beyond our control. |
The stock market is subject to significant price and volume fluctuations. In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been initiated against such a company. Litigation initiated against the Company, whether or not successful, could result in substantial costs and diversion of its management’s attention and resources, which could harm our business and financial condition.
Investors may experience dilution of their ownership interests because of the future issuance of additional shares of our common stock.
In the future, we may issue additional authorized but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We may also issue additional shares of common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of common stock may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with any capital raising efforts, including at a price (or exercise prices) below the price at which shares of our common stock is currently traded.
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Our common stock is controlled by insiders.
Our officers and directors beneficially own approximately 51.30% of our outstanding shares of common stock. Such concentrated control may adversely affect the price of our common stock. Investors who acquire common stock may have no effective voice in our management. Sales by our insiders or affiliates along with any other market transactions, could negatively affect the market price of our common stock.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, and we intend to take advantage of some of the exemptions from reporting requirements that are applicable to other public companies that are not emerging growth companies, including:
| • | being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure; |
| • | not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting; |
| • | not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; |
| • | reduced disclosure obligations regarding executive compensation; and |
| • | not being required to hold a non-binding advisory vote on executive compensation or obtain stockholder approval of any golden parachute payments not previously approved. |
Further, the JOBS Act permits an “emerging growth company” such as us to take advantage of an extended transition time to comply with new or revised accounting standards as applicable to public companies. We are choosing to elect the extended transition period for complying with new or revised accounting standards applicable to public companies. We have elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile. We may take advantage of these reporting exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non- affiliates exceeds $700 million as of the prior May 31 and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.
Forward Looking Statements
This prospectus contains forward-looking statements within the meaning of the Federal Securities laws. These statements relate to future events or future predictions, including events or predictions relating to our future financial performance, and are based on current expectations, estimates, forecasts and projections about us, our future performance, our beliefs and management’s assumptions. They are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “feel,” “confident,” “estimate,” “intend,” “predict,” “forecast,” “potential” or “continue” or the negative of such terms or other variations on these words or comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks described under “Risk Factors” that may cause the Company’s or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In addition to the risks described in Risk Factors, important factors to consider and evaluate in such forward-looking statements include: (i) general economic conditions and changes in the external competitive market factors which might impact the Company’s results of operations; (ii) unanticipated working capital or other cash requirements including those created by the failure of the Company to adequately anticipate the costs associated with acquisitions and other critical activities; (iii) changes in the Company’s corporate strategy or an inability to execute its strategy due to unanticipated changes; and (iv) the failure of the Company to complete any or all of the transactions described herein on the terms currently contemplated. In light of these risks and uncertainties, many of which are described in greater detail elsewhere in this Risk Factors discussion, there can be no assurance that the forward-looking statements contained in this prospectus will in fact transpire.
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Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Company nor any other person assumes responsibility for the accuracy and completeness of such statements. We do not undertake any duty to update any of the forward-looking statements after the date of this prospectus to conform such statements to actual results or changes in our expectations.
Emerging Growth Company Status
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We are choosing to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
The shares sold under this prospectus will be sold or otherwise disposed of for the account of the Selling Security Holders, or their pledgees, assignees or successors-in-interest. We will not receive any of the proceeds from the sale or other disposition of the shares by the Selling Security Holders. However, we will receive up to approximately $682,000 in gross proceeds upon the cash exercise of the FirstFire Warrant and Auctus Warrant. We will use any such proceeds for working capital.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been quoted on the OTC:QB under the symbol UBID since May 24, 2019, and was previously quoted on the OTC:Pink under the symbol UBID since February 11, 2019. Prior thereto, it was quoted under the symbol QMKR. As of June 6, 2019, there were 1,300 holders of record of our common stock.
The following table sets forth the high and low bid closing prices for our common stock for the periods indicated, as reported by the OTC Pink. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission.
| Period | High | Low | ||||||
| Quarter Ending March 31, 2019 | ||||||||
| January 1, 2019 thru March 31, 2019 | $ | .0600 | $ | .0175 | ||||
| Year Ending December 31, 2018 | ||||||||
| October 31, 2018 through December 31, 2018 | $ | .0999 | $ | .0301 | ||||
| July 1, 2018 through September 30, 2018 | $ | .0785 | $ | .0469 | ||||
| April 1, 2018 through June 30, 2018 | $ | .1350 | $ | .0500 | ||||
| January 1, 2018 through March 31, 2018 | $ | .1800 | $ | .0600 | ||||
| Year Ended December 31, 2017 | ||||||||
| October 1, 2017 through December 31, 2017 | $ | .2280 | $ | .0500 | ||||
| July 1, 2017 through September 30, 2017 | $ | .1500 | $ | .0450 | ||||
| April 1, 2017 through June 30, 2017 | $ | .9540 | $ | .0700 | ||||
| January 1, 2017 through March 31, 2017 | $ | .5000 | $ | .0105 | ||||
The last report sales price of our common stock on the OTC:QB on June 6, 2019 was $0.043 per share.
Dividend Policy
We have not declared nor paid any cash dividend on our common stock, and we currently intend to retain future earnings, if any, to finance the expansion of our business, and we do not expect to pay any cash dividends in the foreseeable future. The decision whether to pay cash dividends on our common stock will be made by our board of directors, in their discretion, and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors considers significant.
Registration Rights Agreements
We have entered into registration rights agreements on November 13, 2018, with FirstFire Global in connection with a convertible note financing of $220,000 to assist with our acquisition of SkyAuction. Under the terms of the registration rights agreement between us and FirstFire we are required to file a resale registration statement within 90 days from the effective date of the convertible note or February 13, 2019, and to have that registration statement declared effective 180 days after the effective date of the convertible note or May 13, 2019, conditions that FirstFire Global has orally agreed with us not to require so long as this Form S-1 was filed when our fiscal year-end financial statements were completed. The registration statement registers three times (i) the number of shares issuable upon conversion of the convertible note in the principal amount of $220,000 which has a conversion price at the lower of (a) $0.05 or (b) 70% multiplied by the average of the three lowest volume weighted average prices of our common stock during the 21 consecutive trading day period immediately preceding the trading day that we receive a notice of conversion and (ii) the number of shares upon exercise of the warrant held by FirstFire Global that converts into 5,250,000 shares of our common stock.
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Not applicable.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion should be read in conjunction with the consolidated financial statements and the related notes contained elsewhere in this prospectus. In addition to historical information, the following discussion contains forward looking statements based upon current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred to herein due to a number of factors, including, but not limited to, risks described in the section entitled “Risk Factors” and elsewhere in this prospectus.
General
As the result of the uBid Merger , a discussion of the past financial results of Incumaker is not pertinent, and the financial results of uBid, the accounting acquirer, are considered our financial results on a historical and going-forward basis.
We are a participatory ecommerce company with over two decades of experience in both b2c auctions and fixed price sales. Our focus has been on connecting consumers with high value products and services in a unique, engaging purchase format. Auctions allow consumers an opportunity to establish pricing at substantial savings to those found via normal retail outlets both online and in brick and mortar store locations. Our online marketplaces provide (i) manufacturers, retailers, distributors and other suppliers with what we believe is an efficient and economical channel for maximizing revenue on their merchandise while at the same time moving new, overstock, close-out and recertified products and providing consumers and businesses with a convenient method for obtaining this merchandise virtually anytime and anywhere at substantial savings, and (ii) since our recent acquisition of SkyAuction,com, Inc. (“SkyAuction”), travel products and services. We operate our online auction marketplaces 24 hours a day, seven days a week, 365 days a year, currently offering unique merchandise units on our sites.
On November 12, 2018, we entered into a transaction (the “SkyAuction Merger”) among SkyAuction.com, Inc. (“SkyAuction”)(Sky), SA Acquisition Corp. and the Company whereby all of the shareholders of SkyAuction exchanged all of their shares of common stock for 165,365,244 newly issued shares of the Company common stock with a fair value of $8,268,000; a 3.5% promissory note (the “Promissory Note”) in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger, and; a warrant to acquire 5,000,000 shares of our common stock that is exercisable for three years at an exercise price of $.05 per share. The warrant included certain features that could result in the reset of the exercise price. The transaction was accounted for as a purchase of a business, and our results of operations include the operations of Sky as of November 12, 2018, the date of the acquisition.
Our executive offices are located at 566 W. Adams St., Suite 260, Chicago, IL 60661, telephone (773) 272-5000. Our corporate website address is www.ubidholdings.com and transaction website is www.ubid.com and www.skyauction.com.
| Overview |
We are an online marketer and distributor of consumer products as well as travel and related services. We do this using a mix of participatory distribution offers (auctions) many of which the bids begin at just $1. Our auction offers run for a duration of between one hour and several days and can either be repeated or changed as the product totals vary. Our offers are a mix of a broad array of consumer products as well as travel and related services.
Most of our revenue is derived from successfully completed auctions of consumer goods, travel and related services. We recognize revenue after all of the following have occurred: a bidder wins and confirms an auction, we either ship directly or place orders with third-party suppliers, we notify the winning bidder that the auction has been fulfilled and we believe collection is reasonably assured. Revenues include service, shipping and handling charges and cancellation fees. We establish a reserve for estimated cancellations at the time revenues are recorded. Since bidding can start with a minimum bid as low as $1, we bear the risk of loss on many of our auctions.
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Some of our relationships require us to purchase inventory in advance for offer on our site. In such cases we must manage our inventory to ensure our offers are concluded profitably. Since many travel products do not require advance purchase we maintain a low inventory at-risk position for these travel products. We pay no commissions since we are not an agent of any airline, hotel or resort supplier. Our arrangements with our suppliers are typically short-term in nature and can be terminated by either party at any time upon short notice.
Cost of travel represents our cost for airline tickets, hotel and resort accommodations and tour packages based upon our individual supplier pricing arrangements with airlines, hotel and resort companies, tour providers and other travel consolidators or distributors. Amounts charged to us by ticketing agents for issuing airline tickets are included in credit card, fulfillment and shipping costs. Our selling, general and administrative expenses represent our operating and overhead expenses including such categories as advertising, personnel-related, technology and professional fees.
The accompanying financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. We had a net loss of $677,000 during the year ended December 31, 2018. We had an accumulated deficit of $37,039,000 and $36,362,000 as of December 31, 2018 and 2017, respectively. Our continuation as a going concern is dependent on our ability to generate sufficient cash flows from operations and our ability to raise funds through the issuance of our common or preferred shares to meet our obligations and/or obtain additional financing, as may be required.
The financial statements included in this Report have been prepared assuming that we will continue as a going concern. The above condition raises substantial doubt about our ability to do so. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result should we be unable to continue as a going concern.
The discussion and analysis of our financial condition and results of operations are based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate such estimates and judgments, including those described in greater detail below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
UBID - Comparison of Results of Operations for the three months ended March 31, 2019 and 2018
The following table sets forth the summary operations for the three months ended March 31, 2019 and 2018:
| For the Three Months Ended | ||||||||
| March 31, 2019 | March 31, 2018 | |||||||
| Revenues | $ | 1,103,000 | $ | 0 | ||||
| Operating Expenses | $ | 2,384,000 | $ | 116,000 | ||||
| Other (Income) Expense | $ | 289,000 | $ | 28,000 | ||||
| Net Loss | $ | 1,570,000 | $ | 144,000 | ||||
We generated revenues of $1,103,000 during the three months ended March 31, 2019, compared to revenues of $0 during the three months ended March 31, 2018, an increase of $1,103,000. This increase is the direct result of the acquisition of SkyAuction that occurred on November 12, 2018.
Operating expense was $2,384,000 during our three months ended March 31, 2019, compared to $116,000 during the same period in 2018, an increase of $2,268,000. This increase was as a result of additional expenses resulting from the result of the acquisition of SkyAuction and the change in our business and operations. Specifically, direct cost of revenue increased by approximately $714,000, due directly to the acquisition of SkyAuction from $0 in the three months ended March 31, 2018 compared to $714,000 in the same period in 2019. In addition, amortization expense of intangible assets increased to $629,000 for the three months ended March 31, 201,9 as compared to $0 during the same period ended March 31, 2018. This was the direct result of the acquisition of SkyAuction and the allocation of intangible assets which were amortized. In addition, selling, general and administrative increased from $116,000 in the three months ended March 31, 2018 to $1,041,000 in 2019, an increase of $925,000 as a direct result resulting from our acquisition of SkyAuction. In addition, we incurred stock based compensation of $103,000 during the three months ended March 31, 2019 and we did not incur any during the same period in 2018.
Other (income) expense increased from expense of $28,000 for the three months ended March 31, 2018 to $289,000 of expense in 2019. As we incurred interest expense of $52,000 in 2019 as compared to $23,000 that we incurred in 2018 as a direct result of additional notes payable. We also incurred $92,000 in amortization of debt discount in 2019 and we incurred $5,000 in 2018. We also had a loss from change in fair value of derivative liability of $416,000 and a gain from extinguishment of derivative liability of $266,000 during the three months ended March 31, 2019, both of which we did not incur in 2018.
As a result, we incurred a net loss of $1,570,000 in the three months ended March 31, 2019, compared to a net loss of $144,000 in the same period in 2018.
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Liquidity and Capital Resources
As of March 31, 2019, we had $134,000 in cash and cash equivalents.
Net cash used in operating activities was $83,000 and $40,000 for the three months ended March 31, 2019 and 2018, respectively. The $43,000 increase in net cash used in operating activities was primarily an increase in net loss from $144,000 during the three months ended March 31, 2018 to $1,570,000 during the three months ended March 31, 2019 and offset by changes in operating assets and liabilities.
Cash provided by financing activities was $100,000 and $0 for the three months ended March 31, 2019 and 2018, respectively. Cash was provided through proceeds from an issuance of a note payable in 2019 and there were none issued in 2018.
Our financial statements included in this report have been prepared assuming that we will continue as a going concern, and which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in our financial statements, we incurred a net loss of $1,570,000 and utilized net cash of $83,000 in operating activities for the three months ended March 31, 2019. Our ability to continue as a going concern is dependent on us obtaining adequate capital to fund operating losses until we established a revenue stream and becomes profitable. If we are unable to obtain adequate capital we could be forced to cease operations. Accordingly, these factors raise substantial doubt as to our ability to continue as a going concern within one year after the date of the financial statements being issued.
In order to continue as a going concern, we must develop a reliable source of revenues and achieve a profitable level of operations, for which we will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that we will be successful in accomplishing raising additional capital or any of our plans.
Convertible Debt Assumed Upon Reverse Merger
In November 2018, the Company entered into a merger agreement with Incumaker Inc. As part of the merger, Ubid assumed outstanding convertible notes payable previously issued by Incumaker. The Notes have interest rates ranging from 8% to 22% per annum, and are all past due. The conversion price of these convertible notes contains reset provisions based on a future offering price and/or whose conversion prices are based on future market prices, as such, not fixed. As of December 31, 2018, outstanding balance of these notes payable amounted to $297,000.
During the period ended March 31, 2019 notes with a principal balance of $72,000 and accrued interest due of $61,000 were converted into 12,885,603 shares of the Company’s common stock. The balance of the notes payable at March 31, 2019 was $225,000.
Convertible Notes Payable – past due
8-10% Notes Payable Past Due
During fiscals 2016 through 2018, the Company issued convertible notes payable in the aggregate of $1,065,000. The notes are unsecured, bears interest rate of 8% and 10% per annum and matured one year from issuance. Notes Payable in the aggregate of $380,000 are convertible to common stock at a conversion price of $2.00 per share while the remaining $685,000 are convertible to equity upon completion of a Qualified Equity Financing amounting to $2.5 million. In addition, the Company will also grant the corresponding note holders a five-year warrant to purchase shares of common stock once the Qualified Equity Financing is consummated and the notes are convertible to equity.
As of March 31, 2019 and December 31, 2018, outstanding balance of these notes amounted to $1,065,000, respectively. As of March 31, 2019 and the date of this report, all the notes payable are past due.
8% Note Payable
During the year ended December 31, 2018, the Company issued an 8% convertible note payable with an outstanding principal balance of $220,000 in receipt of cash proceeds of $200,000, resulting in a $20,000 discount upon issuance. The note is unsecured, bears interest at 8% per annum and will mature in November 2019. The note is convertible at the lesser of $0.07 or 70% of the average of the three lowest trade prices of the common stock in the in the 21 days prior to conversion. In addition, the Company issued warrants to acquire 5,250,000 shares of the Company’s common stock at an exercise price of $0.05 per share subject to downward adjustment based on the Company subsequent sale or grant of any equity security at a lessor amount.
As of March 31, 2019 and December 31, 2018, outstanding balance of the note amounted to $220,000, respectively.
Bridge Notes Payable
On May 2, 2018, the Company issued a bridge note in the amount of $275,000. Cash proceeds to the Company was $250,000 for an original issue discount of $25,000. The note is unsecured, bears interest at 2% per annum and matures in May 2019.
As of March 31, 2019, outstanding balance of the note payable amounted to $275,000.
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Acquisition Note Payable to Related Party
Pursuant to the terms of the SkyAuction Merger Agreement, the Company entered into a secured promissory note in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger. The secured note issued to SkyAuction provides for repayment in full at the third anniversary date of the closing date of the SkyAuction Merger, such principal amount to be reduced by 15% of each capital raise we complete (less any finder’s or underwriter’s fees) and interest at 3% per annum payable at our discretion in common stock or cash. The Promissory Note was secured by all assets of SkyAuction under the terms of a Guaranty Agreement. SkyAuction and uBid have amended the Promissory Note to extend the date of the first payment of principal in the amount of $500,000 from 120 days from the date of Closing as that term is defined in the Merger Agreement or March 13, 2019, to the date when we have raised sufficient financing to make such payment.
Recent Financing - On April 9, 2019, we entered into a convertible note financing with Auctus under which we issued a convertible promissory note in the principal amount of $277,500 from which will be deducted $27,500 as a due diligence fee and $4,000 for Auctus’ legal fees, bearing interest of 8% per annum with a maturity date of April 9, 2020. The note is convertible into shares of our common stock at a conversion price equal to the lesser of: (i) $0.06 or (ii) the Variable Conversion Price (defined as 70% multiplied by the average of the three lowest volume weighted average prices of our shares of common stock during the ten consecutive trading day period immediately preceding the trading day that we receive Auctus’ notice of conversion). We are required at all times to have coverage of any potential conversion equal to three times the shares of our common stock into which the unpaid principal and accrued interest of the note is convertible. The initial coverage has been set at 28,750,000 shares. We issued a warrant to Auctus (the “Auctus Warrant”) exercisable for three years to purchase 7,000,000 shares that we will register under the 1933 Act at an exercise price of $0.06 per share. We are authorized to prepay this convertible loan commencing on the date of the note and ending 180 days after the date of the note by paying 115% of the outstanding principal amount of the note together with accrued and unpaid interest thereon.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, result of operations, liquidity or capital expenditures.
Comparison of Results of Operations for the years ended December 31, 2018 and 2017
The following table sets forth the summary income statement for the years ended December 31, 2018 and 2017:
| For the Years Ended | ||||||||
| December 31, 2018 | December 31, 2017 | |||||||
| Revenues | $ | 567,000 | $ | 7,000 | ||||
| Operating Expenses | $ | 1,645,000 | $ | 1,191,000 | ||||
| Other (Income) Expense | $ | 102,000 | $ | 146,000 | ||||
| Net Loss | $ | 1,180,000 | $ | 1,330,000 | ||||
We generated revenues of $567,000 during our fiscal year ended December 31, 2018, compared to revenues of $7,000 during our fiscal year ended December 31, 2017, an increase of $560,000. This increase is the result of the acquisition of SkyAuction.
Operating expense was $1,645,000 during our fiscal year ended December 31, 2018, compared to $1,191,000 during 2017, an increase of $454,000. This increase was as a result of additional expenses resulting from the result of the uBid Merger and the change in our business and operations. Specifically, direct cost of revenue increased by approximately $362,000, due to the acquisition of SkyAuction from $0 in 2017 compared to $362,000 in 2018. And amortization of intangible assets increased by $315,000 from $0 in 2017 to $315,000 in 2018 due to the acquisition of SkyAuction and the resulting amortization of intangible assets acquired. These amounts were offset by the reduction in selling, general and administrative from $1,191,000 in 2017 to $968,000 or $223,000 less than in the same period in 2018, as a direct result resulting from our management’s attempt to control costs.
Other (income) expense decreased from expense of $146,000 in 2017 to $102,000 in 2018. As we incurred interest expense of $91,000 in 2018 and we incurred $65,000 in 2017. In 2018 we incurred financing costs of $416,000, which we did not incur in 2017. We also had a gain from change in fair value of derivative liability of $196,000 and gain from extinguishment of derivative liability of $37,000, which we did not incur wither of these items in 2017 as well as a gain of $251,000 from extinguishment of accounts payable that we did not incur in 2017.
As a result, we incurred a net loss of $1,180,000 in 2018, compared to a net loss of $1,330,000 in 2017.
SKYAUCTION:
On November 12, 2018, we entered into a transaction (the “SkyAuction Merger”) among SkyAuction.com, Inc. (“SkyAuction”)(Sky), SA Acquisition Corp. and the Company whereby all of the shareholders of SkyAuction exchanged all of their shares of common stock for 165,365,244 newly issued shares of the Company common stock with a fair value of 8,268,000; a 3.5% promissory note (the “Promissory Note”) in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger, and ;. a warrant to acquire 5,000,000 shares of our common stock that is exercisable for three years at an exercise price of $.05 per share. The warrant included certain features that could result in the reset of the exercise price and was considered to be a derivative liability with a fair value of $300,000 based on a weighted average black scholes option pricing model.
The following table sets forth the summary income statement for the nine months ended September 30, 2018 and 2017:
| For the Nine Months Ended | ||||||||
| September 30, 2018 | September 30, 2017 | |||||||
| Revenues | $ | 2,737,000 | $ | 3,255,000 | ||||
| Operating Expenses | $ | 2,873,000 | $ | 3,161,000 | ||||
| Other (Income) Expense | $ | (21,000 | ) | $ | (34,000 | ) | ||
| Net Income (Loss) | $ | (115,000 | ) | $ | 128,000 | |||
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We generated revenues of $2,737,000 during the nine months ended September 30, 2018, compared to revenues of $3,255,000 during the nine months ended September 30, 2017. This decrease was due to certain products not being available.
Operating expense was $2,873,000 during the nine months ended September 30, 2018, compared to $3,161,000 during the nine months ended September 30, 2017, a decrease of $288,000. Direct cost of revenues decreased $184,000 from $2,014,000 during the nine months ended September 30, 2017 to $1,830,000 during the comparable period in 2018. This was a direct result of the decrease in revenues. In addition, this decrease was as a result of a decrease in general and administrative expense resulting from our management’s attempt to control costs. Specifically, personnel expense decreased by $54,000 during the nine months ended September 30, 2018 compared to the similar period in 2017, due to a reduction in the number of employees from $656,000 in 2017 compared to $602,000 in 2018. Professional fees decreased $28,000 from $110,000 during the nine months ended September 30, 2017 to $81,466 during the comparable period in 2018 as a result of management’s attempt to control costs. Other operating expenses which include rent, advertising, hosting storage, computer supplies and office supplies and expenses decreased $59,000 from $78,000 during the nine months ended September 30, 2017 to $19,000 during the comparable period in 2018 also a direct result of managements’ attempt to control costs.
We also generated other income of $21,000 during the nine months ended September 30, 2018 compared to $34,000 during the nine months ended September 30, 2017. This reduction of $13,000 was due to the less frequent use of company credit cards as a result of the general reduction of general and administrative expenses. The credit card usage generates rebate revenue.
As a result, we incurred a net loss of $115,000 during the nine months ended September 30, 2018, compared to net income of $128,000 during the nine months ended September 30, 2017.
Comparison of Results of Operations for the years ended December 31, 2017 and 2016
The following table sets forth the summary income statement for the years ended December 31, 2017 and 2016:
| For the Years Ended | ||||||||
| December 31, 2017 | December 31, 2016 | |||||||
| Revenues | $ | 4,292,000 | $ | 5,025,000 | ||||
| Operating Expenses | $ | 4,010,000 | $ | 4,829,000 | ||||
| Other (Income) Expense | $ | (38,000 | ) | $ | (50,000 | ) | ||
| Net Income | $ | 304,000 | $ | 242,000 | ||||
We generated revenues of $4,292,000 during our fiscal year ended December 31, 2017, compared to revenues of $5,025,000 during our fiscal year ended December 31, 2016, a decrease of $733,000. This decrease was as a result of the unavailability of certain products.
Operating expense was $4,010,000 during our fiscal year ended December 31, 2017, compared to $4,829,000 during 2016, a decrease of $819,000. Direct cost of revenues decreased $1,027,000 from $3,453,000 during the year ended December 31, 2016 to $2,426,000 as a direct result in the decrease in revenues. However, this decrease was offset by an increase in general and administrative expense. Specifically, personnel expense increased $ 52,000 from $565,000 in 2016 compared to $617,000 in 2017 as employees were added. And other operating expenses which include rent, advertising, hosting storage, computer supplies and office supplies and expenses increased $174,000 from $557,000 during the year ended December 31, 2016 to $731,000 during the comparable period in 2017.
We also generated other income of $38,000 during the year ended December 31, 2017 compared to $50,000 during the year ended December 31, 2016. This decrease of $12,000 was due to the less frequent usage of company credit cards. The credit card usage generates rebate revenue.
As a result, we generated net income of $304,000 during the year ended December 31, 2017, compared to net income of $242,000 during the year ended December 31, 2016.
Overview
We are a participatory e-commerce company with over two decades of experience in both b2c auctions and fixed price sales. Our focus has been on connecting consumers with high value products and services in a unique, engaging purchase format. We believe that auctions allow consumers an opportunity to establish pricing at substantial savings to those found through normal retail outlets, both online and brick and mortar store locations.
We currently operate through two internet sites:
● our auctions on uBid.com which we believe was one of the first and remains one of the most recognized names among auction sites that currently feature a rotating selection of computer products, consumer electronics, watches, jewelry and gifts, sporting goods, collectibles, home goods, travel and fashion products, which typically sell at significant discounts to prices found through traditional retailers; and
● our auctions on SkyAuction.com that offer travel inventory from leading airlines, hotels, resorts and tour operators to thrifty consumers searching for travel bargains.
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We operate our online auction and bargain-sale marketplaces 24 hours a day, seven days a week, 365 days a year. We have commenced a program that includes numerous growth initiatives, including expanding product categories and seeking complementary acquisitions, in an effort to position uBid as one of the fast growing e-commerce companies.
E-commerce Industry
Growth of E-commerce and the Online Auction Market
E-commerce is now, and has been for the last several years, the fastest growing retail market in the United States. In 2018, U.S. e-commerce sales reached $465.1 billion, according to IBISWorld, E-commerce & Online Auctions Report (February 2019), up from $413.1 billion in 2017, representing an 12.6% sales increase. IBISWorld, E-Commerce & Online Auctions, an independent industry research firm, predicts that U.S. e-commerce sales will continue growing at an annual rate of at least 10% for each of the next five years to reach $600 billion in e-commerce sales by the year 2021. Forrester Research and other independent online statistical organizations such as Statista Inc. and UPS Pulse of the Online Shopper, 2018; comScore, have also observed that (i) online sales are increasingly accounting for a larger percentage of all retail sales, which includes in-store sales, and will reach 50% for most retail categories in which we participate, (ii) the number of online shoppers in the United States now exceeds 205 million and is growing, (iii) shoppers are spending more time online than before and purchasing goods in an expanded number of product categories and (iv) millennials are becoming the largest group of online shoppers and make approximately 54% of their purchases online and, in light of growing up during the 2008 financial crisis, are value-driven consumers. Forrester Research attributes these trends to an increased awareness of online shopping’s convenience, the expanded range of products that are available online, improvements in security and electronic payment technology and the explosive growth of mobile device usage, on which approximately 25% of all retail e-commerce sales are now conducted. We believe that we can capitalize on these well-established trends toward e-commerce and online auction sales
Online auctioning has become part of the mainstream distribution mix when consumers are looking to make purchases at high value prices. Consumers have been able to find and purchase goods and services of every type and sellers have been able to connect with a vast base of potential consumers easily and efficiently. Auctioning as a method of both selling and buying has well established thanks to the advent of ecommerce and its growth in acceptance with a global constituency.
The Online Auction Market Opportunity
Online auctions allow sellers to connect directly with a motivated base of consumer to give them a firm channel to monetize on unsold products. These products may include excess and unique items, which can be new or refurbished. Suppliers traditionally have sold and continue to sell excess goods through various liquidation channels such as factory outlets, catalogs, resellers and mass merchants. We offer both suppliers the ability to sell to us directly multiple product quantities without risk while offering the consumer the benefit of the economies of scale due to our centralized purchases. Other platforms have varying degrees of these elements but with the following drawbacks:
| ● | Multi-channel selling requires individual relationship management for each applicable channel. | |
| ● | Sellers gain access to the marketplace only by abiding to individual rules and restrictions established independently by each. | |
| ● | Sellers must pay significant fees in order to participate on each platform. | |
| ● | Sellers gain access to individual consumer sales but are unable to capitalize or cultivate information as “their own” and only foster patronage of the platform making them beholden to third party regulation of their direct sales efforts. | |
| ● | Sellers are unable to sell product in bulk to one centralized source and must dedicate resources to maintaining B2C platforms that many manufacturers and distributors do not normally have as part of their organizations. | |
| ● | Most B2B organizations do not have customer service staff or infrastructure to service a wider direct consumer selling effort driving up the cost of products and operational expenses. |
Online auctions and our centralized purchasing model allow manufactures and distributors normally engaged in B2B selling the opportunity to distribute products via one centralized point of purchase which allows them to move their inventory within the normal parameters of their model. Auctions allow the expansion of their normal range of business in an opaque way preventing dilution of their normal distribution method. Our direct supply relationships strengthen our ability to add value and margin to our selling efforts while cementing our role as a useful and reliable source of distribution for a broad range of goods and services.
Value Proposition to Consumers and Sellers
Consumers: Auctioning is all about allowing consumers to realize value by having them “participate” in establishing the price they pay. We believe that it is exciting, fun and most of all results in mass consumer satisfaction in achieving their perceived value for every dollar they spend. Here are some other features of the auction process:
| ● | Broad and Deep Product Selection. Through our uBid websites, we offer thousands of high quality and brand name new, overstock, close-out and recertified merchandise across a variety of categories including personal computers, consumer electronics, apparel, housewares, watches, jewelry, travel, sporting goods, home improvement products and collectible products each day on our easy-to-navigate websites, allowing customers to bargain shop without the need to travel to disparate retail locations during store operating hours. Our customers can access our websites at their convenience, 24 hours a day, seven days a week. To highlight the limited quantities of our inventory and create a sense of shopping urgency, we utilize event-based marketing, including our “Auction of the Day” and limited time sales. We believe this creates a “bargain hunting” experience, stimulating strong customer satisfaction and loyalty. |
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| ● | Consumer decides the format and the price: By incorporating our new “Bid, Buy or Best Offer” format we are enticing consumers to select the purchase format by giving them a triple choice to suit their comfort. Since auctioning is by nature gives a starting base price at the lowest possible level we hope to leverage new, none traditional auction participants to engage showing the potential savings on each product right inside the same environment. We strongly believe that consumers will take the chance and “participate” as opposed to opting for a higher priced purchase option. | |
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● | State of the Art Customer Service. It is our intention to engage our customers on multiple levels based on the communication vehicle of their choice. Beyond our commercial engagement program we will engage text bidding and customer service, email communications and AI chatbot technology to enhance the end-to-end customer experience. |
| ● | Multiple Payment Options. Customers will be able to take advantage of their choice of payment methods including credit cards, Paypal and all alternate systems such as Apple Pay, Amazon pay, etc. |
Sellers: Our company believes in a blend of strategic partnerships and sole sourcing product to achieve the best sales and margin returns in our category. Many auction sites that depend solely on the cultivation of individual or commercial sellers struggle to keep a balanced, profit-centric mix of products on auction at all times. We will take advantage of single sourcing inventory that we believe is advantageous to our sales and profit goals. This will allow us to expand our reach and source products centrally giving us total control of most of our offers and ensuring a well-rounded customer experience at all times. We will also cultivate partnerships under either an affiliated “store” environment or integrated into “branded” auctions to complement our activities in sole sourcing products. Here is how we define and observe sellers in our environment:
| ● | Sole Sourcing Products: The mainstream utilization of multi-channel selling has allowed many B2B companies to develop active B2C selling channels for their use. This creates challenges and cost centers for them to penetrate this new marketplace which for many outweigh the benefits of doing so. Working with us in a centralized relationship actively selling inventory directly to us gives them the benefit of our marketplace in one simple transaction. We receive the economies of scale through large inventory purchases and receive the benefits of increased sales and profit. We have a deep understanding of this method of product sourcing and there is no limitation to the product types, brands or quantities we have available at any given time. | |
| ● | Active Marketplace Presence: The uBid.com brand has over 20 years of history attached to its ability to market and sell in the participatory ecommerce space. We will actively cultivate selling partnerships by offering solutions to B2B organizations that desire to sell products and services without disrupting their mainstream marketing and sales operations. We will demonstrate the “cumulative” impact of our efforts as a valuable outlet source to consumers operating in a very opaque and niche market way. | |
| ● | Branded Store Development: It is our intention to create an affiliate area of our marketplace offering the extensive listing of brand-specific offers in a customized environment. This will allow us to essentially run private labeled auctions for each individual brand placed outside the uBid.com platform while they run simultaneously for our customers to bid on. This will be a business development effort further mainstreaming auctioning as a viable, ingrained method for selling inventory, both off site and on site. | |
| ● | Support Services: We are well positioned with over 20 years of experience in every aspect of auctioning from product procurement to final customer sale. This expertise works well to ensure results for sole sourced product lines as well as the integration of branded offering making our interface with potential suppliers seamless and productive. We can walk any potential supplier through every aspect of the experience and extoll the value of working in partnership with us to create incremental sales and profits as a direct result. |
OUR PRODUCTS AND SERVICES
Our Online Marketplaces
uBid.com
Both the Ubid.com present and future sites will have the same baseline functionality but featuring many enhancements to improve our consumer experience. “Bid, Buy or Best Offer” will bring a three-in-one approach to garnering sales and engaging interaction. We intend our site re-design to bring a more appealing, simplified offer to market with better descriptive language and images to engage potential consumers.
We expect to simplify customer registration and make common with popular credentials using Facebook or Google common login practices. We will improve our communications plan allowing customers to “bid via text”, have a live an interactive mobile site, even a Ubid.com App is slated for development under our new plan.
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SkyAuction.com
Our website www.skyauction.com allows our customers to access our wide selection of travel products and services. Customers can view current ongoing auctions based on our auction categories or search for ongoing auctions based on a defined search criterion such as date of travel, destination, general geographic location and class of travel. To place a bid on an ongoing auction, each customer must complete a free, brief registration form, or in the future login in using common credentials created on other social media outlets. Once a customer has registered, he or she may begin bidding immediately and will be able to monitor multiple auctions as well as use our automated bidding function.
Many of our auctions can begin with a minimum bid as low as $1. Through our automated bidding function, a bidder may set a maximum bid and have our web site increase his or her bid by preset increments up to the maximum bid amount set by the bidder. As a result, the bidder has an opportunity to win an auction at the most economical price possible without constant monitoring of the auction. We also provide information throughout the auction process to enhance customer enjoyment, such as the dollar amount of the current winning bid, the amount of time to elapse before the auction is closed, and an e-mail notification if a bidder’s maximum bid has been exceeded, allowing the bidder to then increase his maximum bid.
Once an auction is completed, the winning bidder is notified by e-mail and requested to submit preferred travel dates by e-mail. A customer service agent will then work with our suppliers to confirm the requested itinerary, make the reservation, notify the bidder, charge the customer’s form of payment and forward the required information to staff for processing. We have the ability to select which supplier will be used to fulfill our auction sales where a specific supplier was not identified in the auction. Our customers rely on us to address date changes or cancellations.
We believe that our competitive advantages are:
Established relationships with leading travel industry providers. Our two principal executives each brings to our business over 40 years of experience in the travel industry. We have taken advantage of the relationships that they have developed over that period with leading travel industry suppliers. These relationships have enabled us to offer travel products and services with most name brand companies.
Effective sales channel for our travel suppliers. We believe that we provide our suppliers with an effective channel to distribute their perishable, last-minute products and excess capacity caused by seasonality, such as off-peak season, as well as other marketplace factors, such as route-specific or geographical overcapacity. Our no-reserve auction process provides travel suppliers with a unique channel of distribution that is not perceived by customers as a direct discount from the travel services supplier, thereby protecting their traditional pricing structures, distribution channels and brand names, while generating increased revenues to them and incremental demand for their travel products.
Wide variety of flexible travel products and services. Since our inception, our customers have traveled to over 500 destinations. We typically provide our customers with a wide variety of options and flexibility for their reservations. Our customers can also participate in most of our suppliers’ frequent travel membership and other customer loyalty programs.
Travel industry focus. Skyauction has significant experience providing travel products and services, which we believe enables us to operate more effectively in our market. We strive to create value for our customers by offering a timely, interesting variety of products and services. Our travel industry expertise has enabled us to design unique travel packages that we believe create added value for our customers. We position ourselves as a reliable marketplace for nearly all travel needs
Our site present and future site will have the same baseline functionality but featuring many enhancements to improve our consumer experience. “Bid, Buy or Best Offer” will bring a three in one approach to garnering sales and engaging interaction. Our site re-design will bring a more appealing, simplified offer to market with better descriptive language and images to engage potential consumers.
Customer registration will be simplified and made common with popular credentials using Facebook or Google common login practices. We intend to improve our communications plan by allowing customers to “bid via text”, having a live and interactive mobile site and developing a Ubid.com App under our business plan.
Our Products and Merchandising
We currently offer on average of over 1,000 total items in each of our daily auctions and now also feature many travel products through SkyAuction.com. For the year ended December 31, 2017, and the year ended December 31, 2018, our consumer product mix based on revenues consisted of approximately 50% new merchandise and 20% refurbished products. This mix can fluctuate from quarter to quarter depending on the type of products posted in our marketplaces or available for purchase at acceptable prices. Regardless of the source of the merchandise, most merchandise we sell is covered by manufacturer, distributor or refurbisher warranties. We believe that the warranties provided by the suppliers, combined with our emphasis on customer service, provides us with a competitive advantage.
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We currently offer products in the following categories:
Travel: Over our tenure we have offered virtually every form of general market travel product available on a global basis. Our most sought after products include luxury hotels, vacation rentals, cruises, discount vacation certificates as well as various tour and travel products. We capitalize on opportunities to leverage inventory at spectacular prices when available which adds to the “scarcity” component compelling auction participants to act quickly and bid more actively.
Consumer Electronics: Televisions and audio equipment, automobile electronics and GPS, home theater and audio equipment, camcorders, cell phones, headphones, and cell phone accessories.
Jewelry and Gifts: Fine jewelry, including rings, earrings, watches, bracelets and necklaces.
Sporting Goods: Exercise and fitness accessories, exercise and fitness equipment, camping and hiking equipment, and sports accessories.
Collectibles: Coins, silver and gold bullion, paper currency, sports memorabilia, movies, and games and toys.
Home Goods: Bedding and pillows, lighting clocks, office furniture, tools and accessories, kitchen appliances and accessories, storage, and plants.
Fashion: Women’s and men’s sunglasses, costumes and footwear.
Over our tenure auctions have included such representative brand names as Apple, Sony, HP, Samsung, Dell, Panasonic, Lenovo, Microsoft and LG.
Our Sales Channels
uBid.com is actively engaging in multi-channel selling leveraging sales created via other websites to enhance our volume related purchasing capabilities. These sales lead new customers to our website and give us alternate revenue and margin streams allowing us to closely monitor the competitive environment for all our products. These included Amazon, Walmart, and eBay for consumer products and Airbnb, Vrbo and various other sites for travel related products. We have successfully managed this program into a vibrant segment of our overall selling matrix.
Supplier Relationships
We obtain merchandise for our web site platforms from manufacturers, distributors and retailers and through commercial trading companies. We believe that we have substantial access to additional sources of merchandise and are in a position to leverage our existing relationships and add new suppliers to increase the breadth and number of products we offer. Since merchandise availability can be unpredictable, a strong base of supplier relationships is important to our success. As a result, our buying staff maintains ongoing contact with our suppliers to learn when new merchandise becomes available.
With increasing regularity, we will be assuming full inventory and price risk by making sole supply arrangement where we in effect pre-purchase inventory. We believe our ability to sell our inventory quickly through our website and via our multi-channel system justifies the cost of and risk involved in carrying inventory. We have been able to secure sales via steady supply and enhance margins by securing this supply in advance. This system removes the requirement for B2B suppliers to engage in complicated infrastructure allowing us to become their “sole” source for selling products in this alternate channel.
We believe that we have built strong relationships with established suppliers of travel products and services due to our success in marketing and distributing excess travel inventory for our suppliers without compromising their brands or undermining their standard pricing. As a result, we believe that we will be able to continue to enhance relationships with our existing suppliers and establish relationships with new suppliers.
Hotels, resorts and timeshares. We have entered into arrangements with over 20 hotel and resort companies, individual hotels or hotel groups and a timeshare company. Through these suppliers, we have access to over 3,000 properties, representing over 100,000 rooms, ranging from budget to luxury accommodations at four- and five-star resorts or resort condominiums, at locations throughout the United States and North America, the Caribbean, Latin America and Europe, as well as other international locations. This wide variety of properties, available to us from suppliers ranging from Viva Resorts to Barcelo Resorts, as well as numerous luxury resort condominium properties, allows us to offer our customers appealing accommodations to satisfy their particular preferences and budgets.
We generally obtain hotel and resort accommodations based on rates that are adjusted for seasonality, on either a per-person or per-room basis. In addition, we obtain further discounts on excess accommodations in specific locations or during certain seasons.
We have agreements with RCI and Interval International, the world’s largest timeshare exchanges, through which we may select the properties and locations of the inventory we purchase.
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Marketing Strategy
Our marketing strategy is aligned with our overall business goals to drive revenue and margin growth by increasing our consumer and supplier bases. Our marketing strategy is focused primarily on four areas: (i) increasing consumer awareness of www.uBid.com and www.skyauction.com, (ii) expanding and optimizing customer acquisition efforts and (iii) implementing a scalable, cost-effective customer retention program.
| ● | Increasing consumer awareness of uBid and its online properties. We believe that we have created a unique position in the marketplace focused on earning consumer trust. This position of “trust” is supported by our focus on business-to-consumer selling (versus consumer-to-consumer selling), significant investments in our customer support services, internal product warehousing and payment transaction processing and endorsements from various recognized third-party security and privacy programs. We believe this “trust” positioning will continue to set us apart from our competitors and provide a meaningful difference in attracting and maintaining customers. In addition, we intend to pursue an aggressive marketing strategy designed to promote brand awareness and the concept that customers can purchase a wide range of products and services through us at good values. We plan to utilize a combination of Web-based advertising, targeted e- mail, broadcast media, print campaigns, billboards and other media placements to further our marketing and branding strategy. |
| ● | Expanding and optimizing customer acquisition efforts. Our marketing expenditures are primarily spent on attracting traffic to our websites. Traffic to our websites consisted of 1,735,000 individual visits in 2018. Potential new customers are sourced through a range of online efforts including affiliate marketing programs, paid search listings, shopping comparison programs, online partnerships, e-mail marketing and social media campaigns. In addition, we also utilize marketing channels such as in-store media, event marketing and single partnerships with key online media companies to broaden our customer demographics and drive larger incremental gains in customer acquisition. |
| ● | Implementing a scalable, cost-effective customer retention program. It is critical to have a program that effectively manages new customer relationships from acquisition to activation (one-time bidding/buying) to repeat purchase. We have recently increased our investment in the implementation of our customer retention management. Our efforts to date have been focused on developing programs aimed at improving bidding/buying behavior among key customer segments including recent bidders, lapsed and long lapsed bidders, inactive members (i.e., never bid), registered members without a credit card on file, and members without an opt-in e-mail address. |
| ● | More effectively measuring and managing the profitability of individual auctions. We have created an online marketplace that enables customers to purchase a wide range of travel products and services from numerous suppliers. Registered users bid and ultimately pay only the amount which they perceive to be a good value for the product or service. Our Web site offers suppliers of travel products and services an alternative distribution channel to generate incremental demand and revenue while maintaining the integrity of their sales channels, pricing structures and brands. With excess inventory that is perishable, suppliers of travel products and services face increasing pressure to sell merchandise as time passes. We effectively create targeted demand and provide a distribution channel distinct from the supplier’s traditional sales channels. |
Product Fulfillment and Logistics
uBid.com ships products to our customers either from our central New Jersey facility or from our contracted warehouse which is also in New Jersey. We utilize a centralized inventory control system to allocate all shipments to our site and multi-channel customers and we are directly responsible for maintaining customer returns, service emails and all expediting. This centralized control allows us up-to-the-minute information on all shipments pending, in transit or completed. It also keeps us directly in control of the customer information flow on a daily basis.
The product fulfillment process, from receipt of products through shipment, is largely automated through our use of a third-party logistics warehouse and distribution system, enabling us to capture real-time data on inventory receiving, shipping and stock levels. This flexible system enables us to control warehouse costs and more closely manage the distribution of our directly procured merchandise because we only pay for the warehousing used on a per transaction basis. Direct product fulfillment and its related costs shrink or expand to fit the needs of our business. As a result, we do not currently incur significant overhead costs of owning and operating warehouse. We believe that the speed and accuracy of our order fulfillment process reinforces and enhances our customers’ total purchase experience.
Customer Service and Support
Our ability to establish and maintain long term relationships with our customers and encourage repeat visits and purchases is dependent, in part, on the strength of our customer support and service operations. We have established multiple channels for communicating with our customers before and after the sale, including phone, e-mail and online support.
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We currently employ a staff of in-house customer support personnel responsible for handling customer inquiries, tracking shipments, investigating and resolving problems with merchandise and travel. Customer care representatives are available for support from 10 a.m. to 5 p.m., Eastern Time, Monday through Friday. In addition, our customer service representatives are trained to cross-sell complementary and ancillary products and services including extended product warranties and accessories.
We plan to enact the use of AI chatbots to further help our customers to navigate offers and easily gain information generally prior to sale, helping customers engage our offers with confidence.
Information Technology and Digital Infrastructure
We use a combination of proprietary and commercially available licensed technologies to support our uBid.com and SkyAuction.com operations. We have developed a scalable technology platform to support our operations, including merchandising, marketing, order management, inventory and accounting. These systems are designed to make both the customer experience and the transaction reporting and tracking process as seamless and simple as possible. Our current strategy is to license commercially available technology wherever possible rather than seek internally-developed solutions.
Competition
The online retail market is intensely competitive. Barriers to entry are minimal, and current and new competitors can launch new websites at a relatively low cost. We currently compete with numerous competitors, including:
| ● | liquidation online retailers such as Liquidity Services, Inc.; |
| ● | e-commerce websites such as eBay, Etsy, Priceline, GroupOn, Overstock.com, Wayfair and Zulily; and |
| ● | private sale sites such as Rue La La and Gilt Groupe. |
We expect the online retail market to become even more competitive as traditional retailers continue to develop services that compete with our services. In October 2016, for instance, Wal-Mart Stores Inc. announced that it would direct billions of dollars in annual capital spending toward boosting e-commerce sales, and spent $3.3 billion to buy online retailer Jet.com and nearly doubled its investment in Chinese online retailer JD.com Inc. In addition, manufacturers and retailers may decide to create their own websites to sell their own overstock and close-out inventory as well as the excess inventory of third parties. Competitive pressures created by any one of our competitors, or by our competitors collectively, could harm our business, prospects, financial condition and results of operations.
Many of our current and potential competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. In addition, online retailers may be acquired by, receive investments from, or enter into other commercial relationships with larger, well-established and well-financed companies. Some of our competitors may be able to secure merchandise from manufacturers on more favorable terms, devote greater resources to marketing and promotional campaigns, adopt more aggressive pricing or inventory availability policies and devote substantially more resources to website and systems development than we do. Increased competition may result in reduced operating margins, loss of market share and a diminished brand franchise. We cannot provide assurance that we will be able to compete successfully against existing or future competitors.
We believe that competition in the online auction and e-commerce market is based predominantly on:
| ● | price; |
| ● | product quality and selection; |
| ● | shopping convenience; |
| ● | order processing and fulfillment; |
| ● | customer service; and |
| ● | brand recognition. |
Intellectual Property and Other Proprietary Rights
We regard our domain names and similar intellectual property as critical to our success. We rely on a combination of laws and contractual restrictions with our employees, customers, suppliers, affiliates and others to establish and protect our proprietary rights. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our intellectual property without authorization. We cannot assure you that others will not independently develop similar intellectual property. In addition, effective trademark protection may not be available or may not be sought by us in every country in which our products and services are made available online, including the United States.
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We own our uBid service marks, which are registered trademarks.
Our proprietary software is protected by copyright laws. The source code for our proprietary software also is protected under applicable trade secret laws. We own the copyright and other proprietary rights for our auction processing and auction management applications. We own the patent license for fixed price consignment that will allow our vendors and our merchants to create auctions with fixed pricing.
From time to time, we may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the trademarks and other intellectual property rights of third parties by us.
Third parties may, in the future, recruit our employees who have had access to our proprietary technologies, processes and operations. These recruiting efforts expose us to the risk that such employees will misappropriate our intellectual property.
Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or to determine the validity and scope of the proprietary rights of others. Any litigation, regardless of outcome or merit, could result in substantial costs and diversion of management and technical resources, any of which could materially harm our business.
Government Regulation
As with any company operating on the Internet, we are subject to a growing number of local, national, and international laws and regulations. These laws are often complex, sometimes contradict other laws, and are frequently changing. Laws may be interpreted and enforced in different ways in various locations around the world, posing a significant challenge to our global business. For example, U.S. federal and state laws, E.U. directives, and other national laws govern the processing of payments, consumer protection, the privacy of consumer information; pricing, fraud, quality of products and services, taxation, advertising, intellectual property rights and information security, other laws define and regulate unfair and deceptive trade practices. Still other laws dictate when and how sales or other taxes must be collected. Laws of defamation apply online and vary by country. The growing regulation of e-commerce worldwide could impose additional compliance burdens and costs on us and could subject us to significant liability for any failure to comply. Additionally, because we operate internationally, we need to comply with various laws associated with doing business outside of the United States, including anti-money laundering, sanctions, anti-corruption, and export control laws.
Many states and other jurisdictions have regulations governing the conduct of traditional “auctions” and the liability of traditional “auctioneers” in conducting auctions. These types of regulations may become applicable to online auction sites. We are aware that several states and some foreign jurisdictions have attempted to impose such regulations on other companies operating online auction sites or on the users of those sites. In addition, some states have laws or regulations that do expressly apply to online auction site services. We may incur costs in complying with these laws. We may, from time to time, be required to make changes in our business that may increase our costs, reduce our revenues and cause us to prohibit the listing of some items in certain locations, or make other changes that may adversely affect our auctions business.
We are subject to a variety of federal, state and international laws and regulations governing consumer data. The General Data Protection Regulation (“GDPR”), which was recently adopted by the European Union became effective in May 2018, requires companies to satisfy new requirements regarding the handling of personal and sensitive data, including its collection, use, protection and the ability of persons whose data is stored to correct or delete such data about themselves. Complying with the GDPR caused us to update certain business practices and systems. Non-compliance with GDPR could result in proceedings against us by governmental entities or others and fines up to the greater of €20 million or 4% of annual global revenue. In addition, the State of California adopted the California Consumer Protection Act of 2018 (“CCPA”), which will become effective in 2020 and also will regulate the collection and use of consumers’ data. Compliance with the CCPA is expected to cause us to make additional updates to certain business practices and systems.
The most prominent regulation affecting the e-commerce and online auctions industry in recent years has been the Streamlined Sales and Use Tax Agreement organized by the Streamlined Sales Tax Governing Board. The agreement is the result of the cooperative efforts of most states and the business community. It was drafted in hopes of minimizing the costs and administrative burden on retailers that collect sales and use taxes across multiple states. The agreement requires online retailers to collect sales tax from customers living in states that have passed the agreement. With the rising popularity of online shopping and many US states seeking to increase revenue, more and more states have been passing legislation to conform to the agreement in recent years. Currently, 24 states have passed legislation confirming the agreement. In June 2018, the Supreme Court ruled that state-imposed internet sales tax is legal. Industry operators are also governed by the Federal Trade Commission’s Mail, Internet or Telephone Order Merchandise rule, which requires that retailers use methods that enable the shipment of goods within 30 days of a product’s order. The rule also requires retailers to notify consumers of any delays that would postpone shipment beyond the 30-day window. The Federal Trade Commission (FTC) also enforces online privacy laws to ensure consumers’ sensitive information, such as names, addresses and social security and credit card numbers, are protected. Additionally, online advertising and marketing laws, such as truth in advertising standards, guard consumers against false advertising.
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Employees
As of March 31, 2019, we had 13 full time employees. None of our employees or personnel is represented by a labor union, and we consider our employee/personnel relations to be good. Competition for qualified personnel in our industry is intense, particularly for software development and other technical staff. We believe that our future success will depend in part on our ability to attract, hire and retain qualified personnel.
Properties
Our principal administrative facilities are located 566 W. Adams St, Suite 260, which consist of approximately 1,200 square feet. We currently lease such facilities for $1,700 per month effective August 1, 2018. The lease expires in August 2019. We intend to move our administrative facilities to Norcross, Georgia, in the third quarter of 2019. Commencing August 1, 2019, we will be moving our headquarters to Lakeside Corporate Court, 5880 Live Oak Parkway, Suite 100, Norcross, Georgia 30093. The lease is for 2,475 rentable square feet and expires August 1, 2024. The monthly lease expense commences at $1,000 for the first year and rises to $2,900 per month in the fifth year of the lease.
SkyAuction’s principal executive offices are located at 241 North Avenue West, Westfield, New Jersey 07090 and consist of approximately 1,500 square feet. We currently lease such facilities for $3,000 per month. We have a self-renewing month-to-month lease with no immediate escalation.
As we expand, we will need to find suitable additional space, which we believe is available on commercially reasonable terms for both of uBid and SkyAuction. We do not own any real estate.
Engagement of Investment Bank
On December 10, 2018, we entered into an Advisory Agreement with Maxim Group LLC (“Maxim”) under which Maxim will assist us with financial advisory and investment banking services, including a valuation analysis, analysis of our financial models and organizational structure, potential strategic alliances, acquisitions and capital requirements, our up listing to a national exchange (Nasdaq or NYSE), our investor presentations and strategic introductions to potential financing alternatives.
Future Undertakings
We intend to undertake a reverse split within the range of 1:10 to 1:30 to allow us to meet listing standards of a national stock exchange and to pursue a number of potential acquisitions. There are no assurances that this action will be approved by our shareholders, that our registration statement will be declared effective by the SEC or that our common stock will be approved for trading on a national stock exchange.
Legal Proceedings
From time to time we may be named in claims arising in the ordinary course of business. Currently, there is one legal proceeding that is pending against us or involves us that, in the opinion of our management, could reasonably be expected to have a material adverse effect on our business or financial condition.
On December 17, 2017, a lawsuit that had been dismissed by the plaintiff on July 21, 2017, was refiled against us pursuant to Georgia’s renewal statute (O.C.G.A. 9-2-61), titled Oelshlager v. Cryomist II, Cryomist III and Incumaker, Inc. (Fulton County Georgia State Court). The lawsuit alleges that Incumaker is liable for the conduct of its subsidiary on the theory that it is the parent of these separate corporations and that the Cryomist Companies were merely the alter ego of Incumaker. We intend to vigorously defend the Company against this lawsuit.
On April 17, 2019, a lawsuit was filed by Dupree Productions, LLC against uBid Holdings, Inc. and Ketan Thakker (Case No. L2019000436) in the Circuit Court of DuPage County, Illinois, alleging that a Partial Equity Payment Agreement dated August 1, 2016, intended to compensate services in the amount of $60,000 in return for shares of uBid common stock was inadequate to compensate for the alleged higher value of the advertising and endorsement services of approximately $195,000. We intend to vigorously defend against these claims.
SELLING SECURITYHOLDERS
The Selling Securityholders, or their pledgees, assignees or successors-in-interest, are offering for resale, from time to time, up to an aggregate of 55,820,218 shares of our common stock held by such Selling Securityholders and upon conversion of (i) the FirstFire convertible note, (ii) the FirstFire Warrant and (iii) the Auctus convertible note and (iv) the Auctus Warrant. Such shares consist of:
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| ● | 22,000,000 shares of our common stock under the FirstFire convertible note assuming a conversion price of $0.03 per share; |
| ● | 9,250,000 shares of our common stock under the Auctus convertible note assuming a Variable Conversion Price as that term is defined in the Auctus convertible note of $0.03 per share; |
| ● | 5,250,000 shares of our common stock underlying the FirstFire Warrant; and |
| ● | 7,000,000 shares of our common stock underlying the Auctus warrant. |
Because the FirstFire Warrant and Auctus Warrant permit cashless exercise, the number of shares that ultimately will be issuable upon any exercise thereof may be less than the number of shares being offered by this prospectus. The Selling Securityholders may sell all, some or none of their shares in this offering. The Selling Securityholders also may sell, transfer or otherwise dispose of some or all their shares in transactions exempt from, or not subject to the registration requirements of, the Securities Act. See “Plan of Distribution.”
The tables below have been prepared based solely on information supplied to us by the Selling Securityholders and assumes the sale of all the shares offered hereby. Other than as described in the footnotes below, the Selling Securityholders has not, within the past three years, had any position, office or other material relationship with us or any of our predecessors or affiliates other than as a holder of our securities, or are broker-dealers or affiliates of a broker-dealer. Information concerning the Selling Securityholders may change from time to time and, if necessary and required, we will amend or supplement this prospectus accordingly.
Beneficial ownership is determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended, or the “Exchange Act,” and generally includes shares over which the Selling Securityholders has voting or dispositive power, including any shares that the Selling Securityholders has the right to acquire within 60 days of June 10, 2019. The percentage of ownership before the offering is calculated based on 446,856,939 shares outstanding as of June 10, 2019. The percentage of ownership after the offering assumes the exercise of all shares underlying the FirstFire Warrant and Auctus Warrant and the sale by the Selling Securityholders of all of their shares offered for resale hereby.
Pre-IPO Selling Securityholders
| Beneficial Ownership Before |
Shares | Beneficial Ownership | ||||||||||||||
| Offering | Offered | After Offering | ||||||||||||||
| Selling Securityholders | Shares | Hereby | Shares | Percent | ||||||||||||
| FirstFire Global Opportunities Fund, LLC(1) | 27,750,000 | 500,000 | 0 | 0 | % | |||||||||||
| Auctus Fund, LLC(2) | 16,250,000 | 16,250,000 | 0 | 0 | % | |||||||||||
| Fourth Street Fund, LP(3) | 8,520,218 | 8,520,218 | 0 | 0 | % | |||||||||||
| Darren Bankston | 3,300,000 | 3,300,000 | 0 | 0 | % | |||||||||||
| (1) | FirstFire Global’s beneficial ownership includes (i) 22,000,000 shares of our common stock underlying the FirstFire convertible note and (ii) 5,250,000 shares of our common stock underlying the FirstFire Warrant. FirstFire Global is controlled by Eli Fireman. |
| (2) | Auctus’ beneficial ownership includes (i) 9,250,000 shares of our common stock underlying the Auctus convertible note and (ii) 7,000,000 shares of our common stock underlying the Auctus Warrant. Auctus Fund is controlled by Lou Posner. |
| (3) | Fourth Street Fund is controlled by Lisa Mannion. |
Set forth below is certain information regarding our executive officers and directors. Each of the directors listed below was elected to our board of directors to serve until our next annual meeting of stockholders or until his or her successor is elected and qualified. All directors hold office for one-year terms until the election and qualification of their successors. The following table sets forth information regarding the members of our board of directors and our executive officers:
The following tables set forth certain information regarding the beneficial ownership of our common stock as the date of this Report by (i) each person who, to our knowledge, owns more than 5% of our common stock; (ii) each of our directors and executive officers; and (iii) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following tables, each person named in the table has sole voting and investment power. The address of each of the directors and executive officers listed below is c/o uBid Holdings, Inc., 566 West Adams Street, Suite 260, Chicago, IL 60661; Tel: (773) 272-5000.
For purposes of this table, 22,250,000 shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of the date of this report are deemed outstanding.
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| Class of Securities | Name and Address | # of Common Shares | % of Class | |||||||
| Common | Ketan Thakker(1) | 92,412,634 | 20 | % | ||||||
| Common | Michael N. Hering(1) | 129,174,771 | 27.9 | % | ||||||
| Common | Salvatore Esposito, Jr.(1) | 13,528,043 | 2.9 | % | ||||||
| Common | All Officers and Directors as a Group (three persons) | 235,115,448 | 50.80 | % | ||||||
(1) Officer and/or director of our Company.
DIRECTORS AND EXECUTIVE OFFICERS
The following persons are the executive officers and directors of our Company:
| Name | Age | Position | ||
| Ketan Thakker | 50 | Chief Executive Officer; President and Chairman | ||
| Kevin Harrington | 62 | Director | ||
| M. Scot Wingo | 50 | Director | ||
| Paul K. Danner | 61 | Director | ||
| Michael N. Hering | 66 | Chief Merchandising Officer | ||
| Salvatore Esposito, Jr. | 60 | Chief Operating Officer |
Ketan Thakker has been our Chairman, President and Chief Executive Officer since August 2014. He joined our company as Chief Financial Officer in July 2013, leading our restructuring, and was promoted the following year. Mr. Thakker is an entrepreneurial leader with more than 20 years in finance and operations. He has significant hands-on experience in building and growing new and existing businesses in the online space. He founded and served as President of TripRental.com and TripRental Software, an online listing site for vacation rental properties, from March 2011 to June 2013. He previously served as the Chief Financial Officer for Apartments.com, a Classified Ventures Company from 2006 to 2011. Mr. Thakker also held leadership roles in financial management at Abbott Laboratories and Baxter International Inc. Mr. Thakker received an M.B.A. from Northwestern University’s Kellogg School of Management and is an accredited certified public accountant.
As the Chairman, President and Chief Executive Officer, Mr. Thakker leads the Board and guides our company. Mr. Thakker brings extensive e-commerce industry knowledge of the company and a deep background in technology growth companies, mergers and acquisitions and capital market activities, making him well qualified as a member of the Board. His service as Chairman, President and Chief Executive Officer creates a critical link between management and the Board.
Kevin Harrington was appointed as a director of our Company on February 13, 2019, following the closing of the SkyAuction Merger. Mr. Harrington has almost 40 years’ experience in product introduction and direct marketing, being one of the first to market products through infomercials in 1984. Since 2005, he has been Chief Executive Officer of Harrington Business Development, Inc. and, since November 2015, Chief Executive Officer of KBHJJ, LLC, each privately held consulting firms controlled by him. A serial entrepreneur, Mr. Harrington appeared as one of the original panelists on the ABC television program, “Shark Tank,” from 2009 to 2011. He currently serves as a director of Celsius Corp., a developer of calorie-burning fitness beverages, since March 2013, Emergent Health Corp., a developer of nutritional products, since December 2014, and Redwood Scientific Technologies, Inc., a marketer of consumer homeopathic drugs and supplements, since April 2015. He also serves on the Advisory Board of Good Gaming, Inc., an eSports tournament gaming platform, since March 2016, and was formerly the Chairman of the Board of As Seen On TV, Inc., a public company that focuses on marketing products through infomercials and other direct marketing, from May 2010 to April 2014. Mr. Harrington is the author of “Act Now! How to Turn Ideas into Million-Dollar Products,” which chronicles his life and experiences in the direct response industry. Mr. Harrington is a co-founder of two global networking associations, the Entrepreneur’s Organization (formerly the Young Entrepreneurs Organization) in 1997, and the Electronic Retailing Association in 2000. Mr. Harrington’s in-depth knowledge of the e-commerce market and the broad range of companies in the industry make him well qualified as a member of the Board. He also brings transactional expertise in mergers and acquisitions and capital markets.
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M. Scot Wingo was appointed as a director of our Company on February 13, 2019, following the closing of the SkyAuction Merger. Mr. Wingo is a co-founder of ChannelAdvisor Corporation (NYSE) and has served as chairman of its board of directors since its inception in 2001, as its executive chairman since May 2015 and as its chief executive officer from 2001 until May 2015. Mr. Wingo is a co-founder of, and since July 2016 has served as the chief executive officer of, Get Spiffy, Inc., an on-demand car cleaning technology and services company. Prior to founding ChannelAdvisor, he served as general manager of GoTo Auctions, chief executive officer and co-founder of AuctionRover.com, which was acquired by GoTo.com, and as chief executive officer and co-founder of Stingray Software, which was acquired by RogueWave. He has appeared on CNBC, The Today Show and contributed thought leadership to the WSJ, New York Times, Washington Post, Bloomberg/Business Week, LA Times, AP, Reuters and many other publications. Mr. Wingo regularly speaks about e-commerce and on-demand topics at IRCE (Internet Retailer Conference and Exhibition), NRF’s/shop.org Digital Summit, NRF’s Big Show, Shoptalk, NPD Idea, Bronto Summit, ChannelAdvisor Catalyst and many e-commerce/retail-oriented Wall Street conferences. Mr. Wingo has received numerous awards including Ernst and Young’s Entrepreneur of the Year and Triangle Business Journal’s Businessperson of the Year. Mr. Wingo received a B.S. degree in Computer Engineering from the University of South Carolina and an M.S. degree in Computer Engineering from North Carolina State University. The Board of Directors believes that Mr. Wingo’s reputation as a thought leader in the e-commerce industry, transactional expertise in mergers and acquisitions and capital markets and his business experience in founding and overseeing the growth of software companies makes him well qualified to be a member of the Board.
Michael N. Hering is a co-founder of SkyAuction and has served as its President, Chief Executive Officer and director since February 1999. Mr. Hering has served as the Chairman of its board of directors for SkyAuction. From March 1981 to March 2000, he was also Chairman, President and Chief Executive Officer of Magical Holidays, Inc., a travel wholesaler.
Paul K. Danner joined our Board of Directors on February 13, 2019, following the SkyAuction Merger. He is currently serving as the Chief Executive Officer of Pepex Biomedical, Inc. From 2016 to 2018, he was Chairman & Chief Executive Officer of Alliance MMA, Inc., NASDAQ-listed sports promotion and media firm. Formerly, Mr. Danner was the Managing Director of Destiny Partners Worldwide, a global organizational management and business operations consultancy since 2006. From 2008 to 2010, Mr. Danner was also the Chief Executive Officer of Shanghai-based China Crescent Enterprises, a fully-reporting OTCBB-listed information technologies company which operated primarily in Asia. Previously, he served as Chairman & Chief Executive Officer of Paragon Financial Corporation, a NASDAQ-listed financial services firm, from 2002 to 2006. From January 1998 to 2001 Mr. Danner was employed in various roles at MyTurn.com, Inc., a NASDAQ-listed information technologies company, including as Chief Executive Officer. From 1996 to 1997, Mr. Danner was the Managing Partner of Technology Ventures, a business consultancy firm. From 1985 to 1996 he held executive-level and sales & marketing positions with a number of Fortune-100 technology companies including NEC Technologies and Control Data Corporation. Mr. Danner served as a Naval Aviator flying the F-14 Tomcat, and subsequently as an Aerospace Engineering Duty Officer supporting the Naval Air Systems Command, for eight years on active duty plus 22 years with the reserve component of the United States Navy. He retired from the Navy in 2009 with the rank of Captain. Mr. Danner received his BS in Business Finance from Colorado State University and holds an MBA in Marketing from the Strome College of Business at Old Dominion University.
Salvatore Esposito, Jr. is a co-founder of SkyAuction where he has served as its Chief Operating Officer since February 1999. Mr. Esposito also was a founder and Executive Vice President since February 1999 of Magical Holidays, Inc., an air consolidation business and tour operator focusing on Africa. From 1986 to February 1992, Mr. Esposito held the position of a national sales manager, regional sales manager and Director of Sales at British Airways, Pan American World Airways and Sabena Belgian World Airways, respectively. Mr. Esposito received a B.A. from St. Peter’s College.
Board of Directors and Corporate Governance
When considering whether directors have the experience, qualifications, attributes and skills to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of our business and structure, the Board of Directors focuses primarily on the information discussed in each of the directors’ individual biographies as set forth above. With regard to Mr. Thakker, the Board considered his day-to-day operational leadership of our company and in-depth knowledge of our business. In the case of Messrs. Wingo, Danner and Harrington, the Board has considered their extensive experience in corporate management that will assist our corporate governance.
The Board of Directors periodically reviews relationships that directors have with our company to determine whether the directors are independent. Directors are considered “independent” as long as they do not accept any consulting, advisory or other compensatory fee (other than director fees) from us, are not an affiliated person of our company or our subsidiaries (e.g., an officer or a greater than 10% stockholder) and are independent within the meaning of applicable United States laws, regulations and the Nasdaq Capital Market listing rules. In this latter regard, the Board of Directors uses the Nasdaq Marketplace Rules (specifically, Section 5605(a)(2) of such rules) as a benchmark for determining which, if any, of our directors are independent, solely in order to comply with applicable SEC disclosure rules.
The Board of Directors has determined that, of our directors, Messrs. Wingo, Richardson, Danner and Harrington are independent within the meaning of the Nasdaq Marketplace Rules cited above, and that Paul Danner We believe Paul Danner is also an audit committee financial expert as that term is defined by listing standards of the national securities exchanges and SEC rules, including the rules relating to the independence standards of an audit committee and the non-employee director definition of Rule 16b-3 under the Securities Exchange Act of 1934.
Director or Officer Involvement in Certain Legal Proceedings
Our directors and executive officers were not involved in any legal proceedings as described in Item 401(f) of Regulation S-K in the past ten years.
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Directors and Officers Liability Insurance
We have directors’ and officers’ liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions. Such insurance also insures us against losses, which we may incur in indemnifying our officers and directors. In addition, officers and directors also have indemnification rights under applicable laws, and our certificate of incorporation and bylaws.
Committees of the Board of Directors
Currently, our Board of Directors acts as audit, nominating, corporate governance and compensation committees. The Board of Directors has adopted charters relative to its audit committee, compensation committee and nominating committee. Until such time as we add more members to the Board, the entire Board will determine all matters and no committees have been formed. We intend to appoint persons to the board of directors and committees of the board of directors as required to meet the corporate governance requirements of a national securities exchange, although we are not required to comply with these requirements until we are listed on a national securities exchange. We intend to appoint directors in the future so that we have a majority of our directors who will be independent directors, and of which at least one director will qualify as an “audit committee financial expert,” prior to a listing on a national securities exchange.
Audit Committee
The audit committee’s duties under the terms of its charter are to recommend to our board of directors the engagement of independent auditors to audit our financial statements and to include the terms of its charter review our accounting and auditing principles. The audit committee reviews the scope, timing and fees for the annual audit and the results of audit examinations performed by independent public accountants, including their recommendations to improve the system of accounting and internal controls. The audit committee oversees the independent auditors, including their independence and objectivity. However, the committee members are not acting as professional accountants or auditors, and their functions are not intended to duplicate or substitute for the activities of management and the independent auditors. The audit committee is empowered to retain independent legal counsel and other advisors as it deems necessary or appropriate to assist the audit committee in fulfilling its responsibilities, and to approve the fees and other retention terms of the advisors. The audit committee members possess an understanding of financial statements and generally accepted accounting principles.
Compensation Committee
The compensation committee has certain duties and powers as described in its charter, including but not limited to periodically reviewing and approving our salary and benefits policies, compensation of our executive officers, administering our stock option plans, and recommending and approving grants of stock options under those plans.
Nominating Committee
Under the charter of our nominating and corporate governance committee, the nominating and corporate governance committee considers and makes recommendations on matters related to the practices, policies and procedures of the board of directors and takes a leadership role in shaping our corporate governance. As part of its duties, the nominating and corporate governance committee assesses the size, structure and composition of the board of directors and its committees, coordinates evaluation of board performance and reviews board compensation. The nominating and corporate governance committee also acts as a screening and nominating committee for candidates considered for election to the board of directors.
Compensation Committee Interlocks and Insider Participation
None of our directors or executive officers serves as a member of the board of directors or compensation committee of any other entity that has one or more of its executive officers serving as a member of our board of directors.
Code of Ethics
We have adopted a written code of ethics that applies to all of our directors, officers and employees in accordance with the rules of the Nasdaq Capital Market and the SEC. We will post a copy of our code of ethics on our website, and intend to post amendments to this code, or any waivers of its requirements, as well.
Conflicts of Interest
We comply with applicable state law with respect to transactions (including business opportunities) involving potential conflicts. Applicable state corporate law requires that all transactions involving our company and any director or executive officer (or other entities with which they are affiliated) are subject to full disclosure and approval of the majority of the disinterested independent members of our Board of Directors, approval of the majority of our stockholders or the determination that the contract or transaction is intrinsically fair to us. More particularly, our policy is to have any related party transactions (i.e., transactions involving a director, an officer or an affiliate of our company) be approved solely by a majority of the disinterested independent directors serving on the Board of Directors. We expect to have at least three independent directors serving on the Board of Directors and intend to maintain a Board of Directors consisting of a majority of independent directors.
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Indemnification of Directors and Executive Officers
Section 145 of the Delaware General Corporation Law provides for, under certain circumstances, the indemnification of our officers, directors, employees and agents against liabilities that they may incur in such capacities. Below is a summary of the circumstances in which such indemnification is provided.
In general, the statute provides that any director, officer, employee or agent of a corporation may be indemnified against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement, actually and reasonably incurred in a proceeding (including any civil, criminal, administrative or investigative proceeding) to which the individual was a party by reason of such status. Such indemnity may be provided if the indemnified person’s actions resulting in the liabilities: (i) were taken in good faith; (ii) were reasonably believed to have been in or not opposed to our best interests; and (iii) with respect to any criminal action, such person had no reasonable cause to believe the actions were unlawful. Unless ordered by a court, indemnification generally may be awarded only after a determination of independent members of the Board of Directors or a committee thereof, by independent legal counsel or by vote of the stockholders that the applicable standard of conduct was met by the individual to be indemnified.
The statutory provisions further provide that to the extent a director, officer, employee or agent is wholly successful on the merits or otherwise in defense of any proceeding to which he or she was a party, he or she is entitled to receive indemnification against expenses, including attorneys’ fees, actually and reasonably incurred in connection with the proceeding.
Indemnification in connection with a proceeding by us or in our right in which the director, officer, employee or agent is successful is permitted only with respect to expenses, including attorneys’ fees actually and reasonably incurred in connection with the defense. In such actions, the person to be indemnified must have acted in good faith, in a manner believed to have been in our best interests and must not have been adjudged liable to us, unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expense which the Court of Chancery or such other court shall deem proper. Indemnification is otherwise prohibited in connection with a proceeding brought on our behalf in which a director is adjudged liable to us, or in connection with any proceeding charging improper personal benefit to the director in which the director is adjudged liable for receipt of an improper personal benefit.
Delaware law authorizes us to reimburse or pay reasonable expenses incurred by a director, officer, employee or agent in connection with a proceeding in advance of a final disposition of the matter. Such advances of expenses are permitted if the person furnishes to us a written agreement to repay such advances if it is determined that he or she is not entitled to be indemnified by us.
The statutory section cited above further specifies that any provisions for indemnification of or advances for expenses does not exclude other rights under our certificate of incorporation, by-laws, resolutions of our stockholders or disinterested directors, or otherwise. These indemnification provisions continue for a person who has ceased to be a director, officer, employee or agent of the corporation and inure to the benefit of the heirs, executors and administrators of such persons.
The statutory provision cited above also grants us the power to purchase and maintain insurance policies that protect any director, officer, employee or agent against any liability asserted against or incurred by him or her in such capacity arising out of his or her status as such. Such policies may provide for indemnification whether or not the corporation would otherwise have the power to provide for it.
At present, we do not maintain directors’ and officers’ liability insurance in order to limit the exposure to liability for indemnification of directors and officers, including liabilities under the Securities Act; however, we are in the process of obtaining such insurance.
Summary Compensation Table
The following table sets forth the cash and non-cash compensation awarded to or earned by: (i) each individual who served as the principal executive officer and principal financial officer of uBid during the years ended December 31, 2018, 2017 and 2016; and (ii) each other individual that served as an executive officer of uBid at the conclusion of the years ended December 31, 2018, 2017 and 2016 and who received more than $100,000 in the form of salary and bonus during such year. For purposes of this report, these individuals are collectively the “named executive officers” of our Company.
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| Name and Position | Years | Salary | Bonus | Stock Awards | Option Awards | Non-equity Incentive Plan Compensation | Non-qualified Earnings | All Other Compensation | Total | |||||||||||||||||||||||||
| Ketan Thakker, | 2018 | $ | 200,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 200,000 | |||||||||||||||||||||||
| Chairman, President and | 2017 | $ | 200,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 200,000 | |||||||||||||||||||||||
| Chief Executive Officer | 2016 | $ | 200,000 | 0 | 0 | 0 | 0 | 0 | 0 | $ | 200,000 | |||||||||||||||||||||||
| Michael Hering | 2018 | $ | 20,885 | $ | 20,885 | 1 | ||||||||||||||||||||||||||||
| Chief Merchandising Officer / President and CEO, SkyAuction | ||||||||||||||||||||||||||||||||||
| 1 | This sum represents the compensation of Mr. Hering since the SkyAuction Merger on November 12, 2018. His total cash compensation for the 12 months ending December 31, 2018, was $149,063 (including amounts earned as an officer of SkyAuction). In addition, Mr. Hering also received 165,363,244 shares of common stock with a fair value of $8,268,000 and warrants to purchase 5,000,000 shares of common stock with a fair value of $300,000 as part of the purchase of SkyAuction, Inc. that occurred on November 12, 2018. |
Employment and Advisory Agreements
On March 29, 2019, we entered into a new employment agreement with Ketan Thakker, our Chairman, President and Chief Executive Officer. The employment agreement provides that Mr. Thakker will receive a base salary during the first year of his employment agreement at an annual rate of $200,000 for services rendered in such positions. Under the terms of his employment agreement, his annual base salary may be increased as determined by our Board of Directors but may not be less than $200,000. In addition, Mr. Thakker may be entitled to receive, at the discretion of our Board, a cash bonus based on the performance goals of our Company.
The employment agreement also provides for termination by us upon his death or disability (defined as three aggregate months of incapacity during any 365-consecutive day period) or upon conviction of a felony crime of moral turpitude or a material breach of his obligations to us. In the event the employment agreement is terminated by us without cause, Mr. Thakker will be entitled to compensation for the balance of the term.
In the event of a change of control of our company, Mr. Thakker may terminate his employment within six months after such event and will be entitled to continue to be paid pursuant to the terms of his employment agreement.
Mr. Thakker also entered into a confidentiality and non-competition agreement in conjunction with his employment agreement which contains covenants restricting Mr. Thakker from engaging in any activities competitive with our business during the term of the employment agreement and one year thereafter and prohibiting him from disclosure of confidential information regarding our company at any time.
Equity Compensation Plan Information
On February 11, 2019, our Board of Directors and stockholders adopted our 2019 Stock Incentive Plan (the “2019 Plan”). The purpose of the Plan is to provide an incentive to attract and retain directors, officers, consultants, advisors and employees whose services are considered valuable, to encourage a sense of proprietorship, and to stimulate an active interest of these persons in our development and financial success. Under the Plan, we are authorized to issue up to 40,000,000 shares of Common Stock, including incentive stock options intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended, non-qualified stock options, stock appreciation rights, performance shares, restricted stock and long term incentive awards.
Administration. The 2019 Plan is administered by the Board of Directors or the committee or committees as may be appointed by the Board of Directors from time to time (the “Administrator”). The Administrator determines the persons who are to receive awards, the types of awards to be granted, the number of shares subject to each such award and the terms and conditions of such awards. The Administrator also has the authority to interpret the provisions of the 2019 Plan and of any awards granted there under and to modify awards granted under the 2019 Plan. The Administrator may not, however, reduce the price of options or stock appreciation rights issued under the 2019 Plan without prior approval of the Company’s shareholders.
Eligibility. The 2019 Plan provides that awards may be granted to employees, officers, directors and consultants of Drone USA or of any parent, subsidiary or other affiliate of the Company as the Administrator may determine. A person may be granted more than one award under the 2019 Plan.
Shares that are subject to issuance upon exercise of an option under the 2019 Plan but cease to be subject to such option for any reason (other than exercise of such option), and shares that are subject to an award granted under the 2019 Plan but are forfeited or repurchased by the Company at the original issue price, or that are subject to an award that terminates without shares being issued, will again be available for grant and issuance under the 2019 Plan.
Terms of Options and Stock Appreciation Rights. The Administrator determines many of the terms and conditions of each option and SAR granted under the 2019 Plan, including whether the option is to be an incentive stock option or a non-qualified stock option, whether the SAR is a related SAR or a freestanding SAR, the number of shares subject to each option or SAR, and the exercise price of the option and the periods during which the option or SAR may be exercised. Each option and SAR is evidenced by a grant agreement in such form as the Administrator approves and is subject to the following conditions (as described in further detail in the 2019 Plan):
(a) Vesting and Exercisability: Options, restricted shares and SARs become vested and exercisable, as applicable, within such periods, or upon such events, as determined by the Administrator in its discretion and as set forth in the related grant agreement. The term of each option is also set by the Administrator. However, a related SAR will be exercisable at the time or times, and only to the extent, that the option is exercisable and will not be transferable except to the extent that the option is transferable. A freestanding SAR will be exercisable as determined by the Administrator but in no event after 10 years from the date of grant.
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(b) Exercise Price: Each grant agreement states the related option exercise price, which, in the case of SARs, may not be less than 100% of the fair market value of the Company’s shares of common stock on the date of the grant. The exercise price of an incentive stock option granted to a 10% stockholder may not be less than 110% of the fair market value of shares of the Company’s common stock on the date of grant.
(c) Method of Exercise: The option exercise price is typically payable in cash, common stock or a combination of cash of common stock, as determined by the Administrator, but may also be payable, at the discretion of the Administrator, in a number of other forms of consideration.
(d) Recapitalization; Change of Control: The number of shares subject to any award, and the number of shares issuable under the 2019 Plan, are subject to proportionate adjustment in the event of a stock dividend, spin-off, split-up, recapitalization, merger, consolidation, business combination or exchange of shares and the like. Except as otherwise provided in any written agreement between the participant and the Company in effect when a change in control occurs, in the event an acquiring company does not assume plan awards (i) all outstanding options and SARs shall become fully vested and exercisable; (ii) for performance-based awards, all performance goals or performance criteria shall be deemed achieved at target levels and all other terms and conditions met, with award payout prorated for the portion of the performance period completed as of the change in control and payment to occur within 45 days of the change in control; (iii) all restrictions and conditional applicable to any restricted stock award shall lapse; (iv) all restrictions and conditions applicable to any restricted stock units shall lapse and payment shall be made within 45 days of the change in control; and (v) all other awards shall be delivered or paid within 45 days of the change in control.
(e) Other Provisions: The option grant and exercise agreements authorized under the 2019 Plan, which may be different for each option, may contain such other provisions as the Administrator deems advisable, including without limitation, (i) restrictions upon the exercise of the option and (ii) a right of repurchase in favor of the Company to repurchase unvested shares held by an optionee upon termination of the optionee’s employment at the original purchase price.
Amendment and Termination of the 2019 Plan. The Administrator, to the extent permitted by law, and with respect to any shares at the time not subject to awards, may suspend or discontinue the 2019 Plan or amend the 2019 Plan in any respect; provided that the Administrator may not, without approval of the stockholders, amend the 2019 Plan in a manner that requires stockholder approval.
2018 Director Compensation
We currently do not have a formal non-employee director compensation policy. However, we do reimburse our non-employee directors for their reasonable expenses incurred in connection with attending our board of directors and committee meetings, and we may in the future grant stock options and pay cash compensation to some or all of our non-employee directors. Other than reimbursement of out-of-pocket expenses as described above, we did not provide any cash or equity compensation to our non-employee directors during the year ended September 30, 2016.
Except as set forth in the table below, none of our directors received compensation during the fiscal year ended December 31, 2018, for services provided as a director except reimbursement of ordinary and reasonable expenses incurred in exercising their responsibilities and duties as a director. Upon commencement of their Board membership on February 13, 2019, the nonexecutive members of the Board, Messrs. Harrington, Wingo and Danner, each received a grant of 3,000,000 restricted shares of our common stock of which 25% of the restricted stock grant (750,000 shares) vested upon acceptance of the offer to serve on our Board of Directors and 25% of the restricted stock grant (750,000 shares) will vest upon each of the three anniversaries of the acceptance date of the offer (February 13, 2019) provided that each Board member has served continuously as an advisor to the Company during such one year period, (ii) an annual cash allowance will be paid in equal quarterly amounts as follows: year 1 $5,000, year 2 $15,000 and year 3 an amount to be determined and (iii) each nonexecutive Board member who serves as a Chair of one of our Board Committees will receive an additional cash payment of $2,000 annually and each nonexecutive Board member who serves as a member of one of our Board Committees will receive an additional cash payment of $1,000 annually.
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PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth certain information as of June 7, 2019, the beneficial ownership of our common stock by the following persons:
| · | each person or entity who, to our knowledge, owns more than 5% of our common stock; |
| · | our executive officers named in the Summary Compensation Table above; |
| · | each director; |
| · | all of our executive officers and directors as a group; and |
| · | the Selling Securityholders. |
Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o uBid Holdings, Inc., 566 West Adams Street, Suite 260, Chicago, IL 60661, and our telephone number is (773) 272-5000. Shares of common stock subject to options, warrants, or other rights currently exercisable or exercisable within 60 days of the date of this prospectus, are deemed to be beneficially owned and outstanding for computing the share ownership and percentage of the stockholder holding the options, warrants or other rights, but are not deemed outstanding for computing the percentage of any other stockholder.
| Class of Securities | Name and Address | # of Common Shares | % of Class | |||||||
| Common | Ketan Thakker (1) | 92,412,634 | 20.0 | % | ||||||
| Common | Michael N. Hering(1) | 129,174,771 | 27.9 | % | ||||||
| Common | Kevin Harrington(1) | 750,000 | * | |||||||
| Common | M. Scot Wingo(1) | 750,000 | * | |||||||
| Common | Paul K. Danner(1) | 750,000 | * | |||||||
| Common | Salvatore Esposito, Jr.(1) | 13,528,043 | 2.9 | % | ||||||
| Common | All Officers and Directors as a Group (three persons) | 237,365,448 | 51.3 | % | ||||||
| (1) | Officer and/or director of our Company. |
| * | less than 1% of the issued and outstanding shares of common stock. |
We have agreed to keep such registration effective until all shares of common stock can be sold without registration pursuant to Rule 144 under the Securities Act.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except as set forth below, during the past three years, there have been no transactions, whether directly or indirectly, between the Company and any of its officers, directors or their family members.
Acquisition of SkyAuction.com
As discussed under the heading “SkyAuction Acquisition” in the “Business” section above, effective November 13, 2018, the Company completed the acquisition of SkyAuction for consideration consisting of a $2,500,000 promissory note to be shared by the SkyAuction shareholders according to their respective share ownership of SkyAuction. Michael Hering owned 71% of the issued and outstanding shares of SkyAuction common stock prior to the SkyAuction Merger.
Upon the completion of the SkyAuction Merger, Michael Hering remained on the SkyAuction Board of Directors and became Chief Merchandising Officer of the Company.
In the SkyAuction Merger, Michael Hering received a warrant for 5,000,000 shares of our common stock. The warrant is exercisable for three years at an exercise price of $.05 per share.
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Authorized Capital Stock
Our authorized capital stock consisted of 750,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of “blank check” Preferred Stock, par value $0.001 per share. As of June 6, 2019, there were 446,856,939 shares of common stock issued and outstanding and no shares of Preferred Stock issued or outstanding.
Issued and Outstanding Capital Stock
After giving effect to the uBid Merger and SkyAuction Merger, including conversion of uBid options and warrants outstanding prior to the uBid Merger, the issued and outstanding securities of the Company on the date of this Report are as follows:
| · | 446,856,939 shares of common stock; |
| · | 0 shares of preferred stock; |
| · | 3,000,000 options to purchase shares of common stock; and |
| · | Warrants to purchase 22,250,000 shares of common stock at a range of $0.05 to $0.06 per share. |
Description of Common Stock
The holders of common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders, including the election of directors. Generally, all matters to be voted on by stockholders must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by all shares of common stock that are present in person or represented by proxy. Except as otherwise provided by law, amendments to the articles of incorporation generally must be approved by a majority of the votes entitled to be cast by all outstanding shares of common stock. The amended and restated Articles of Incorporation do not provide for cumulative voting in the election of directors. The common stockholders will be entitled to such cash dividends as may be declared from time to time by the Board from funds available. Upon liquidation, dissolution or winding up of the Company, the common stockholders will be entitled to receive pro rata all assets available for distribution to such holders.
Description of Preferred Stock
We are authorized to issue up to 10,000,000 shares of preferred stock, par value $0.001 per share. No shares of preferred stock are issued or outstanding.
All shares of the designated and the undesignated preferred stock are issuable on such other terms and conditions as the Board may determine at or prior to issuance, without further action of the stockholders. Such preferred shares may or may not be: issued in series, convertible into shares of common stock, redeemable by the Company and entitled to cumulative dividends. Other terms and conditions may be imposed at the time of issuance. Should some or all of the outstanding or future issues of any convertible preferred stock be exchanged for shares of common stock, the resulting increase in the number of issued and outstanding common stock may or may not have a depressive effect on the market value of our common stock.
Unless specifically issued without such rights, the holders of preferred stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. Future issuance of shares of preferred stock, or the issuance of rights to purchase such shares, could be used to discourage an unsolicited acquisition proposal. For instance, the issuance of a series of preferred stock might impede an acquisition or other business combination by including class voting rights that would enable the holder to block such a transaction or facilitate a business combination by including voting rights that would provide a required percentage vote of the stockholders. In addition, under certain circumstances, the issuance of preferred stock could adversely affect the voting power of the holders of our common stock.
Although our Board of Directors is required to make any determination to issue such stock based on its judgment as to the best interests of our shareholders, our Board of Directors could act in a manner that would discourage an acquisition attempt or other transaction that some, or a majority, of the shareholders might believe to be in their best interests or in which stockholders might receive a premium for their stock over the then market price of such stock. The Board of Directors does not at present intend to seek stockholder approval prior to any issuance of currently authorized stock, unless otherwise required by law or stock exchange rules. We have no present plans to issue any preferred stock.
Description of Warrants
Under the terms of the uBid Merger Agreement we issued a warrant to FirstFire Global to purchase 5,250,000 shares of our common stock (the “Warrant Shares”) at an exercise price of $.05 per share for a period of three years from November 13, 2018. FirstFire Global may elect to receive the Warrant Shares on a cashless basis if (i) the Market Price (as that term is defined in the warrant) of one share of our common stock is greater than the exercise price, and (ii) we do not have an effective non-stale registration statement covering FirstFire Global’s immediate resale of the warrant shares without any limitations. We cannot effect any exercise of the warrant if it would result in First Fire Global beneficially owning more than 4.99% of our outstanding shares of common stock unless authorized by FirstFire Global and in any case not to effect any exercise if it would cause FirstFire Global to own more than 9.99% of our outstanding shares of our common stock. The warrant is subject to anti-dilution provisions to reduce the exercise price for any anti-dilutive pricing of our common stock subject to customary exceptions.
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Under the terms of the SkyAuction Merger Agreement we issued a warrant dated November 12, 2018, to Michael Hering to purchase 5,000,000 shares of our common stock exercisable for three years from the date of the warrant at an exercise price of $.05 per share as a bonus for arranging the Merger with Incumaker. Michael Hering may elect to exercise the warrant on a cashless basis. The warrant is subject to anti-dilution provisions to reduce the exercise price for any anti-dilutive pricing of our common stock subject to customary exceptions.
We issued a warrant dated March 5, 2019, to ER Opportunity Fund, LP to purchase 5,000,000 shares of our common stock exercisable for three years at an exercise price of $.05 per share in connection with the agreement by ER Opportunity Fund to convert $132,000 in principal and accrued but unpaid interest of six convertible notes we issued to ER Opportunity Fund.
We issued a warrant dated April 9, 2019, to Auctus Fund to purchase 7,000,000 shares of our common stock exercisable for three years at an exercise price of $.06 per share. The warrant is subject to anti-dilution provisions to reduce the exercise price for any anti-dilutive pricing of our common stock subject to customary exceptions.
Transfer Agent
Our transfer agent is Transhare Corporation, 15500 Roosevelt Blvd., Suite 302, Clearwater, FL 33760.
Blank Check Preferred Stock
The ability to authorize “blank check” preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our Company.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Delaware General Corporation Law (“DGCL”) Section 145 provides us with the power to indemnify any of our directors, officers, employees and agents. The person entitled to indemnification must have conducted himself in good faith, and must reasonably believe that his conduct was in, or not opposed to, our best interests. In a criminal action, the director, officer, employee or agent must not have had reasonable cause to believe that his conduct was unlawful.
Under DGCL section 145, advances for expenses may be made by agreement if the director or officer affirms in writing that he has met the standards for indemnification and will personally repay the expenses if it is determined that such officer or director did not meet those standards.
Our bylaws include an indemnification provision under which we have the power to indemnify our directors, officers, former directors and officers, employees and other agents (including heirs and personal representatives) against all costs, charges and expenses actually and reasonably incurred, including an amount paid to settle an action or satisfy a judgment to which a director or officer is made a party by reason of being or having been a director or officer of the Company. Our bylaws further provide for the advancement of all expenses incurred in connection with a proceeding upon receipt of an undertaking by or on behalf of such person to repay such amounts if it is determined that the party is not entitled to be indemnified under our bylaws. No advance will be made by the Company to a party if it is determined that the party acting in bad faith. These indemnification rights are contractual, and as such will continue as to a person who has ceased to be a director, officer, employee or other agent, and will inure to the benefit of the heirs, executors and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
SHARES ELIGIBLE FOR FUTURE SALE
We have a limited public market for our common stock and a limited number of shares in the public float. Sales of substantial amounts of our common stock in the public market resulting from this Offering could adversely affect the prevailing market price and our ability to raise capital in the future.
As of the date of this prospectus, we have 446,856,939 shares of common stock issued and outstanding. Upon the completion of this Offering, we will have outstanding an aggregate of up to an additional 43,500,000 shares and assuming that none of our other outstanding warrants or are exercised. Of these outstanding shares, all 55,820,218 shares sold by us in the Offering will be freely tradable without restriction or further registration under the Securities Act, unless these shares are purchased by “affiliates” as that term is defined in Rule 144 under the Securities Act. Of the 446,856,939 shares of our common stock outstanding prior to the completion of this Offering and held by existing stockholders, approximately 47,750,422 shares are currently free trading and the remaining are “restricted securities” as that term is defined in Rule 144 under the Securities Act all but approximately 44,000,000 of which have been held for more than six months. Restricted shares may be sold in the public market only if registered or if they qualify for exemption under Rule 144 or 701 promulgated under the Securities Act, which rules are summarized below, or another exemption.
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Rule 144
In general, under Rule 144, as currently in effect, a person who owns shares that were acquired from us or one of our affiliates at least six months prior to the proposed sale is entitled to sell, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
| · | One percent of the number of shares of common stock then outstanding, which will equal approximately 4,397,665 shares immediately after this Offering; or |
| · | The average weekly trading volume of the common stock on a national securities exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale. |
| · | In addition to these volume limitations, sales of unregistered shares of our common stock in reliance on Rule 144 may only be made by affiliates if such sales: |
| · | are preceded by a notice filing on Form 144; |
| · | are limited to broker’s transactions, as such term is defined under Section 4(a)(4) of the Securities Act; and |
| · | only occur at a time when current public information about us is available, which generally would require that we are not delinquent with any of our reports required pursuant to Sections 13 or 15(d) of the Exchange Act. Rule 144 also provides that our affiliates who sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, with the exception of the holding period requirement. |
Under Rule 144, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than one of our affiliates, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144. If the non-affiliate has held the shares for at least one year, then the shares may be sold without regard to the public information provisions of Rule 144. Therefore, unless otherwise restricted, shares held by non-affiliates may be sold immediately upon the expiration of the lock-up agreements.
Rule 701
In general, under Rule 701 as currently in effect, any of our employees, consultants or advisors who acquire shares from us in connection with a compensatory stock or option plan or other written agreement will be eligible to resell such shares 90 days after the effective date of this offering in reliance of Rule 144, but without compliance with certain restrictions, including the holding period, contained in Rule 144.
Penny Stock Rules
Broker-dealer practices in connection with transactions in penny stocks are regulated by certain penny stock rules adopted by the SEC. Penny stocks generally are equity securities with a price of less than US $5.00. Penny stock rules require a broker- dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, the penny stock rules generally require that prior to a transaction in a penny stock, the broker-dealer make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Our shares may in the future be subject to such penny stock rules in which care our stockholders would, in all likelihood, as a result of the penny stock rules, find it difficult to sell their securities.
We are registering 22,500,000 shares of common stock issuable under the conversion of the convertible note in the principal amount of $220,000 that we issued to FirstFire Global, 9,250,000 shares of common stock issuable under the conversion of the convertible note in the principal amount of $277,500 that we issued to Auctus Fund, 5,250,000 shares of common stock issuable upon exercise of the FirstFire Warrant and 7,000,0000 share of common stock issuable upon exercise of the Auctus Warrant to permit the resale of those securities from time to time after the date of this prospectus by the selling securityholders. The term “selling securityholders,” as used herein, includes any pledgee, assignee or successor-in-interest to any selling securityholder listed herein selling such shares or interests in such shares received after the date of this prospectus from a selling securityholder as a pledge, gift, partnership distribution or other transfer.
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The selling securityholders may, from time to time, sell, transfer or otherwise dispose of any or all of their securities or interests in such securities on any stock exchange, market or trading facility on which the securities are traded or in private transactions. The securities may be offered by the selling securityholders at fixed prices, at prevailing market prices at the time of sale, at prices related to the prevailing market price, at varying prices determined at the time of sale, or at negotiated prices.
The selling securityholders may use any one or more of the following methods when disposing of the securities or interests therein:
| ● | on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale; |
| ● | ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers; |
| ● | in the over the counter market; |
| ● | block trades in which the broker-dealer will attempt to sell the securities as agent, but may position and resell a portion of the block as principal to facilitate the transaction; |
| ● | purchases by a broker-dealer as principal and resale by the broker-dealer for its account; |
| ● | an exchange distribution or other future transaction exchange-related transaction in accordance with the rules of the applicable exchange or exchange-related transaction; |
| ● | privately negotiated transactions; |
| ● | short sales; |
| ● | through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise; |
| ● | broker-dealers may agree with the selling securityholders to sell a specified number of such securities at a stipulated price per share; |
| ● | a combination of any such methods of sale; and |
| ● | any other method permitted pursuant to applicable law. |
The selling securityholders may, from time to time, pledge or grant a security interest in some or all of the securities owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the pledged securities, from time to time, under this prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending the list of selling securityholders to include the pledgee, transferee or other successors in interest as selling securityholders under this prospectus. The selling securityholders also may transfer the securities in other circumstances, in which case the pledgees, assignees or other successors-in-interest will be the selling beneficial owners for purposes of this prospectus; provided, however, that prior to any such transfer the following information (or such other information as may be required by the federal securities laws from time to time) with respect to each such selling beneficial owner must be added to the prospectus by way of a prospectus supplement or post-effective amendment, as appropriate: (1) the name of the beneficial owner; (2) any material relationship the beneficial owner has had within the past three years with us or any of our predecessors or affiliates; (3) the amount of securities owned by the beneficial owner before the offering; (4) the amount to be offered for the beneficial owner’s account; and (5) the amount and (if one percent or more) the percentage of securities to be owned by the beneficial owner after the offering is complete.
In connection with the sale of our securities or interests therein, the selling securityholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The selling securityholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge securities to broker-dealers that in turn may sell these securities. The selling securityholders may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling securityholders from the sale of the securities offered by them will be the purchase price of the securities less discounts or commissions, if any. Each of the selling securityholders reserves the right to accept and, together with their agents from time to time, to reject, in whole or in part, any proposed purchase of securities to be made directly or through agents. We will not receive any of the proceeds from the sale or other disposition of the securities by the selling securityholders. However, we will receive up to approximately $682,000 in gross proceeds upon the cash exercise of the FirstFire Warrant and Auctus Warrant covering certain of the securities offered for resale.
The selling securityholders also may resell all or a portion of the securities in open market transactions in reliance upon Rule 144 under the Securities Act of 1933, provided that they meet the criteria and conform to the requirements of that rule.
47
The selling securityholders and any underwriters, broker-dealers or agents that participate in the sale of the securities or interests therein may be “underwriters” within the meaning of Section 2(11) of the Securities Act. Any discounts, commissions, concessions or profit they earn on any resale of the securities may be underwriting discounts and commissions under the Securities Act. Selling securityholders who are “underwriters” within the meaning of Section 2(11) of the Securities Act will be subject to the prospectus delivery requirements of the Securities Act.
To the extent required, the securities to be sold, the names of the selling securityholders, the respective purchase prices and public offering prices, the names of any agents, dealer or underwriter, any applicable commissions or discounts with respect to a particular offer will be set forth in an accompanying prospectus supplement or, if appropriate, a post-effective amendment to the Registration Statement.
The maximum amount of compensation to be received by any FINRA member or independent broker-dealer for the sale of any securities registered under this prospectus will not be greater than 8.0% of the gross proceeds from the sale of such securities.
To comply with the securities laws of some states, if applicable, the securities may be sold in these jurisdictions only through registered or licensed brokers or dealers. In addition, the securities may not be sold unless they have been registered or qualified for sale under the applicable state securities laws, or an exemption from registration or qualification requirements is available and is complied with, or registration or qualification is otherwise not required.
We have advised the selling securityholders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of securities in the market and to the activities of the selling securityholders and their affiliates. The selling securityholders may indemnify any broker-dealer that participates in transactions involving the sale of the securities against certain liabilities, including liabilities arising under the Securities Act.
We are also registering for initial issuance 12,250,000 shares of common stock underlying the FirstFire Warrant and Auctus Warrant. Pursuant to the terms of those warrants, the securities to be issued upon exercise of such options and warrants will be distributed only to those warrant holders who duly provide notice of exercise and, unless exercised on a cashless basis, provide payment of the exercise price, all in accordance with the applicable agreement governing such options and warrants. The applicable option and warrant agreements are included or incorporated by reference as exhibits to the Registration Statement.
Culhane Meadows PLLC, 1101 Pennsylvania Avenue, N.W., Suite 300, Washington, D.C. 20004, will pass upon the validity of the shares of our common stock to be sold in this Offering.
The financial statements of the Company as of and for the years ended December 31, 2018 and 2017, included in this prospectus have been audited by Weinberg & Company, P.A., an independent registered public accounting firm as set forth in their report, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
The financial statements of SkyAuction as of and for the years ended December 31, 2017 and 2016 included in this prospectus have been audited by Weinberg & Company, P.A., an independent registered public accounting firm as set forth in their report, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document are not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement in this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The SEC maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.
As a result of this offering, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with this law, will file periodic reports, proxy statements and other information with the SEC. We also maintain a website at www.ubidholdings.com. Upon completion of this offering, you may access these materials free of charge as soon as reasonably practicable after they are electronically filed with, or furnished to, the SEC. Information contained on our website is not a part of this prospectus and the inclusion of our website address in this prospectus is an inactive textual reference only.
48
UBID HOLDINGS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| F-1 |
UBID HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current assets | ||||||||
| Cash | $ | 134,000 | $ | 117,000 | ||||
| Accounts receivable | 31,000 | 64,000 | ||||||
| Inventory | 36,000 | 58,000 | ||||||
| Deposit Credit Card processor | 350,000 | 350,000 | ||||||
| Prepaid expenses and other current assets | 466,000 | 764,000 | ||||||
| Total current assets | 1,017,000 | 1,353,000 | ||||||
| Other asset | 30,000 | - | ||||||
| Goodwill | 4,578,000 | 4,578,000 | ||||||
| Intangible assets, net | 5,684,000 | 6,313,000 | ||||||
| Security deposits | 6,000 | 6,000 | ||||||
| Total assets | $ | 11,315,000 | $ | 12,250,000 | ||||
| Liabilities and Stockholders’ Equity: | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 796,000 | $ | 711,000 | ||||
| Accrued expenses | 138,000 | 158,000 | ||||||
| Accrued payroll and advances - related party | 1,032,000 | 967,000 | ||||||
| Accrued interest | 254,000 | 262,000 | ||||||
| Deferred revenue | 163,000 | 156,000 | ||||||
| Convertible notes payable, net of discount , past due | 1,152,000 | 1,097,000 | ||||||
| Convertible debt assumed upon reverse merger | 225,000 | 297,000 | ||||||
| Bridge note payable,net of discount | 373,000 | 267,000 | ||||||
| Acquisition note payable to related party , net of discount | 2,168,000 | 2,136,000 | ||||||
| Derivative liability | 1,085,000 | 936,000 | ||||||
| Total current liabilities | 7,386,000 | 6,987,000 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity: | ||||||||
| Preferred stock, par value $0.001, 10,000,000 shares authorized, none issued and outstanding | - | - | ||||||
| Common stock, par value $0.001, 750,000,000 shares authorized and 446,856,939 and 431,721,336 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively | 447,000 | 432,000 | ||||||
| Additional paid in capital | 42,594,000 | 42,373,000 | ||||||
| Accumulated deficit | (39,112,000 | ) | (37,542,000 | ) | ||||
| Total stockholders’ equity | 3,929,000 | 5,263,000 | ||||||
| Total liabilities and stockholders’ equity | $ | 11,315,000 | $ | 12,250,000 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-2 |
UBID HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
| For Three Months Ended | For Three Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2019 | 2018 | |||||||
| Revenues | $ | 1,103,000 | $ | - | ||||
| Operating Expenses: | ||||||||
| Direct cost of revenues | 714,000 | - | ||||||
| Selling, general and administrative | 1,041,000 | 116,000 | ||||||
| Amortization of intangible assets | 629,000 | - | ||||||
| Total Operating Expenses | 2,384,000 | 116,000 | ||||||
| Loss From Operations | (1,281,000 | ) | (116,000 | ) | ||||
| Other (Income) Expense | ||||||||
| Interest | 52,000 | 23,000 | ||||||
| Amortization of debt discount | 93,000 | 5,000 | ||||||
| Gain on extinguishment of derivative liability | (266,000 | ) | - | |||||
| Change in value of derivative liability | 415,000 | - | ||||||
| Other (income) loss | (5,000 | ) | - | |||||
| Total Other (Income) Expense | 289,000 | 28,000 | ||||||
| Net Loss | $ | (1,570,000 | ) | $ | (144,000 | ) | ||
| Net loss | ||||||||
| -Basic and diluted | $ | (0.00 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding | ||||||||
| -Basic and diluted | 437,477,884 | 202,110,632 | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-3 |
UBID HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(UNAUDITED)
| Common Stock | Additional Paid in | Accumulated | ||||||||||||||||||
| Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
| THREE MONTHS ENDED MARCH 31, 2019 | ||||||||||||||||||||
| Balance, December 31, 2018 | 431,721,336 | $ | 432,000 | $ | 42,373,000 | $ | (37,542,000 | ) | $ | 5,263,000 | ||||||||||
| Issuance of common stock upon conversion of notes payable and accrued interest | 12,885,603 | 13,000 | 120,000 | - | 133,000 | |||||||||||||||
| Issuance of common stock for services | 2,250,000 | 2,000 | 101,000 | - | 103,000 | |||||||||||||||
| Net Loss | - | - | - | (1,570,000 | ) | (1,570,000 | ) | |||||||||||||
| Balance, March 31, 2019 | 446,856,939 | $ | 447,000 | $ | 42,594,000 | $ | (39,112,000 | ) | $ | 3,929,000 | ||||||||||
| THREE MONTHS ENDED MARCH 31, 2018 | ||||||||||||||||||||
| Balance, December 31, 2017 | 202,110,632 | $ | 202,000 | $ | 34,323,000 | $ | (36,362,000 | ) | $ | (1,837,000 | ) | |||||||||
| Net Loss | - | - | - | (144,000 | ) | (144,000 | ) | |||||||||||||
| Balance, March 31, 2018 | 202,110,632 | $ | 202,000 | $ | 34,323,000 | $ | (36,506,000 | ) | $ | (1,981,000 | ) | |||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-4 |
UBID HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
| For the Three Months Ended | For the Three Months Ended | |||||||
| March 31, | March 31, | |||||||
| 2019 | 2018 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,570,000 | ) | $ | (144,000 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 629,000 | - | ||||||
| Stock based compensation | 103,000 | - | ||||||
| Gain on extinguishment of derivative liability | (266,000 | ) | - | |||||
| Change in fair value of derivative liability | 415,000 | - | ||||||
| Amortization of debt discount | 93,000 | 5,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | 298,000 | 10,000 | ||||||
| Accounts receivable | 33,000 | - | ||||||
| Inventory | 22,000 | - | ||||||
| Deferred revenue | 7,000 | - | ||||||
| Accounts payable | 55,000 | 10,000 | ||||||
| Accrued expenses and interest | 33,000 | 26,000 | ||||||
| Accrued payroll and advances - related party | 65,000 | 53,000 | ||||||
| Net Cash Used in Operating Activities | (83,000 | ) | (40,000 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of note payable | 100,000 | - | ||||||
| Net Cash Provided by Financing Activities | 100,000 | - | ||||||
| Net Change in Cash | 17,000 | (40,000 | ) | |||||
| Cash at Beginning of Period | 117,000 | 43,000 | ||||||
| Cash at End of Period | $ | 134,000 | $ | 3,000 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock upon conversion of notes payable and accrued interest | $ | 133,000 | $ | - | ||||
| Increase in other asset and accounts payable | $ | 30,000 | $ | - | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| F-5 |
Notes to the
Condensed Consolidated Financial Statements
As of and For the Three Months Ended March 31, 2019 and 2018
(unaudited)
Note 1 — Organization and Operations
uBid.com Holdings, Inc. (the “Company”) operates on-line websites that enable itself, certified merchants, manufacturers, retailers, distributors and small businesses to offer high quality excess, new, overstock, close-out, refurbished and limited supply brand name merchandise to consumer and business customers. Through the Company’s websites, located at www.uBid.com and www.RedTag.com, the Company offers merchandise across a wide range of product categories including but not limited to computer products, consumer electronics, apparel, housewares, watches, jewelry, travel, sporting goods, automobiles, home improvement products and collectibles. The Company’s marketplace employs a combination of auction style and fixed price formats.
Effective November 5, 2018, we entered into a merger agreement dated October 23, 2018 with Incumaker Inc., whereby all of the shareholders of uBid Holdings, Inc. exchanged all of their shares of common stock for 202,110,632 newly issued shares of Incumaker, Inc. common stock .. Incumaker stockholders retained 43,771,555 shares of common stock. As a result of the merger, (i) uBid Holdings, Inc. shareholders acquired 85.7% of the fully diluted shares of Incumaker, (ii) the business of uBID will continue as the existing business operations of Incumaker and (iii) Incumaker will be managed by uBID’s management after effectiveness of the Merger under Delaware law. The Merger was treated as a reverse merger and recapitalization of the Company for financial accounting purposes. The historical financial statements of Incumaker before the Merger have been replaced with the historical financial statements of uBID before the Merger in all future filings with the Securities and Exchange Commission (the “SEC”). The net liabilities of Incumaker of $690,000 at date of the reverse merger have been assumed by the Company and reflected as a reduction to paid in capital.
On November 12, 2018, we acquired all the outstanding shares of SkyAuction.com, Inc., in exchange for 165,363,244 newly issued shares of common stock; a $2,500,000 non-interest bearing note, and; a warrant to acquire 5,000,000 shares of Ubid stock. The transaction has been accounted for as purchase of a business.
On February 11, 2019, FINRA announced the change of our name from Incumaker, Inc. to uBid Holdings, Inc. and the change of our trading symbol from QMKR to UBID.
We now are an e-commerce company focused on operating and growing number of online auction and bargain-sale e-commerce marketplaces offering thousands of products to both consumers and businesses. We believe that we provide a unique shopping experience that offers buyers the opportunity to either set their own prices or receive competitive fixed prices on popular, brand name products at a significant discount to prices found at bricks-and-mortar stores and large internet retailers. Our online marketplaces provide (i) manufacturers, retailers, distributors and other suppliers with what we believe is an efficient and economical channel for maximizing revenue on their merchandise while at the same time moving new, overstock, close-out and recertified products and providing consumers and businesses with a convenient method for obtaining this merchandise virtually anytime and anywhere at substantial savings, and (ii) since our recent acquisition of SkyAuction.com Inc., travel products and services. SkyAuction’s financial statements are included in our consolidated financial statements included in this disclosure statement.
| F-6 |
Note 2 — Basis of Presentation and Going Concern
The accompanying interim condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation are included. Operating results for the three month period ended March 31, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. Although management of the Company believes the disclosures presented herein are adequate and not misleading, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in our Annual Report for the fiscal year ended December 31, 2018, as filed with the OTC Market in May 2019.
Going Concern
The Company’s financial statements have been prepared assuming that the Company will continue as a going concern, and which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in its financial statements, the Company had a working capital deficit of $6,369,000 at March 31, 2019, and incurred a net loss of $1,570,000 and utilized net cash of $83,000 in operating activities for the three months ended March 31, 2019. The accompanying financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could be forced to cease operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s December 31, 2018 consolidated financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.
In order to continue as a going concern, the Company will need to, among other things, raise additional capital, develop a reliable source of revenue, and achieve a profitable level of operations. Management’s plans to continue as a going concern include raising additional capital through borrowing and sales of our common stock and successfully implementing our business plan. However, management cannot provide any assurances that the Company will be successful in raising additional capital or successfully implementing any of its plans.
Note 3 — Summary of Significant Accounting Policies
Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions made in estimated useful lives of property and equipment, impairment testing, assumptions inherent in the purchase price allocation, accruals for potential liabilities, assumptions used in deriving the fair value of derivative liabilities, share-based compensation and beneficial conversion feature of notes payable, and realization of deferred tax assets.
| F-7 |
Stock-Based Compensation
The Company issues stock options, shares of Common Stock, and equity interests as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation. Stock based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.
From prior period up to December 31, 2018, the Company accounted for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, Equity – Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not have a material impact on our financial statements for the three months ended March 31, 2019 or the previously reported financial statements.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
| F-8 |
The carrying amount of the Company’s derivative liability of $1,085,000 and $936,000 as of March 31, 2019 and December 31, 2018, respectively and was based on Level 3 measurements.
The carrying amounts of the Company’s other financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued payables and notes payable, approximate their fair values because of the short maturity of these instruments.
Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from, acquired technology, trade-marks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. We do not amortize goodwill, but rather evaluate goodwill for potential impairment on an annual basis on January 1, or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is below the carrying amount.
We evaluate goodwill for potential impairment by comparing the carrying value of our reporting unit to their fair value. Our reporting unit is the same as our operating segment as described in Note 1. In any year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we perform a quantitative analysis. The quantitative analysis is used to identify both the existence of impairment and the amount of the impairment loss by comparing the estimated fair value of a reporting unit with its carrying value, including goodwill. The estimated fair value is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired; otherwise, an impairment loss is recognized within our consolidated statements of operations in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
As the acquisition of SkyAuction occurred on November 12, 2018, the Company will perform its first impairment test during the year ended December 31, 2019.
Intangible Assets with Finite Useful Lives
We have certain finite lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible assets consist of intellectual property, customer relationships, and capitalized software development costs. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which are generally as follows: intellectual property (15 years), customer relationships (2 years) and software (3 years).
| F-9 |
We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Revenue Recognition
The Company accounts for revenues in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products or services to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer.
The Company sells merchandise purchased from suppliers under two types of arrangements. The Company (a) sells merchandise to customers purchased at the time of sale from vendors and (b) records a commission on its uBid Certified Merchant program (“UCM”).
(a) Sales—Revenue Sharing Agreements For sales of merchandise under revenue sharing agreements, the supplier retains physical possession of the merchandise. In this case, the Company is not obligated to take title to the merchandise nor does it take title unless it successfully sells the merchandise at auction. Upon completion of an auction, the Company purchases the inventory, takes title to the merchandise, charges the customer’s credit card including shipping and handling fees and either ships the merchandise directly or arranges for a third party to complete delivery to the customer. The Company records the net sales amount including shipping fees as revenue upon verification of the credit card authorization and shipment of the merchandise. The Company then remits payments to vendors for product and shipping cost. The vendor pays the shipper for the shipping cost. In instances where credit card authorization has been received but the merchandise has not been shipped, the Company defers revenue recognition until the merchandise is shipped.
(b) Sales—UCM For sales of merchandise under the UCM program, the Company recognizes a commission of between 10-15% of the total final price of an auction sale. Upon completion of an auction, the Company charges the customer’s credit card including shipping and handling fees and the third party completes the delivery of the merchandise to the customer. The Company records the commission amount as net revenue including shipping upon verification of the credit card authorization and shipment of the merchandise. The Company then remits payments to vendors for product and shipping cost. The vendor pays the shipper for the shipping cost. In instances where credit card authorization has been received but the merchandise has not been shipped, the Company defers revenue recognition until the merchandise is shipped.
| F-10 |
(c) Sales—Advertising Currently, the Company has banner ads on its uBid website. Upon payment to the Company, the revenue is recognized. The taxes collected by the Company from the customers are submitted to state tax authority. The Company follows the same revenue recognition guidance as Retail industry with different product categories.
Revenue from our SkyAuction website is recognized after all of the following have occurred: a bidder wins and confirms an auction, the orders are placed with ticket agents or third party suppliers (e.g. airlines, hotels or both), the auction winner is notified that the auction has been fulfilled and collection is reasonably assured. Generally, a credit card is charged or a check is received before revenue is recognized. Revenues include service, shipping and handling charges and cancellation fees but exclude excise taxes.
Sale of reservations are final and non-refundable. However, on a case by case basis, the Company may grant a refund to a customer. Claims for refunds are recorded as a reduction to the Company’s revenues and are recorded at the time that such refunds are processed. Refunds during the period ended March 31, 2019 were insignificant and immaterial to the financial statements.
Deferred revenue represents amounts received from customers before the Company’s criteria for revenue recognition is met.
Advertising Costs
The Company has marketing relationship agreements with various online companies such as portal networks, contextual sites, search engines and affiliate partners. Advertising costs are generally charged to the Company monthly per vendor agreements, which typically are based on visitors and/or registrations delivered to the site or at a set fee. Agreements do not provide for guaranteed renewal and may be terminated by the Company without cause. Such advertising costs are charged to expense as incurred and reported as part of selling, general and administrative expenses in the accompanying statement of operations.
During the three months ended March 31, 2019, advertising costs amounted to $41,000. There was no advertising costs during the three months ended March 31, 2018.
Segments
The Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). Management evaluates a reporting unit by first identifying its’ operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.
Management has determined that the Company has one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.
Recently Issued Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission are not believed by management to have a material impact on the Company’s present or future financial statements.
| F-11 |
Note 4 – Acquisition of Sky Auction
On November 12, 2018, we entered into a merger transaction (the “SkyAuction Merger”) among SkyAuction.com, Inc. (“SkyAuction”), SA Acquisition Corp. and the Company whereby all of the shareholders of SkyAuction exchanged all of their shares of common stock for 165,365,244 newly issued shares of the Company common stock with a fair value of 8,268,000 and a 3.5% promissory note (the “Promissory Note”) in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger”. In addition, Michael Hering, President of SkyAuction, was issued a warrant to acquire 5,000,000 shares of our common stock that is exercisable for three years at an exercise price of $.05 per share as a bonus for arranging the SkyAuction Merger. The warrant included certain features that could result in the reset of the exercise price and was considered to be a derivative liability with a fair value of $300,000 based on a weighted average black scholes option pricing model. We believe the acquisition will allow us to leverage the uBid technology and SkyAuction.com platforms and familiar website domain names, product manufacturer relationships, warehousing and distribution logistics, and customer base to enhance our position as a leading online auction and e-commerce marketplace for consumers and businesses
The Company accounted for the transaction as a business combination using the acquisition method of accounting based on Accounting Standards Codification (“ASC”) 805 — Business Combinations, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.
The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of deferred cost of sales, deferred taxes and intangible assets. The following table summarizes the provisional fair value of the assets assumed in the acquisition:
| Purchase Price Allocation | Fair Value | |||
| Consideration Paid: | ||||
| Common Stock(165,363,244 shares at a fair value of $0.05 per share) | $ | 8,268,000 | ||
| Issuance of note payable | 2,500,000 | |||
| Less: discount | (380,000 | ) | ||
| Fair value of warrants issued | 300,000 | |||
| Total consideration paid | $ | 10,688,000 | ||
| Purchase Price Allocation: | ||||
| Current assets | $ | 651,000 | ||
| Current liabilities | (1,169,000 | ) | ||
| Intellectual property | 1,032,000 | |||
| Software | 2,096,000 | |||
| Customer relationships | 3,500,000 | |||
| Goodwill | 4,578,000 | |||
| Total Purchase Price | $ | 10,688,000 | ||
| F-12 |
After the acquisition date, the results of operations for Sky is included in the Company’s consolidated statements of operations.
Supplemental Pro Forma Information (Unaudited)
The pro forma financial information as presented below is for informational purposes only and is not indicative of operations that would have been achieved from the acquisitions had they taken place at the beginning of the earlies period presented. Supplemental information on an unaudited pro forma basis, as if the acquisition had been completed as of January 1, 2018, is as follows:
| Three Months | ||||
| Ended | ||||
| March 31, 2018 | ||||
| Operating Revenues | $ | 1,082,000 | ||
| Net (Loss) | $ | (118,000 | ) | |
The Company’s unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflect amortization of intangible assets as a result of the acquisition. The pro forma results are not necessarily indicative of the results that would have been realized had the acquisitions been consummated as of the beginning of the periods presented. The pro forma amounts include the historical operating results of the Company, with adjustments directly attributable to the acquisitions.
Note 5 – Intangible Assets
Intangible Assets as consists of the following assets acquired in the business combination and asset purchase transaction described in Note 4:
| March 31, 2019 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Intellectual property | $ | 1,032,000 | $ | (26,000 | ) | $ | 1,006,000 | |||||
| Software | 2,096,000 | (262,000 | ) | 1,834,000 | ||||||||
| Customer relationships | 3,500,000 | (656,000 | ) | 2,844,000 | ||||||||
| Total | $ | 6,628,000 | $ | (944,000 | ) | $ | 5,684,000 | |||||
| December 31, 2018 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Intellectual property | $ | 1,032,000 | $ | (9,000 | ) | $ | 1,023,000 | |||||
| Software | 2,096,000 | (87,000 | ) | 2,009,000 | ||||||||
| Customer relationships | 3,500,000 | (219,000 | ) | 3,281,000 | ||||||||
| Total | $ | 6,628,000 | $ | (315,000 | ) | $ | 6,313,000 | |||||
| F-13 |
Amortization expense amounted to $629,000 for the period ended March 31, 2019. There was no amortization during the period ended March 31, 2018.
Future Amortization charges are as follows:
| Future Amortization | ||||
| 2019 (remaining 9 months) | $ | 1,888,000 | ||
| 2020 | 2,299,000 | |||
| 2021 | 680,000 | |||
| 2022 | 69,000 | |||
| 2023 | 69,000 | |||
| Thereafter | 679,000 | |||
| Total | $ | 5,684,000 | ||
Note 6 – Deposit to Credit Card Processor
As a result of the acquisition of SkyAuction in November 2018, the Company assumed a deposit of $350,000 to JetPay, the Company’s credit card processor. The JetPay is a publicly traded U.S. company and is an end-to-end processor of credit and debit card and automated clearing house (“ACH”) payment transactions that focuses on processing omni-channel (internet, mobile, and point-of-sale) transactions and recurring billings for traditional retailers, government and utility, and service providers. The security deposit is refundable in case the agreement is terminated. Outstanding security deposit to JetPay amounted to $350,000 as of March 31, 2019 and December 31, 2018, respectively.
Note 7 – Convertible Debt Assumed Upon Reverse Merger
In November 2018, the Company entered into a merger agreement with Incumaker Inc. (see Note 1). As part of the merger, Ubid assumed outstanding convertible notes payable previously issued by Incumaker. The Notes have interest rates ranging from 8% to 22% per annum, and are all past due. The conversion price of these convertible notes contains reset provisions based on a future offering price and/or whose conversion prices are based on future market prices, as such, not fixed. As a result, the number of shares to be issued upon conversion is not explicitly limited and the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. Pursuant to ASC 815, the Company accounted these conversion option as liabilities and are bifurcated from the debt host and accounted for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations (see Note 11). As of December 31, 2018, outstanding balance of these notes payable amounted to $297,000.
During the period ended March 31, 2019 notes with a principal balance of $72,000 and accrued interest due of $61,000 were converted into 12,885,603 shares of the Company’s common stock. The balance of the notes payable at March 31, 2019 was $225,000.
Note 8 – Convertible Notes Payable
| Balance | ||||||||||||||||
| Issuance Date | Interest Rate | Maturity Date | 3/31/2019 | 12/31/2018 | ||||||||||||
| 8-10% Convertible Notes | various | 8-10 | % | 12/2017-9/2018 | $ | 1,065,000 | $ | 1,065,000 | ||||||||
| 8% Convertible Note | 11/7/2018 | 8 | % | 11/7/2019 | 220,000 | 220,000 | ||||||||||
| Total | 1,285,000 | 1,285,000 | ||||||||||||||
| Less: Debt Discount | (133,000 | ) | (188,000 | ) | ||||||||||||
| Total convertible notes payable, net of debt discount | $ | 1,152,000 | $ | 1,097,000 | ||||||||||||
| F-14 |
8-10% Notes Payable Past Due
During fiscals 2016 through 2018, the Company issued convertible notes payable in the aggregate of $1,065,000. The notes are unsecured, bears interest rate of 8% and 10% per annum and matured one year from issuance. Notes Payable in the aggregate of $380,000 are convertible to common stock at a conversion price of $2.00 per share while the remaining $685,000 are convertible to equity upon completion of a Qualified Equity Financing amounting to $2.5 million. In addition, the Company will also grant the corresponding note holders a five-year warrant to purchase shares of common stock once the Qualified Equity Financing is consummated and the notes are convertible to equity. Pursuant to current accounting guidelines, the Company will account any beneficial conversion feature of the notes payable and the warrants to be granted once the Qualified Equity Financing has occurred or the contingency has been satisfied.
As of March 31, 2019 and December 31, 2018, outstanding balance of these notes amounted to $1,065,000, respectively. As of March 31, 2019 and the date of this report, all the notes payable are past due.
8% Note Payable
During the year ended December 31, 2018, the Company issued an 8% convertible note payable with an outstanding principal balance of $220,000 in receipt of cash proceeds of $200,000, resulting in a $20,000 discount upon issuance. The note is unsecured, bears interest at 8% per annum and will mature in November 2019. The note is convertible at the lesser of $0.07 or 70% of the average of the three lowest trade prices of the common stock in the in the 21 days prior to conversion. In addition, the Company issued warrants to acquire 5,250,000 shares of the Company’s common stock at an exercise price of $0.05 per share subject to downward adjustment based on the Company subsequent sale or grant of any equity security at a lessor amount.
Pursuant to current accounting guidelines, the Company determined that the conversion feature of the note and the adjustable exercise price of the warrant created derivative liabilities upon issuance as the Company is uncertain whether it will have sufficient authorized capital upon conversion of the notes or exercise of the warrants. Accordingly, the Company recorded the fair value of the conversion feature of $287,000 and the fair value of the warrants of $315,000 as derivative liabilities upon issuance. The Company recorded a debt discount up to the face amount of the note of $220,000 to account for the derivative liabilities and original issuance discount, and reflected the a finance cost of $398,000 for the difference in fiscal 2018.
During the period ended March 31, 2019, the Company amortized $55,000 of debt discount, and as of March 31, 2019, the balance of debt discount was $133,000.
As of March 31, 2019 and December 31, 2018, outstanding balance of the note amounted to $220,000, respectively.
Note 9 –Bridge Notes Payable
On May 2, 2018 the Company issued a bridge note in the amount of $275,000. Cash proceeds to the Company was $250,000 for an original issue discount of $25,000. The note is unsecured, bears interest at 2% per annum and matures in May 2019. As of December 31, 2018, outstanding balance of the note payable amounted to $275,000 and unamortized debt discount of $8,000.
During the period ended March 31, 2019, the Company issued a similar note payable amounting to $100,000 in exchange for cash. The note is unsecured, bears interest at 6% per annum and matures in January 2020. In addition, the Company also amortized debt discount of $6,000.
As of March 31, 2019 outstanding balance of the notes payable amounted to $375,000 and the remaining unamortized original issuance discount was $2,000, resulting in a net balance due of $373,000.
| F-15 |
Note 10 – Acquisition Note Payable to Related Party
| Balance at | Balance at | |||||||
| 3/31/2019 | 12/31/2018 | |||||||
| Note Payable | $ | 2,500,000 | $ | 2,500,000 | ||||
| Less: Debt Discount | (332,000 | ) | (364,000 | ) | ||||
| Total note payable, net of debt discount | $ | 2,168,000 | $ | 2,136,000 | ||||
In November 2018, pursuant to the terms of the SkyAuction Merger Agreement, the Company entered into a secured promissory note in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger. The secured note issued to SkyAuction provides for repayment in full at the third anniversary date of the closing date of the SkyAuction Merger, such principal amount to be reduced by 15% of each capital raise we complete (less any finder’s or underwriter’s fees) and interest at 3% per annum payable at our discretion in common stock or cash. The Promissory Note is secured by all assets of SkyAuction under the terms of a Guaranty Agreement. SkyAuction and uBid have amended the Promissory Note to extend the date of the first payment of principal in the amount of $500,000 from 120 days from the date of Closing as that term is defined in the Merger Agreement or March 13, 2019, to the date when we have raised sufficient financing to make such payment.
The Company recorded a debt discount of $394,000 to account for imputed interest due to the below market rate of interest of the note payable.
During the period ended March 31, 2019, the Company amortized $32,000 of the valuation discount as interest expense, leaving an unamortized discount of $332,000 at March 31, 2019.
Note 11 – Derivative Liability
The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. Certain warrants issued to investors and conversion features of notes payable did not have fixed settlement provisions because either their exercise prices will be lowered if the Company issues securities at lower prices in the future or the conversion price is variable. In addition, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and the fair value of the warrants have been recognized as a derivative and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations. The derivative liabilities were valued at the following dates using a probability weighted average Black Scholes Option Pricing Model with the following average assumptions:
| F-16 |
| March 31, | December 31, | |||||||
| 2019 | 2018 | |||||||
| Stock Price | $ | 0.06 | $ | 0.0347 | ||||
| Risk free interest rate | 2.40-2.44 | 2.46-2.63 | ||||||
| Expected Volatility | 226-275% | 216 | % | |||||
| Expected life in years | .47-2.72 | .92-2.97 | ||||||
| Expected dividend yield | 0 | 0 | ||||||
| Fair Value – Warrants | $ | 615,000 | $ | 356,000 | ||||
| Fair Value – Note Conversion Feature | 470,000 | 580,000 | ||||||
| Total | $ | 1,085,000 | $ | 936,000 | ||||
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by the remaining contractual life of the derivative instrument. For derivative instruments that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
As of December 31, 2018, the balance of the derivative liabilities was $936,000. During the three months ended March 31, 2019, the Company recorded a gain of $266,000 upon the extinguishment of derivative liability as result of conversion of certain notes payable and a loss of $415,000 to account for the change in fair value of the derivative liabilities between the reporting periods. As of March 31, 2019, the derivative liability amounted to $1,085,000.
Note 12 — Related Party Transactions
The Company has an employment agreement, executed in July 2013, with Ketan Thakker, its Chief Executive Officer. This agreement provides Mr. Thakker with a salary of $200,000 per year. During the three months ended March 31, 2019 and 2018, the Company incurred $50,000 of such costs, which are included as part of selling, general and administrative costs. As of March 31, 2019 and December 31, 2018, accrued payable to Mr. Thakker under this contract was $571,000 and $526,000, respectively.
From time to time, Michael N. Hering, the Company Chief Merchandising Officer advances funds to the wholly owned subsidiary, SkyAuction. The balance owing Mr. Hering as of March 31, 2019 and December 31, 2018 amounted to $461,000 and $441,000.
In January 2016, the Company entered into a services agreement with Magical Holidays which is owned by Mr. Michael Hering, President and Chief Executive Officer. Under this agreement, Magical Holidays will provide us with ticketing fulfillment services for travel inventory sold by us, transaction review services, administrative services, including office supplies and equipment, secretarial and clerical services, and other services. The Company pays Magical Holidays $20,000 quarterly for the transaction review services.
| F-17 |
Note 13– Stockholders’ Equity
Issuance of Common Stock for services
In January 2019, the Company granted an aggregate of 9,000,000 shares of common stock valued at $330,000to the three newly appointed Board Directors. A total of 2.2 million common shares vested and issued upon grant while the remaining 6.8 million will vest on an annual basis over a term of three years. These shares of Common Stock were valued based on the market value of the Company’s stock price at the grant date . During the period ended March 31, 2019, the Company recognized stock compensation expense of $103,000 based upon the vesting of these common shares and $227,000 will be amortized as an expense over the remaining service period.
Options
A summary of option activity as of March 31, 2019 is presented below:
| Shares | Weighted Average Exercise Price | Weighted- Average Remaining Contractual Terms (Years) | ||||||||||
| Outstanding at December 31, 2018 | 766,065 | $ | 2.42 | 7.50 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Outstanding at March 31, 2019 | 766,065 | $ | 2.42 | 7.25 | ||||||||
The outstanding stock options as of March 31, 2019 has no intrinsic value as the exercise price is greater than the market price of the Company’s common stock. As of March 31, 2019, all outstanding options were fully vested and exercisable.
Warrants
A summary of warrants activity as of March 31, 2019 is presented below:
| Shares | Weighted Average Exercise Price | Weighted- Average Remaining Contractual Terms (Years) | ||||||||||
| Outstanding at December 31, 2018 | 10,250,000 | $ | 0.05 | 2.875 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Outstanding at March 31, 2019 | 10,250,000 | $ | 0.05 | 2.625 | ||||||||
Intrinsic value of outstanding warrants as of March 31, 2019 amounted to $102,000. As of March 31, 2019, all outstanding warrants were fully vested and exercisable.
| F-18 |
Note 14– Commitments and Contingencies
Legal Proceedings
We are involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for contingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. There is no current or pending litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the normal course of business except as follows.
On December 17, 2017, a lawsuit that had been dismissed by the plaintiff on July 21, 2017, was refiled against us pursuant to Georgia’s renewal statute (O.C.G.A. 9-2-61), titled Oelshlager v. Cryomist II, Cryomist III and Incumaker, Inc. (Fulton County Georgia State Court). The lawsuit alleges that Incumaker is liable for the conduct of its subsidiary on the theory that it is the parent of these separate corporations and that the Cryomist Companies were merely the alter ego of Incumaker. We intend to vigorously defend the Company against this lawsuit.
On April 17, 2019, a lawsuit was filed by Dupree Productions, LLC against uBid Holdings, Inc. and Ketan Thakker (Case No. L2019000436) in the Circuit Court of DuPage County, Illinois, alleging that a Partial Equity Payment Agreement dated August 1, 2016, intended to compensate services in the amount of $60,000 in return for shares of uBid common stock was inadequate to compensate for the alleged higher value of the advertising and endorsement services of approximately $195,000. We intend to vigorously defend against these claims.
Note 15 – Subsequent Events
On April 9, 2019, we entered into a convertible note financing with Auctus Fund, LLC (“Auctus”) under which we issued a convertible promissory note in the principal amount of $277,500 from which will be deducted $27,500 as a due diligence fee and $4,000 for Auctus’ legal fees, bearing interest of 8% per annum with a maturity date of April 9, 2020. The note is convertible into shares of our common stock at a conversion price equal to the lesser of: (i) $0.06 or (ii) the Variable Conversion Price (defined as 70% multiplied by the average of the three lowest volume weighted average prices of our shares of common stock during the ten consecutive trading day period immediately preceding the trading day that we receive Auctus’ notice of conversion). We are required at all times to have coverage of any potential conversion equal to three times the shares of our common stock into which the unpaid principal and accrued interest of the note is convertible. The initial coverage has been set at 28,750,000 shares. We issued a warrant to Auctus (the “Auctus Warrant”) exercisable for three years to purchase 7,000,000 shares that we will register under the 1933 Act at an exercise price of $0.06 per share. We are authorized to prepay this convertible loan commencing on the date of the note and ending 180 days after the date of the note by paying 115% of the outstanding principal amount of the note together with accrued and unpaid interest thereon. Pursuant to current accounting guidelines, the Company will record a derivative liability to account for the note’s beneficial conversion feature.
| F-19 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Ubid Holdings, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Ubid Holdings, Inc. and subsidiary (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ equity (deficit) and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2018 and 2017, and the results of its consolidated operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has experienced net losses and has experienced negative operating cash flows since inception. The Company has financed its working capital requirements during this period primarily through the recurring sale of its equity securities and the issuance of debt. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the consolidated financial statements. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated 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 (the “SEC”) and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit 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, and 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 provide a reasonable basis for our opinion.
/s/ Weinberg & Company, P.A.
Weinberg & Company, P.A.
Los Angeles, California
May 15, 2019
We have served as the Company’s auditor since 2017
| F-20 |
UBID HOLDINGS, INC.
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Assets: | ||||||||
| Current assets | ||||||||
| Cash | $ | 117,000 | $ | 43,000 | ||||
| Accounts receivable | 64,000 | - | ||||||
| Inventory | 58,000 | - | ||||||
| Deposit Credit Card processor | 350,000 | - | ||||||
| Prepaid expenses and other current assets | 764,000 | 10,000 | ||||||
| Total current assets | 1,353,000 | 53,000 | ||||||
| Goodwill | 4,578,000 | - | ||||||
| Intangible assets, net | 6,313,000 | - | ||||||
| Security deposits | 6,000 | - | ||||||
| Total assets | $ | 12,250,000 | $ | 53,000 | ||||
| Liabilities and Stockholders’ Equity (Deficit): | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 711,000 | $ | 420,000 | ||||
| Accrued expenses | 158,000 | 33,000 | ||||||
| Accrued payroll and advances - related party | 967,000 | 312,000 | ||||||
| Accrued interest | 262,000 | 65,000 | ||||||
| Deferred revenue | 156,000 | - | ||||||
| Convertible notes payable, net of discount , past due | 1,097,000 | 1,060,000 | ||||||
| Convertible debt assumed upon reverse merger | 297,000 | - | ||||||
| Bridge note payable | 267,000 | - | ||||||
| Acquisition note payable to related party , net of discount | 2,136,000 | - | ||||||
| Derivative liability | 936,000 | - | ||||||
| Total current liabilities | 6,987,000 | 1,890,000 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Equity (Deficit:) | ||||||||
| Preferred stock, par value $0.001, 10,000,000 shares authorized, none issued and outstanding | - | - | ||||||
| Common stock, par value $0.001, 750,000,000 shares authorized and 431,721,336 and 202,110,632 shares issued and outstanding as of December 31, 2018 and 2017, respectively | 432,000 | 202,000 | ||||||
| Additional paid in capital | 42,373,000 | 34,323,000 | ||||||
| Accumulated deficit | (37,542,000 | ) | (36,362,000 | ) | ||||
| Total stockholders’ equity (deficit) | 5,263,000 | (1,837,000 | ) | |||||
| Total liabilities and stockholders’ equity (deficit) | $ | 12,250,000 | $ | 53,000 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-21 |
UBID HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| For Year Ended | For Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| Revenues | $ | 567,000 | $ | 7,000 | ||||
| Operating Expenses: | ||||||||
| Direct cost of revenues | 362,000 | - | ||||||
| Selling, general and administrative | 968,000 | 1,191,000 | ||||||
| Amortization of intangible assets | 315,000 | - | ||||||
| Total Operating Expenses | 1,645,000 | 1,191,000 | ||||||
| Loss From Operations | (1,078,000 | ) | (1,184,000 | ) | ||||
| Other (Income) Expense | ||||||||
| Interest | 91,000 | 65,000 | ||||||
| Financing costs | 416,000 | - | ||||||
| Amortization of debt discount | 82,000 | 81,000 | ||||||
| Gain on extinguishment of derivative liability | (37,000 | ) | - | |||||
| Change in value of derivative liability | (196,000 | ) | - | |||||
| Gain on cancellation of debt | (251,000 | ) | - | |||||
| Other (income) loss | (3,000 | ) | - | |||||
| Total Other (Income) Expense | 102,000 | 146,000 | ||||||
| Net Loss | $ | (1,180,000 | ) | $ | (1,330,000 | ) | ||
| Net loss | ||||||||
| -Basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||
| Weighted average common shares outstanding | ||||||||
| -Basic and diluted | 232,201,182 | 202,110,632 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-22 |
UBID HOLDINGS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)
| Preferred Stock | Common Stock | Additional Paid in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balance, December 31, 2016 | - | $ | - | 202,110,632 | $ | 202,000 | $ | 34,289,000 | $ | (35,032,000 | ) | $ | (541,000 | ) | ||||||||||||||
| Beneficial conversion feature of issued notes | - | - | - | 34,000 | - | 34,000 | ||||||||||||||||||||||
| Net Loss | - | - | - | - | - | (1,330,000 | ) | (1,330,000 | ) | |||||||||||||||||||
| Balance, December 31, 2017 | - | - | 202,110,632 | 202,000 | 34,323,000 | (36,362,000 | ) | (1,837,000 | ) | |||||||||||||||||||
| Issuance of common stock for recapitalization | - | - | 43,771,555 | 44,000 | (734,000 | ) | - | (690,000 | ) | |||||||||||||||||||
| Issuance of common stock for acquisition of SkyAuction.com, Inc. | - | - | 165,363,244 | 165,000 | 8,103,000 | - | 8,268,000 | |||||||||||||||||||||
| Issuance of common stock for commitment fee | - | - | 500,000 | 1,000 | 17,000 | - | 18,000 | |||||||||||||||||||||
| Issuance of common stock for financing agreement | - | - | 18,506,045 | 19,000 | 635,000 | - | 654,000 | |||||||||||||||||||||
| Issuance of common stock for settlement of note payable | - | - | 1,469,860 | 1,000 | 29,000 | - | 30,000 | |||||||||||||||||||||
| Net Loss | - | - | - | - | - | (1,180,000 | ) | (1,180,000 | ) | |||||||||||||||||||
| Balance, December 31, 2018 | - | $ | - | 431,721,336 | $ | 432,000 | $ | 42,373,000 | $ | (37,542,000 | ) | $ | 5,263,000 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-23 |
UBID HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For Year Ended | For Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,180,000 | ) | $ | (1,330,000 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | 315,000 | 13,000 | ||||||
| Financing costs | 417,000 | - | ||||||
| Gain of cancellation of debt | (251,000 | ) | - | |||||
| Gain on extinguishment of derivative liability | (37,000 | ) | - | |||||
| Change in fair value of derivative liability | (196,000 | ) | - | |||||
| Amortization of debt discount | 70,000 | 81,000 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | (80,000 | ) | 1,000 | |||||
| Accounts receivable | (14,000 | ) | - | |||||
| Inventory | (3,000 | ) | - | |||||
| Deferred revenue | (15,000 | ) | - | |||||
| Accounts payable | (131,000 | ) | 125,000 | |||||
| Accrued expenses and interest | 191,000 | 60,000 | ||||||
| Accrued payroll and advances - related party | 438,000 | 107,000 | ||||||
| Net Cash Used in Operating Activities | (476,000 | ) | (943,000 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash acquired from acquisition of subsidiaries | 100,000 | - | ||||||
| Net Cash Provided by Financing Activities | 100,000 | - | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of note payable | 450,000 | 815,000 | ||||||
| Net Cash Provided by Financing Activities | 450,000 | 815,000 | ||||||
| Net (Decrease) in Cash | 74,000 | (128,000 | ) | |||||
| Cash at Beginning of Period | 43,000 | 171,000 | ||||||
| Cash at End of Period | 117,000 | 43,000 | ||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Beneficial conversion feature associated with issued notes payable | $ | - | $ | 34,000 | ||||
| Issuance of common stock, warrants and note payable for acquisition of SkyAuction.com. Inc. | $ | 10,688,000 | $ | - | ||||
| Net liabilities assumed upon acquisition of SkyAuction.com, Inc. | $ | 518,000 | $ | - | ||||
| Convertible notes payable and accrued interest assumed and corresponding fair value of derivative liability due to recapitalization | $ | 690,000 | $ | - | ||||
| Issuance of common stock for financing agreement | $ | 654,000 | $ | - | ||||
| Derivative liability recorded upon issuance of convertible notes payable and warrants | $ | 790,000 | $ | - | ||||
| Issuance of common stock for settlement of note payable | $ | 30,000 | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-24 |
Notes to the
Financial Statements
For the Years Ended December 31, 2018 and 2017
Note 1 — Organization and Operations
uBid.com Holdings, Inc. (the “Company”) operates on-line websites that enable itself, certified merchants, manufacturers, retailers, distributors and small businesses to offer high quality excess, new, overstock, close-out, refurbished and limited supply brand name merchandise to consumer and business customers. Through the Company’s websites, located at www.uBid.com and www.RedTag.com, the Company offers merchandise across a wide range of product categories including but not limited to computer products, consumer electronics, apparel, housewares, watches, jewelry, travel, sporting goods, automobiles, home improvement products and collectibles. The Company’s marketplace employs a combination of auction style and fixed price formats.
Effective November 5, 2018, we entered into a merger agreement dated October 23, 2018 with Incumaker Inc., whereby all of the shareholders of uBid Holdings, Inc. exchanged all of their shares of common stock for 202,110,632 newly issued shares of Incumaker, Inc. common stock . Incumaker stockholders retained 43,771,555 shares of common stock. As a result of the merger, (i) uBid Holdings, Inc. shareholders acquired 85.7% of the fully diluted shares of Incumaker, (ii) the business of uBID will continue as the existing business operations of Incumaker and (iii) Incumaker will be managed by uBID’s management after effectiveness of the Merger under Delaware law. The Merger was treated as a reverse merger and recapitalization of the Company for financial accounting purposes. The historical financial statements of Incumaker before the Merger have been replaced with the historical financial statements of uBID before the Merger in all future filings with the Securities and Exchange Commission (the “SEC”). The net liabilities of Incumaker of $690,000 at date of the reverse merger have been assumed by the Company and reflected as a reduction to paid in capital.
On November 12, 2018, we acquired all the outstanding shares of SkyAuction.com, Inc., in exchange for 165,363,244 newly issued shares of common stock; a $2,500,000 non-interest bearing note; and a warrant to acquire 5,000,000 shares of Ubid stock. The transaction has been accounted for as purchase of a business.
On February 11, 2019, FINRA announced the change of our name from Incumaker, Inc. to uBid Holdings, Inc. and the change of our trading symbol from QMKR to UBID.
We now are an e-commerce company focused on operating and growing number of online auction and bargain-sale e-commerce marketplaces offering thousands of products to both consumers and businesses. We believe that we provide a unique shopping experience that offers buyers the opportunity to either set their own prices or receive competitive fixed prices on popular, brand name products at a significant discount to prices found at bricks-and-mortar stores and large internet retailers. Our online marketplaces provide (i) manufacturers, retailers, distributors and other suppliers with what we believe is an efficient and economical channel for maximizing revenue on their merchandise while at the same time moving new, overstock, close-out and recertified products and providing consumers and businesses with a convenient method for obtaining this merchandise virtually anytime and anywhere at substantial savings, and (ii) since our recent acquisition of SkyAuction.com Inc., travel products and services. SkyAuction’s financial statements are included in our consolidated financial statements included in this disclosure statement.
| F-25 |
Note 2 — Basis of Presentation and Going Concern
Going Concern
The Company’s financial statements have been prepared assuming that the Company will continue as a going concern, and which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in its financial statements, the Company had an accumulated deficit of $37,542,000 at December 31, 2018, and incurred a net loss of $1,180,000 and utilized net cash of $476,000 in operating activities for the year ended December 31, 2018. The accompanying financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could be forced to cease operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.
In order to continue as a going concern, the Company will need to, among other things, raise additional capital, develop a reliable source of revenue, and achieve a profitable level of operations. Management’s plans to continue as a going concern include raising additional capital through borrowing and sales of our common stock and successfully implementing our business plan. However, management cannot provide any assurances that the Company will be successful in raising additional capital or successfully implementing any of its plans.
Note 3 — Summary of Significant Accounting Policies
Accounting Estimates
The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include assumptions made in estimated useful lives of property and equipment, assumptions inherent in a purchase price allocation, accruals for potential liabilities, certain assumptions used in deriving the fair value of derivative liabilities, share-based compensation and beneficial conversion feature of notes payable, and realization of deferred tax assets.
Stock-Based Compensation
The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board whereas the value of the award is measured on the date of grant and recognized over the vesting period. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with the authoritative guidance of the Financial Accounting Standards Board whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.
Non-employee stock-based compensation charges generally are amortized over the vesting period on a straight-line basis. In certain circumstances where there are no future performance requirements by the non-employee, option grants are immediately vested and the total stock-based compensation charge is recorded in the period of the measurement date.
The fair value of the Company’s common stock option and warrant grants is estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model, and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
| F-26 |
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
|
|
Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amount of the Company’s derivative liability of $936,000 as of December 31, 2018 and was based on Level 3 measurements. There was no derivative liability at December 31, 2017.
The carrying amounts of the Company’s other financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued payables and notes payable, approximate their fair values because of the short maturity of these instruments.
Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from, acquired technology, trade-marks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill
Goodwill represents the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. We do not amortize goodwill, but rather evaluate goodwill for potential impairment on an annual basis on January 1, or at other times during the year if events or circumstances indicate that it is more likely than not that the fair value of a reporting unit is below the carrying amount.
| F-27 |
We evaluate goodwill for potential impairment by comparing the carrying value of our reporting unit to their fair value. Our reporting unit is the same as our operating segment as described in Note 1. In any year we may elect to perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is in excess of its carrying value. If we cannot determine qualitatively that the fair value is in excess of the carrying value, or we decide to bypass the qualitative assessment, we perform a quantitative analysis. The quantitative analysis is used to identify both the existence of impairment and the amount of the impairment loss by comparing the estimated fair value of a reporting unit with its carrying value, including goodwill. The estimated fair value is based on internal projections of expected future cash flows and operating plans, as well as market conditions relative to the operations of our reporting units. If the estimated fair value of the reporting unit exceeds its carrying value, goodwill of the reporting unit is not impaired; otherwise, an impairment loss is recognized within our consolidated statements of operations in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.
As the acquisition of SkyAuction occurred on November 12, 2018, the Company will perform an its first impairment test during the year ended December 31, 2019. However as of December 31, 2018, Management does not believe there are any indicators of impairment.
Intangible Assets with Finite Useful Lives
We have certain finite lived intangible assets that were initially recorded at their fair value at the time of acquisition. These intangible assets consist of intellectual property, customer relationships, and capitalized software development costs. Intangible assets with finite useful lives are amortized using the straight-line method over their respective estimated useful lives, which are generally as follows: intellectual property (15 years), customer relationships (2 years) and software (3 years).
We review all finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. If the carrying value of an asset group is not recoverable, we recognize an impairment loss for the excess carrying value over the fair value in our consolidated statements of operations.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Revenue Recognition
Through December 31, 2017, the Company recognized revenue when risk of loss transferred to our customers and collection of the receivable was reasonably assured, which generally occurs when the product is delivered. A product is not delivered without an order from the customer and credit acceptance procedures performed.
| F-28 |
On January 1, 2018, the Company adopted Financial Accounting Standards Update No. 2014-09 (ASU No. 2014-09) regarding revenue recognition. The new standard provides authoritative guidance clarifying the principles for recognizing revenue and developing a common revenue standard for U.S. generally accepted accounting principles. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods to customers in an amount that reflects the consideration to which the entity expects to be entitled in the exchange for those goods. Due to the nature of the products sold by the Company, the adoption of the new standard has had no quantitative effect on the financial statements. However, the guidance requires additional disclosures to help users of financial statements better understand the nature, amount, timing, and uncertainty of revenue that is recognized.
Under the new guidance, revenue is recognized when control of promised goods is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods. The Company reviews its sales transactions to identify contractual rights, performance obligations, and transaction prices, including the allocation of prices to separate performance obligations, if applicable. Revenue and costs of sales are recognized once products are delivered to the customer’s control and performance obligations are satisfied.
The adoption of ASU 2014-09 did not have any significant effect to our revenue recognition. The following are the Company’s revenue recognition process:
The Company sells merchandise purchased from suppliers under two types of arrangements. The Company (a) sells merchandise to customers purchased at the time of sale from vendors and (b) records a commission on its uBid Certified Merchant program (“UCM”).
(a) Sales—Revenue Sharing Agreements For sales of merchandise under revenue sharing agreements, the supplier retains physical possession of the merchandise. In this case, the Company is not obligated to take title to the merchandise nor does it take title unless it successfully sells the merchandise at auction. Upon completion of an auction, the Company purchases the inventory, takes title to the merchandise, charges the customer’s credit card including shipping and handling fees and either ships the merchandise directly or arranges for a third party to complete delivery to the customer. The Company records the net sales amount including shipping fees as revenue upon verification of the credit card authorization and shipment of the merchandise. The Company then remits payments to vendors for product and shipping cost. The vendor pays the shipper for the shipping cost. In instances where credit card authorization has been received but the merchandise has not been shipped, the Company defers revenue recognition until the merchandise is shipped.
(b) Sales—UCM For sales of merchandise under the UCM program, the Company recognizes a commission of between 10-15% of the total final price of an auction sale. Upon completion of an auction, the Company charges the customer’s credit card including shipping and handling fees and the third party completes the delivery of the merchandise to the customer. The Company records the commission amount as net revenue including shipping upon verification of the credit card authorization and shipment of the merchandise. The Company then remits payments to vendors for product and shipping cost. The vendor pays the shipper for the shipping cost. In instances where credit card authorization has been received but the merchandise has not been shipped, the Company defers revenue recognition until the merchandise is shipped.
I Sales—Advertising Currently, the Company has banner ads on its uBid website. Upon payment to the Company, the revenue is recognized. The taxes collected by the Company from the customers are submitted to state tax authority. The Company follows the same revenue recognition guidance as Retail industry with different product categories.
During the year ended December 31, 2017, revenues amounted only $7,000. For the year ended December 31, 2018, there were no revenues recorded.
| F-29 |
Revenue from our SkyAuction website is recognized after all of the following have occurred: a bidder wins and confirms an auction, the orders are placed with ticket agents or third party suppliers (e.g. airlines, hotels or both), the auction winner is notified that the auction has been fulfilled and collection is reasonably assured. Generally, a credit card is charged or a check is received before revenue is recognized. Revenues include service, shipping and handling charges and cancellation fees but exclude excise taxes.
Sale of reservations are final and non-refundable. However, on a case by case basis, the Company may grant a refund to a customer. Claims for refunds are recorded as a reduction to the Company’s revenues and are recorded at the time that such refunds are processed. Refunds during the period ended December 31, 2018 were insignificant and immaterial to the financial statements.
Deferred revenue represents amounts received from customers before the Company’s criteria for revenue recognition is met.
From November 11, 2018, acquisition date to December 31, 2018, total revenues amounted to $567,000.
Advertising Costs
The Company has marketing relationship agreements with various online companies such as portal networks, contextual sites, search engines and affiliate partners. Advertising costs are generally charged to the Company monthly per vendor agreements, which typically are based on visitors and/or registrations delivered to the site or at a set fee. Agreements do not provide for guaranteed renewal and may be terminated by the Company without cause. Such advertising costs are charged to expense as incurred and reported as part of selling, general and administrative expenses in the accompanying statement of operations.
During the year ended December 31, 2017, advertising costs amounted to $ $25,000. There was no advertising costs during the year ended December 31, 2018.
Accounts Receivable
All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts, if any, is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the amount of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.
Merchandise Return Policy
The Company’s return policy, for all selling arrangements, is that merchandise sold by the Company can be returned within 15 days and the reasons for the return have to be related to damage of product, not as advertised, wrong item, or missing items. Some restrictions may apply for buyer’s remorse and are subject to a 15% restocking fee. However, the Company, although not obligated to do so, may accept merchandise returns outside the 15-day period if a product is defective or does not conform to the specifications of the item sold at auction, and attempts to work with its customers to resolve complaints about merchandise.
There were no material or significant returns recorded during the years ended December 31, 2018 and 2017.
| F-30 |
Income Tax Provision
The Company follows the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
Segments
The Company determined its reporting units in accordance with ASC 280, “Segment Reporting” (“ASC 280”). Management evaluates a reporting unit by first identifying its’ operating segments under ASC 280. The Company then evaluates each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, the Company evaluates those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, the Company determines if the segments are economically similar and, if so, the operating segments are aggregated.
Management has determined that the Company has one consolidated operating segment. The Company’s reporting segment reflects the manner in which its chief operating decision maker reviews results and allocates resources. The Company’s reporting segment meets the definition of an operating segment and does not include the aggregation of multiple operating segments.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
| F-31 |
Note 4 – Acquisition of Sky Auction
On November 12, 2018, we entered into a merger transaction (the “SkyAuction Merger”) among SkyAuction.com, Inc. (“SkyAuction”), SA Acquisition Corp. and the Company whereby all of the shareholders of SkyAuction exchanged all of their shares of common stock for 165,365,244 newly issued shares of the Company common stock with a fair value of 8,268,000 and a 3.5% promissory note (the “Promissory Note”) in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger”. In addition, Michael Hering, President of SkyAuction, was issued a warrant to acquire 5,000,000 shares of our common stock that is exercisable for three years at an exercise price of $.05 per share as a bonus for arranging the SkyAuction Merger. The warrant included certain features that could result in the reset of the exercise price and was considered to be a derivative liability with a fair value of $300,000 based on a weighted average black scholes option pricing model. We believe the acquisition will allow us to leverage the uBid technology and SkyAuction.com platforms and familiar website domain names, product manufacturer relationships, warehousing and distribution logistics, and customer base to enhance our position as a leading online auction and e-commerce marketplace for consumers and businesses
The Company accounted for the transaction as a business combination using the acquisition method of accounting based on Accounting Standards Codification (“ASC”) 805 — Business Combinations, which requires recognition and measurement of all identifiable assets acquired and liabilities assumed at their fair value as of the date control is obtained. The Company determines the fair value of assets acquired and liabilities assumed based upon its best estimates of the acquisition-date fair value of assets acquired and liabilities assumed in the acquisition. Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired.
The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of deferred cost of sales, deferred taxes and intangible assets. The following table summarizes the provisional fair value of the assets assumed in the acquisition:
| F-32 |
| Purchase Price Allocation | Fair Value | |||
| Consideration Paid: | ||||
| Common Stock(165,363,244 shares at a fair value of $0.05 per share) | $ | 8,268,000 | ||
| Issuance of note payable | 2,500,000 | |||
| Less: discount | (380,000 | ) | ||
| Fair value of warrants issued | 300,000 | |||
| Total consideration paid | $ | 10,688,000 | ||
| Purchase Price Allocation: | ||||
| Cash | $ | 100,000 | ||
| Accounts receivable | 50,000 | |||
| Due from credit card processor | 350,000 | |||
| Inventory | 55,000 | |||
| Prepaid expenses | 90,000 | |||
| Other asset | 6,000 | |||
| Accounts payable | (742,000 | ) | ||
| Accrued expenses | (38,000 | ) | ||
| Advances from related parties | (218,000 | ) | ||
| Deferred revenue | (171,000 | ) | ||
| Intellectual property | 1,032,000 | |||
| Software | 2,096,000 | |||
| Customer relationships | 3,500,000 | |||
| Goodwill | 4,578,000 | |||
| Total Purchase Price | $ | 10,688,000 | ||
After the acquisition date, the amount of revenue and loss for Sky included in the Company’s consolidated statements of operations for the year ended December 31, 2018 was $567,000 and ($37,000) respectively. The Company incurred approximately $0.4 million in transaction costs associated with the acquisition.
Supplemental Pro Forma Information (Unaudited)
The pro forma financial information as presented below is for informational purposes only and is not indicative of operations that would have been achieved from the acquisitions had they taken place at the beginning of the fiscal year ended December 31, 2017. Supplemental information on an unaudited pro forma basis, as if these acquisitions had been completed as of January 1, 2017, is as follows:.
| F-33 |
| December 31, | ||||||||
| 2018 | 2017 | |||||||
| $’000 | $’000 | |||||||
| Operating Revenues | $ | 4,276 | $ | 4,299 | ||||
| Net (Loss) | $ | (838 | ) | $ | (1,026 | ) | ||
The Company’s unaudited pro forma supplemental information is based on estimates and assumptions which the Company believes are reasonable and reflect amortization of intangible assets as a result of the acquisition. The pro forma results are not necessarily indicative of the results that would have been realized had the acquisitions been consummated as of the beginning of the periods presented. The pro forma amounts include the historical operating results of the Company, with adjustments directly attributable to the acquisitions.
Note 5 – Intangible Assets
Intangible Assets as of December 31, 2018 consists of the following assets acquired in the business combination and asset purchase transaction described in Note 4:
| December 31, 2018 | ||||||||||||
| Cost | Accumulated Amortization | Net | ||||||||||
| Intellectual property | $ | 1,032,000 | $ | (9,000 | ) | $ | 1,023,000 | |||||
| Software | 2,096,000 | (87,000 | ) | 2,009,000 | ||||||||
| Customer relationships | 3,500,000 | (219,000 | ) | 3,281,000 | ||||||||
| Total | $ | 6,628,000 | $ | (315,000 | ) | $ | 6,313,000 | |||||
Amortization expense amounted to $315,000 for the period ended December 31, 2018.
Future Amortization charges are as follows:
| Future Amortization | ||||
| 2019 | $ | 2,517,000 | ||
| 2020 | 2,299,000 | |||
| 2021 | 680,000 | |||
| 2022 | 69,000 | |||
| 2023 | 69,000 | |||
| Thereafter | 679,000 | |||
| Total | $ | 6,313,000 |
| F-34 |
Note 6 – Deposit to Credit Card Processor
As a result of the acquisition of SkyAuction in November 2018, the Company assumed a deposit of $350,000 to JetPay, the Company’s credit card processor. The JetPay is a publicly traded U.S. and is an end-to-end processor of credit and debit card and automated clearing house (“ACH”) payment transactions that focuses on processing omni-channel (internet, mobile, and point-of-sale) transactions and recurring billings for traditional retailers, government and utility, and service providers.
The security deposit is refundable in case the agreement is terminated. Outstanding security deposit to JetPay amounted to $350,000 as of December 31, 2018.
Note 7 – Merger debt
In November 2018, the entered into a merger agreement with Incumaker Inc., whereby all of the shareholders of uBid Holdings, Inc. exchanged all of their shares of common stock for 202,110,632 newly issued shares of Incumaker, Inc. common stock. Incumaker stockholders retained 43,771,555 shares of common stock. As a result of the merger, (i) uBid Holdings, Inc. shareholders acquired 85.7% of the fully diluted shares of Incumaker, (ii) the business of uBID will continue as the existing business operations of Incumaker and (iii) Incumaker will be managed by uBID’s management after effectiveness of the Merger under Delaware law. The Merger was treated as a reverse merger and recapitalization of the Company for financial accounting purposes.
At the date of the merger or recapitalization, Incumaker did not have any assets or trade payables except for outstanding convertible notes payable in the aggregate of approximately $327,000. As part of the recapitalization, Ubid assumed these convertible notes payable. The Notes have interest rates ranging from 8% to 22% per annum, and are all past due. The Company recorded notes payable of $327,000 and accrued interest of $94,000 for a total of $421,000 at the date of the merger, which amount approximates their fair market value due to the short term nature of these notes payable.
The conversion price of these convertible notes assumed from Incumaker contains reset provisions based on a future offering price and/or whose conversion prices are based on future market prices, as such, not fixed. As a result, the number of shares to be issued upon conversion is not explicitly limited and the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. Pursuant to ASC 815, the Company accounted these conversion option as liabilities and are bifurcated from the debt host and accounted for as a derivative liability in accordance with ASC 815 and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations. Total fair value of these derivative liability at the date when the notes were assumed was approximately $270,000 and were recorded as a liability at the date of the merger.
During the period ended December 31, 2018, notes with a principal balance of $30,000 and accrued interest due of $881 were converted into 1,469,860 shares of the Company’s common stock. The balance of the notes and accrued interest at December 31, 2018 was $297,000 and $98,770, respectively.
Note 8 – Convertible Notes Payable –Past Due
| Balance at | Balance at | |||||||||||||
| Issuance Date | Interest Rate | Maturity Date | 12/31/2018 | 12/31/2017 | ||||||||||
| 8-10% Convertible Notes - Past Due | various | 8-10% | 12/2017-9/2018 | $ | 1,065,000 | $ | 1,065,000 | |||||||
| 8% Convertible Note | 11/7/2018 | 8% | 11/7/2019 | $ | 220,000 | $ | 0 | |||||||
| Total | $ | 1,285,000 | $ | 1,065,000 | ||||||||||
| Less: Debt Discount | (188,000 | ) | (5,000 | ) | ||||||||||
| Total convertible notes payable, net of debt discount | $ | 1,097,000 | $ | 1,060,000 | ||||||||||
| F-35 |
8-10% Notes Payable Past Due
As of December 201, the Company issued one convertible promissory note amounting to $250,000 in exchange for cash. The note is unsecured, bears interest at 10% per annum, as amended, and mature in December 2017. The note is also convertible to common stock at a conversion price of $2.00 per share. Pursuant to current accounting guidelines, the Company recorded a note discount of $52,000 to account for the note’s beneficial conversion feature, which had fully amortized as of December 31, 2017. This note is currently past due.
During the year ended December 31, 2017, the Company issued similar notes payable totaling $130,000 in exchange for cash. The notes are unsecured, bears interest at 10% per annum, as amended, and mature in starting January 2018. The notes are also convertible to common stock at a conversion price of $2.00 per share. Pursuant to current accounting guidelines, the Company recorded a note discount of $34,000 to account for the note’s beneficial conversion feature. During 2017, the Company amortized $29,000 of the note discount, leaving an unamortized note discount of 5,000 as of December 31, 2017. The notes are currently past due.
During the period ended December 31, 2017, the Company issued notes payable amounting to $685,000 in exchange for cash. The notes are unsecured, bears interest at 8% per annum and mature starting in May 2018. The notes are also convertible to equity upon completion of a Qualified Equity Financing amounting to $2.5 million. In addition, the Company will also grant the note holders a five-year warrant to purchase shares of common stock once the Qualified Equity Financing is consummated and the notes are convertible to equity. Pursuant to current accounting guidelines, the Company will account any beneficial conversion feature of the notes payable and the warrants to be granted once the Qualified Equity Financing has occurred or the contingency has been satisfied. The notes are currently past due.
8% Note Payable – Past Due
During the year ended December 31, 2018, the Company issued an 8% convertible note payable with an outstanding principal balance of $220,000 in receipt of cash proceeds of $200,000, resulting in a $20,000 discount upon issuance. The note is unsecured, bears interest at 8% per annum and is past due. The note is convertible at the lesser of $0.07 or 70% of the average of the three lowest trade prices of the common stock in the in the 21 days prior to conversion. In addition, the Company issued warrants to acquire 5,250,000 shares of the Company’s common stock at an exercise price of $.05 per share subject to downward adjustment based on the Company subsequent sale or grant of any equity security at a lessor amount.
Pursuant to current accounting guidelines, the Company determined that the conversion feature of the note and the adjustable exercise price of the warrant created derivative liabilities upon issuance as the Company is uncertain whether it will have sufficient authorized capital upon conversion of the notes or exercise of the warrants. Accordingly, the Company recorded the fair value of the conversion feature of $286,654 and the fair value of the warrants of 314,725 as derivative liabilities upon issuance. The Company recorded a debt discount up to the face amount of the note of $220,000 to account for the derivative liabilities and original issuance discount, and reflected the a finance cost of $398,379 for the difference.
During the period ended December 31, 2018 the Company amortized $32,000 of debt discount, and as of December 31, 2018, the balance of debt discount was $188,000
Note 9 –Bridge Note Payable
On May 2, 2018 the Company issued a bridge note in the amount of $275,000. Cash proceeds to the Company was $250,000 for an original issue discount of $25,000. The note is unsecured, bears interest at 2% per annum and matures in May 2019. Pursuant to current accounting guidelines, the Company recorded a debt discount of $25,000 to account for the note’s original issuance discount of $25,000.
| F-36 |
As of December 31, 2018 outstanding balance of the note payable amounted to $275,000 and the remaining unamortized original issuance discount was $8,000, resulting in a net balance due of $267,000.
Note 10 – Acquisition Note Payable to Related Party
| Balance at | Balance at | |||||||
| 12/31/2018 | 12/31/2017 | |||||||
| Note Payable | $ | 2,500,000 | $ | 0 | ||||
| Less: Debt Discount | (364,000 | ) | - | |||||
| Total convertible notes payable, net of debt discount | $ | 2,136,000 | $ | 0 | ||||
Pursuant to the terms of the SkyAuction Merger Agreement, the Company entered into a secured promissory note in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger. The secured note issued to SkyAuction provides for repayment in full at the third anniversary date of the closing date of the SkyAuction Merger, such principal amount to be reduced by 15% of each capital raise we complete (less any finder’s or underwriter’s fees) and interest at 3% per annum payable at our discretion in common stock or cash. The Promissory Note was secured by all assets of SkyAuction under the terms of a Guaranty Agreement. SkyAuction and uBid have amended the Promissory Note to extend the date of the first payment of principal in the amount of $500,000 from 120 days from the date of Closing as that term is defined in the Merger Agreement or March 13, 2019, to the date when we have raised sufficient financing to make such payment.
Pursuant to current accounting guidelines, the Company recorded a debt discount of $394,000 to account for imputed interest due to the below market rate of interest. During the period ended December 31, 2018, the Company amortized $30,000 of the valuation discount as interest expense, leaving an unamortized discount of $364,000 at December 31, 2018.
Note 11 – Derivative Liability
The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. Certain warrants issued to investors and conversion features of notes payable did not have fixed settlement provisions because either their exercise prices will be lowered if the Company issues securities at lower prices in the future or the conversion price is variable. In addition, since the number of shares to be issued is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to share settle the conversion option. In accordance with the FASB authoritative guidance, the conversion feature of the notes was separated from the host contract (i.e., the notes) and the fair value of the warrants have been recognized as a derivative and will be re-measured at the end of every reporting period with the change in value reported in the statement of operations.
The derivative liabilities were valued at the following dates using a probability weighted average Black Scholes Option Model with the following average assumptions:
| December 31, | Other | Notes Payable Assumed | December 31, | |||||||||||||
| 2018 | Issuances | Upon Acquisition | 2017 | |||||||||||||
| Stock Price | $ | 0.0347 | $ | 0.06 | $ | 0.06 | $ | 0 | ||||||||
| Risk free interest rate | 2.46-2.63 | 2.74-3.00 | 2.51 | 0 | ||||||||||||
| Expected Volatility | 216 | % | 298 | % | 248 | % | 0 | |||||||||
| Expected life in years | .92-2.97 | 1.00-3.00 | 0.54 | 0 | ||||||||||||
| Expected dividend yield | 0 | 0 | 0 | 0 | ||||||||||||
| Fair Value – Warrants | $ | 356,000 | $ | 615,000 | $ | 0 | $ | 0 | ||||||||
| Fair Value – Note Conversion Feature | $ | 580,000 | $ | 283,000 | $ | 270,000 | $ | 0 | ||||||||
| Total | $ | 936,000 | $ | 898,000 | $ | 270,000 | $ | 0 | ||||||||
| F-37 |
The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the derivative securities was determined by the remaining contractual life of the derivative instrument. For derivative instruments that already matured, the Company used the estimated life. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.
During the year ended December 31, 2018, the Company recorded $1,168,000 in derivative liability as a result of conversion features from the issuance of new convertible notes payables (see Note 5) and new warrants (see Note 6). In addition the Company recorded a gain of $37,000 upon the extinguishment of derivative liability and $196,000 to account for the change in fair value of the derivative liabilities related to the conversion features from inception to December 31, 2018. As of December, 2018, the derivative liability amounted to $0.
Note 12 — Related Party Transactions
The Company has an employment agreement, executed in July 2013, with Ketan Thakker, its Chief Executive Officer. This agreement provides Mr. Thakker with a salary of $200,000 per year. During the years ended December 31, 2018 and 2017, the Company incurred $200,000 of such costs, which are included as part of selling, general and administrative costs. As of December 31, 2018 and 2017, accrued payable to Mr. Thakker under this contract was $500,000 and $312,500, respectively.
From time to time, Michael N. Hering, the Company Chief Merchandising Officer advances funds to the wholly owned subsidiary, SkyAuction. The balance owing Mr. Hering as of December 31, 2018 is $441,000.
Note 13– Stockholders’ Equity (Deficit)
Preferred stock
The Company is authorized to issue a total of 10,000,000 shares of its Preferred Stock with a par value of $0.001 per share. There are no shares issued and outstanding as of December 31, 2018 and December 31, 2017.
Common stock
The Company is authorized to issue a total of 750,000,000 shares of its Common Stock with a par value of $0.001 per share. There are 431,721,336 shares issued and outstanding as of December 31, 2018.
Issuance of Common Stock for services
On December 22, 2018, the Company issued 18,506,045 shares for a financial consulting agreement to an investment banking firm valued at $654,000 based on the market price at the date of issuance. This amount was recorded as a prepaid expense as the agreement is for a period of six months and the services have not been rendered as of the year end. The expense will be amortized over the life of the agreement. As of December 31, 2018, the unamortized portion of the prepaid consulting agreement was $ 654,000 and is included as a prepaid asset
Issuance of Common Stock for commitment fee
During the year ended December 31, 2018 pursuant securities purchase agreements with FirstFire Global Opportunities LLC, the Company issued 500,000 shares to FirstFire as a commitment fee valued at $18,000.
| F-38 |
Warrants
A summary of warrants activity as of December 31, 2018 is presented below:
| Shares | Weighted Average Exercise Price | Weighted- Average Remaining Contractual Terms (Years) | ||||||||||
| Outstanding at December 31, 2017 | - | $ | 0 | 0 | ||||||||
| Granted | 10,250,000 | $ | 0.05 | 3 | ||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Outstanding at December 31, 2018 | 10,250,000 | $ | 0.05 | 2.875 | ||||||||
During the year ended December 31, 2018, Michael Hering, President of SkyAuction, was issued a warrant to acquire 5,000,000 shares of our common stock that is exercisable for three years at an exercise price of $.05 per share as a bonus for arranging the SkyAuction Merger. In addition the Company issued warrants to acquire 5,250,000 shares of the Company’s common stock at an exercise price of $.05 per share subject to downward adjustment based on the Company subsequent sale or grant of any equity security at a lessor amount. As of December 31, 2018 there were 10,250,000 warrants issued and outstanding.
Options
A summary of option activity as of December 31, 2018 and 2017 is presented below:
| Shares | Weighted Average Exercise Price | Weighted- Average Remaining Contractual Terms (Years) | ||||||||||
| Outstanding at December 31, 2016 | 766,065 | $ | 189.17 | 9.00 | ||||||||
| Granted | - | - | - | |||||||||
| Exercised | - | - | - | |||||||||
| Forfeited | - | - | - | |||||||||
| Outstanding at December 31, 2017 | 766,065 | $ | 189.17 | 8.50 | ||||||||
| Granted | - | |||||||||||
| Exercised | - | |||||||||||
| Forfeited | - | |||||||||||
| Outstanding at December 31, 2018 | 766,065 | $ | 189.17 | 7.50 | ||||||||
The outstanding stock options as of December 31, 2018 has no intrinsic value since the exercise price of $189.17 per share is greater than the market price of the Company’s common stock.
| F-39 |
Note 14 – Income Tax Provision
The Company did not record any income tax provision for the years ended December 31, 2018 and 2017 due to the Company’s net losses. The Company files income tax returns in the United States (“Federal”) and Illinois (“State”) jurisdictions. The Company is subject to Federal and State income tax examinations by tax authorities for all years since its inception.
At December 31, 2018, the Company had Federal and State net operating loss carry forwards available to offset future taxable income of approximately $33 million. These carry forwards will begin to expire in the year ending December 31, 2030, subject to IRS limitations, including change in ownership.
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by a valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted into law. The TCJ Act provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended (the “Code”), that impact corporate taxation requirements, such as the reduction of the federal tax rate for corporations from 35% to 21% and changes or limitations to certain tax deductions. The Company is currently assessing the extensive changes under the TCJ Act and its overall impact on the Company; however, based on its preliminary assessment of the reduction in the federal corporate tax rate from 35% to 21% effective on January 1, 2018, the Company currently expects that its effective tax rate for 2018 will be between 19% and 21%. Such estimated range is based on management’s current assumptions with respect to, among other things, Alternative Minimum Tax Credit carry forwards, which may still be used to offset the Company’s regular tax liability, beginning in 2018 and any excess amounts can be refunded by 2022. Additionally, the Company’s also considers its assumptions regarding state income tax levels and tax deductions. The Company’s actual effective tax rate in 2018 may differ from management’s estimate. The reduced applicable tax rate is expected to result in overall lower tax expense beginning in 2018.
At December 31, 2018, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined that it was more likely than not that its deferred tax assets of approximately $9.7 million would not be realized. Accordingly, the Company has recorded a valuation allowance for 100% of its cumulative deferred tax assets. The components of our deferred tax assets are as follows.
| 12/31/2018 | 12/31/2017 | |||||||
| Net Operating loss carryforwards | 9,222,000 | 9,369,000 | ||||||
| - | - | |||||||
| Total net deferred tax assets | 9,222,000 | 9,369,000 | ||||||
| Less valuation discount | (9,222,000 | ) | (9,369,000 | ) | ||||
| Net deferred tax assets | - | - | ||||||
A reconciliation of income taxes with the amounts computed at the statutory federal rate are as follows:
| 12/31/2018 | 12/31/2017 | |||||||
| Computed tax provision (benefit) at federal statutory rate | 21 | % | 40 | % | ||||
| State income taxes, net of federal benefit | 6 | % | 6 | % | ||||
| Permanent differences | 0 | % | 0 | % | ||||
| Net Operating loss | -27 | % | -46 | % | ||||
| 0 | % | 0 | % | |||||
| F-40 |
As a result of the implementation of certain provisions of ASC 740-10, the Company performed an analysis of its previous tax filings and determined that there were no positions taken that it considered uncertain. Therefore, there were no unrecognized tax benefits as of December 31, 2018.
Future changes in the unrecognized tax benefit are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change within the next twelve months. The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its statements of operations. There are no interest or penalties accrued as of December 31, 2018.
Note 15 – Commitments and Contingencies
Rent
The Company leases approximately 4,050 square feet of general office space at 566 W. Adams Street, Chicago, IL. The lease payment averages $1,700 per month up to the expiration the agreement in August 2019.
SkyAuction’s principal executive offices are located at 241 North Avenue West, Westfield, New Jersey and consists of approximately 1,500 square feet. We currently lease such facilities for $3,000 per month. We have a self-renewing month-to-month lease with no immediate escalation.
Legal Proceedings
We are involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for contingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. There is no current or pending litigation of any significance with the exception of the matters that are described below;
On December 17, 2017, a lawsuit that had been dismissed by the plaintiff on July 21, 2017, was refiled against us pursuant to Georgia’s renewal statute (O.C.G.A. 9-2-61), titled Oelshlager v. Cryomist II, Cryomist III and Incumaker, Inc. (Fulton County Georgia State Court). The lawsuit alleges that Incumaker is liable for the conduct of its subsidiary on the theory that it is the parent of these separate corporations and that the Cryomist Companies were merely the alter ego of Incumaker. We intend to vigorously defend the Company against this lawsuit.
On April 17, 2019, a lawsuit was filed by Dupree Productions, LLC against uBid Holdings, Inc. and Ketan Thakker (Case No. L2019000436) in the Circuit Court of DuPage County, Illinois, alleging that a Partial Equity Payment Agreement dated August 1, 2016, intended to compensate services in the amount of $60,000 in return for shares of uBid common stock was inadequate to compensate for the alleged higher value of the advertising and endorsement services of approximately $195,000. We intend to vigorously defend against these claims.
Note 15 – Subsequent Events
On January 18, 2019, we entered into a note financing with Horberg Enterprise under which we issued a promissory note in the principal amount of $100,000, bearing interest of 6% per annum with a maturity date of January 18, 2020.
On April 9, 2019, we entered into a convertible note financing with Auctus Fund, LLC (“Auctus”) under which we issued a convertible promissory note in the principal amount of $277,500 from which will be deducted $27,500 as a due diligence fee and $4,000 for Auctus’ legal fees, bearing interest of 8% per annum with a maturity date of April 9, 2020. The note is convertible into shares of our common stock at a conversion price equal to the lesser of: (i) $0.06 or (ii) the Variable Conversion Price (defined as 70% multiplied by the average of the three lowest volume weighted average prices of our shares of common stock during the ten consecutive trading day period immediately preceding the trading day that we receive Auctus’ notice of conversion). We are required at all times to have coverage of any potential conversion equal to three times the shares of our common stock into which the unpaid principal and accrued interest of the note is convertible.
| F-41 |
The initial coverage has been set at 28,750,000 shares. We issued a warrant to Auctus (the “Auctus Warrant”) exercisable for three years to purchase 7,000,000 shares that we will register under the 1933 Act at an exercise price of $0.06 per share. We are authorized to prepay this convertible loan commencing on the date of the note and ending 180 days after the date of the note by paying 115% of the outstanding principal amount of the note together with accrued and unpaid interest thereon. Pursuant to current accounting guidelines, the Company will record a derivative liability to account for the note’s beneficial conversion feature.
Subsequent to the year ended December 31, 2018, the Company issued 12,885,603 shares of common stock to settle $71,895 of convertible notes payable and $60,855 of accrued interest.
On February 13, 2019 the Company appointed three additional Board Directors. Theses nonexecutive members of the Board received 3,000,000 shares of our common stock of which 25% of the stock (750,000 shares) vested upon acceptance of the offer to serve on the Board of Directors and 25% of the stock (750,000 shares) shall vest upon each of the three anniversaries of the acceptance date of the offer provided that each Board member has served continuously as an advisor to the Company during such one year period, (ii) an annual cash allowance paid in equal quarterly amounts as follows: year 1 $5,000, year 2 $15,000 and year 3 an amount to be determined and (iii) $2,000 annually for being Chair of a Committee and $1,000 annually for being a member of a Committee.
| F-42 |
SKYAUCTION.COM INC.
(in thousands, except share data)
| September 30, | December 31, | |||||||
| 2018 | 2017 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 14 | $ | - | ||||
| Accounts receivable | 54 | 11 | ||||||
| Inventory | 96 | 67 | ||||||
| Vendor deposits | - | 105 | ||||||
| Deposit to credit card processor | 350 | 350 | ||||||
| 514 | 533 | |||||||
| Security deposits | 6 | 6 | ||||||
| Total assets | $ | 520 | $ | 539 | ||||
| Liabilities and Stockholders’ Deficit: | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 633 | $ | 610 | ||||
| Accrued expenses | 48 | 63 | ||||||
| Deferred revenue | 35 | 160 | ||||||
| Due to related party | 292 | 79 | ||||||
| Total current liabilities | 1,008 | 912 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, Series A, par value $0.01, 500,000 shares authorized, 418,506 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 4 | 4 | ||||||
| Preferred stock, Series B, par value $0.01, 250,000 shares authorized, 56,317 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 1 | 1 | ||||||
| Preferred stock, Series C, par value $0.01, 293,738 shares authorized, 293,738 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 3 | 3 | ||||||
| Common stock, par value $0.01, 2,000,000 shares authorized and 1,000,000 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively | 10 | 10 | ||||||
| Treasury stock | (165 | ) | (165 | ) | ||||
| Additional paid in capital | 30,246 | 30,246 | ||||||
| Accumulated deficit | (30,587 | ) | (30,472 | ) | ||||
| Total stockholders’ deficit | (488 | ) | (373 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 520 | $ | 539 | ||||
The accompanying notes are an integral part of these condensed financial statements.
| F-43 |
SKYAUCTION.COM INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
| For Nine Months Ended | For Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2018 | 2017 | |||||||
| Revenues | $ | 2,737 | $ | 3,255 | ||||
| Operating Expenses: | ||||||||
| Direct cost of revenues | 1,830 | 2,014 | ||||||
| Selling, general and administrative | 1,043 | 1,147 | ||||||
| 2,873 | 3,161 | |||||||
| Income (Loss) from Operations | (136 | ) | 94 | |||||
| Other Income | ||||||||
| Other income | 21 | 34 | ||||||
| Total Other Income | 21 | 34 | ||||||
| Net Income (Loss) | $ | (115 | ) | $ | 128 | |||
The accompanying notes are an integral part of these condensed financial statements.
| F-44 |
SKYAUCTION.COM INC.
Statements of Stockholders’ Deficit
(in thousands, except share data)
(unaudited)
| Preferred Stock Series A | Preferred Stock Series B | Preferred Stock Series C | Common Stock | Treasury | Additional Paid in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | 418,506 | $ | 4 | 56,317 | $ | 1 | 293,738 | $ | 3 | 1,000,000 | $ | 10 | $ | (165 | ) | $ | 30,246 | $ | (30,472 | ) | $ | (373 | ) | |||||||||||||||||||||||||
| Net Loss | (115 | ) | (115 | ) | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, September 30, 2018, unaudited | 418,506 | $ | 4 | 56,317 | $ | 1 | 293,738 | $ | 3 | 1,000,000 | $ | 10 | $ | (165 | ) | $ | 30,246 | $ | (30,587 | ) | $ | (488 | ) | |||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed financial statements.
| F-45 |
SKYAUCTION.COM INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| For Nine Months Ended | For Nine Months Ended | |||||||
| September 30, | September 30, | |||||||
| 2018 | 2017 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | (115 | ) | $ | 128 | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (43 | ) | 37 | |||||
| Inventories | (29 | ) | 35 | |||||
| Deposit to credit card processor | - | 150 | ||||||
| Prepaid expenses and other current assets | - | 23 | ||||||
| Vendor deposits | 105 | 332 | ||||||
| Accounts payable | 23 | (806 | ) | |||||
| Deferred revenue | (125 | ) | (14 | ) | ||||
| Accrued expenses | (15 | ) | 5 | |||||
| Net Cash (Used in) Operating Activities | (199 | ) | (110 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Advances from shareholders | 213 | 79 | ||||||
| Net Cash Provided by Financing Activities | 213 | 79 | ||||||
| Net Increase (Decrease) in Cash and Cash Equivalents | 14 | (31 | ) | |||||
| Cash and Cash Equivalents at Beginning of Period | - | 41 | ||||||
| Cash and Cash Equivalents at End of Period | 14 | 10 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Issuance of common stock in settlement of debt | $ | - | $ | - | ||||
The accompanying notes are an integral part of these condensed financial statements.
| F-46 |
Notes to the Condensed Financial Statements
For the Nine Months Ended September 30, 2018 and 2017
(unaudited)
Note 1 — Organization and Operations
SkyAuction.com, Inc. (the “Company”) was incorporated in Delaware on February 12, 1999 and is an online marketer and distributor of travel products and services using a no-reserve auction process. The Company offers excess travel inventory from leading airlines, hotels, resorts and tour operations. The Company allows its customers to bid on a wide variety of quality products and services, such as airline tickets on scheduled flights, hotel and resort accommodations, tour services and comprehensive travel packages.
Note 2 — Going Concern
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been omitted pursuant to such rules and regulations. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement of financial position and results of operations have been included. Our operating results for the nine months ended September 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. The accompanying unaudited condensed financial statements should be read in conjunction with our audited condensed financial statements for the year ended December 31, 2017.
Going Concern
The Company’s financial statements have been prepared assuming that the Company will continue as a going concern, and which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in its financial statements, the Company had a stockholders’ deficit of $488,000 at September 30, 2018, and incurred a net loss of $115,000 and utilized net cash of $199,000 in operating activities for the nine months ended September 30, 2018. In addition, our independent auditors, in their report on our audited financial statements for the years ended December 31, 2017 and 2016, expressed substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could be forced to cease operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing raising additional capital or any of its plans.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| F-47 |
Note 3 — Summary of Significant Accounting Policies
Accounting 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts, inventory obsolescence and accruals for potential liabilities.
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued payables, approximate their fair values because of the short maturity of these instruments.
Revenue Recognition
Effective January 1, 2018 the Company adopted Accounting Standards Update (“ASU”) no. 2014-09, Revenue from Contracts with Customers (ASC 606). Under the update, revenue is recognized based on a five-step model. The core principle of the model is that revenue will be recognized when the transfer of promised goods or services to customers is made in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The adoption of this standard did not result in any changes to previously reported amounts.
| F-48 |
We account for revenue in accordance with ASC 606. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account in ASC 606. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. The contract transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We do not have any significant payment terms, as payment is received shortly after goods are delivered or services are provided.
Revenue is recognized after all of the following have occurred: a bidder wins and confirms an auction, the orders are placed with ticket agents or third party suppliers (e.g. airlines, hotels or both), the auction winner is notified that the auction has been fulfilled and collection is reasonably assured. Generally, a credit card is charged or a check is received before revenue is recognized. Revenues include service, shipping and handling charges and cancellation fees but exclude excise taxes. Sale of reservations are final and non-refundable. However, on a case by case basis, the Company may grant a refund to a customer. Claims for refunds are recorded as a reduction to the Company’s revenues and are recorded at the time that such refunds are processed. Refunds during the periods ended September 30, 2018 and 2017 were insignificant and immaterial of the financial statements.
Deferred revenue represents amounts received from customers before the Company’s criteria for revenue recognition is met.
Income Tax Provision
The Company follows the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
Accounts Receivable
All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the amount of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.
Concentrations
Accounts Payable and Purchase
During the periods ended September 30, 2018 and 2017, the Company had 3 vendors that accounted for approximately 58% and 26%, respectively of purchases. No other vendors accounted for more than 10% of purchase during the year ended December 31, 2017. Included in account payable as of September 30, 2018 and 2017 is approximately $307,000 and $151,000 due to these vendors.
| F-49 |
Recently Issued Accounting Pronouncement
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Note 3 — Related Party Transactions
Due from/to Related Party
Due from/to related party represents net advances made to or by the Company’s Chief Executive Officer, Michael Hering, the majority shareholder. As of September 30, 2018 there was an outstanding amount due to Mr. Hering of $292,000. As of December 31, 2017 there was an outstanding amount of $79,000.
Service Agreement
In January 2016, the Company entered into a services agreement with Magical Holidays which is owned by Mr. Michael Hering, President and Chief Executive Officer. Under this agreement, Magical Holidays will provide us with ticketing fulfillment services for travel inventory sold by us, transaction review services, administrative services, including office supplies and equipment, secretarial and clerical services, and other services. The Company will pay Magical Holidays $20,000 quarterly for the transaction review services. In addition, for each ticket for which fulfillment services are provided by Magical Holidays, the Company will pay to Magical Holidays a fulfillment fee $25. During the periods ended September 30, 2018 and 2017, the Company incurred $60,000 and $0 of these costs, respectively which are included in direct costs of revenues on the accompanying statement of operations.
NOTE 4 – Deposit to Credit Card Processor
In 2004, the Company signed an agreement with a vendor, JetPay, to be the Company’s credit card processor. The JetPay is a publicly traded company in the US that was incorporated in Delaware in November 2010. JetPay is an end-to-end processor of credit and debit card and automated clearing house (“ACH”) payment transactions that focuses on processing omni-channel (internet, mobile, and point-of-sale) transactions and recurring billings for traditional retailers, government and utility, and service providers.
As part of the agreement, the Company is required to make a security deposit. The security deposit is refundable in case the agreement is terminated. Outstanding security deposit to JetPay amounted to $350,000 as of September 30, 2018 and December 31, 2017.
| F-50 |
NOTE 5 – Subsequent Events
Pursuant to FASB ASC 855, Management has evaluated all events and transactions that occurred from September 30, 2018 through the date of issuance of these financial statements.
On November 12, 2018, Incumaker, SA.com Acquisition Corp. and the Company entered into an Agreement and Plan of Merger. Pursuant to the terms of the SkyAuction Merger Agreement, each outstanding share of common stock of SkyAuction was entitled to receive approximately 96 shares of Incumaker common stock, par value $.001 per share, and $1.45 in cash to be paid under the terms of a promissory note in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger. As a result of the SkyAuction Merger, the Company acquired 40.25% of the issued and outstanding shares of Incumaker. The secured note issued to the Company provides for repayment in full at the third anniversary date of the closing date of the SkyAuction Merger, such principal amount to be reduced by 15% of each capital raise we complete (less any finder’s or underwriter’s fees) and interest at 3% per annum payable at Incumaker’s discretion in common stock or cash. The promissory note is secured by all assets of Incumaker under the terms of a guaranty agreement. The SkyAuction merger was declared effective on November 13, 2018, by the Delaware Secretary of State. The Company is now a wholly-owned subsidiary of Incumaker.
In addition under the terms of the SkyAuction merger agreement, Michael Hering who served as the Company’s President and Chief Executive Officer prior to the SkyAuction merger was issued a warrant to acquire 1,000,000 shares of Incumaker’s common stock as a bonus for arranging the SkyAuction merger. The warrant is exercisable for three years at an exercise price of $.001 per share. Also, as part of the SkyAuction merger agreement, Incumaker agreed to remove Michael Hering as guarantor from all of the company credit cards. Additionally, the Board of Directors of the Company, now has three directors, Michael Hering, Ketan Thakker and Salvatore Esposito.
| F-51 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
SkyAuction Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of SkyAuction Inc. (the “Company”) as of December 31, 2017 and 2016 and the related statements of operations, stockholders’ deficit and cash flows for the years ended December 31, 2017 and 2016, 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 December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company had a stockholders’ deficit at December 31, 2017, and utilized net cash in operating activities for the year ended December 31, 2017. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2 to the financial statements. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 audit 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 provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2017.
| /S/Weinberg & Company, P.A. | |
| Weinberg & Company, P.A. | |
| Los Angeles, California | |
| December 28, 2018 |
| F-52 |
SKYAUCTION.COM INC.
(in thousands, except per share data)
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Assets: | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | - | $ | 41 | ||||
| Accounts receivable, net | 11 | 115 | ||||||
| Inventory | 67 | 114 | ||||||
| Vendor deposits | 105 | 300 | ||||||
| Deposit to credit card processor | 350 | 500 | ||||||
| Due from related party | - | 92 | ||||||
| Prepaid expenses and other current assets | - | 9 | ||||||
| 533 | 1,171 | |||||||
| Security deposits | 6 | 6 | ||||||
| Total assets | $ | 539 | $ | 1,177 | ||||
| Liabilities and Stockholders’ Deficit: | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | 610 | $ | 1,620 | ||||
| Accrued expenses | 63 | 55 | ||||||
| Deferred revenue | 160 | 179 | ||||||
| Due to related party | 79 | - | ||||||
| Total current liabilities | 912 | 1,854 | ||||||
| Commitments and Contingencies | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, Series A, par value $0.01, 500,000 shares authorized, 418,506 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 4 | 4 | ||||||
| Preferred stock, Series B, par value $0.01, 250,000 shares authorized, 56,317 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 1 | 1 | ||||||
| Preferred stock, Series C, par value $0.01, 293,738 shares authorized, 293,738 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 3 | 3 | ||||||
| Common stock, par value $0.01, 2,000,000 shares authorized and 1,000,000 shares issued and outstanding as of December 31, 2017 and 2016, respectively | 10 | 10 | ||||||
| Treasury stock | (165 | ) | (165 | ) | ||||
| Additional paid in capital | 30,246 | 30,246 | ||||||
| Accumulated deficit | (30,472 | ) | (30,776 | ) | ||||
| Total stockholders’ deficit | (373 | ) | (677 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 539 | $ | 1,177 | ||||
The accompanying notes are an integral part of these financial statements.
| F-53 |
SKYAUCTION.COM INC.
(in thousands)
| For Year Ended | For Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| Revenues | $ | 4,292 | $ | 5,025 | ||||
| Operating Expenses: | ||||||||
| Direct cost of revenues | 2,426 | 3,445 | ||||||
| Selling, general and administrative | 1,584 | 1,384 | ||||||
| 4,010 | 4,829 | |||||||
| Income from Operations | 282 | 196 | ||||||
| Other (Income) Expense | ||||||||
| Other (income) expense | (38 | ) | (50 | ) | ||||
| Total Other (Income) Expense | (38 | ) | (50 | ) | ||||
| Income Before Income Taxes | 320 | 246 | ||||||
| Income Tax Expense | (16 | ) | (4 | ) | ||||
| Net Income | $ | 304 | $ | 242 | ||||
The accompanying notes are an integral part of these financial statements.
| F-54 |
SKYAUCTION.COM INC.
Statements of Stockholders’ Deficit
(in thousands, except per share data)
| Preferred Stock Series A | Preferred Stock Series B | Preferred Stock Series C | Common Stock | Treasury | Additional Paid in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2015 | 418,506 | $ | 4 | 56,317 | $ | 1 | 293,738 | $ | 3 | 1,000,000 | $ | 10 | $ | (165 | ) | $ | 30,246 | $ | (31,018 | ) | $ | (919 | ) | |||||||||||||||||||||||||
| Net Income | 242 | 242 | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2016 | 418,506 | 4 | 56,317 | 1 | 293,738 | 3 | 1,000,000 | $ | 10 | $ | (165 | ) | $ | 30,246 | (30,776 | ) | (677 | ) | ||||||||||||||||||||||||||||||
| Net Income | 304 | 304 | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2017 | 418,506 | $ | 4 | 56,317 | $ | 1 | 293,738 | $ | 3 | 1,000,000 | $ | 10 | $ | (165 | ) | $ | 30,246 | $ | (30,472 | ) | $ | (373 | ) | |||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-55 |
SKYAUCTION.COM INC.
(in thousands)
| For Year Ended | For Year Ended | |||||||
| December 31, | December 31, | |||||||
| 2017 | 2016 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | 304 | $ | 242 | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Allowance for doubtful accounts | 4 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 100 | (58 | ) | |||||
| Inventories | 47 | 30 | ||||||
| Deposit to credit card processor | 150 | - | ||||||
| Prepaid expenses and other current assets | 9 | (9 | ) | |||||
| Vendor deposits | 195 | 11 | ||||||
| Accounts payable | (1,010 | ) | (205 | ) | ||||
| Deferred revenue | (19 | ) | (13 | ) | ||||
| Accrued expenses | 8 | 30 | ||||||
| Net Cash (Used in) Operating Activities | (212 | ) | 28 | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Advances from (repayments to) related party | 171 | (96 | ) | |||||
| Net Cash Used by Financing Activities | 171 | (96 | ) | |||||
| Net (Decrease) in Cash | (41 | ) | (68 | ) | ||||
| Cash at Beginning of Period | 41 | 109 | ||||||
| Cash at End of Period | - | 41 | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid during the year for: | ||||||||
| Interest | $ | - | $ | - | ||||
| Income taxes paid | $ | - | $ | - | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-56 |
Notes to the Financial Statements
For the Years Ended December 31, 2017 and 2016
Note 1 — Organization and Operations
SkyAuction.com, Inc. (the “Company”) was incorporated in Delaware on February 12, 1999 and is an online marketer and distributor of travel products and services using a no-reserve auction process. The Company offers excess travel inventory from leading airlines, hotels, resorts and tour operations. The Company allows its customers to bid on a wide variety of quality products and services, such as airline tickets on scheduled flights, hotel and resort accommodations, tour services and comprehensive travel packages.
Note 2 — Going Concern
The Company’s financial statements have been prepared assuming that the Company will continue as a going concern, and which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. As reflected in its financial statements, the Company had a stockholders’ deficit of $373,000 at December 31, 2017, and utilized net cash of $212,000 in operating activities for the year ended December 31, 2017. In addition, our independent auditors, in their report on our audited financial statements for the years ended December 31, 2017 and 2016, expressed substantial doubt about our ability to continue as a going concern. The accompanying financial statements do not include adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from an inability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it establishes a revenue stream and becomes profitable. If the Company is unable to obtain adequate capital it could be forced to cease operations. Accordingly, these factors raise substantial doubt as to the Company’s ability to continue as a going concern.
In order to continue as a going concern, develop a reliable source of revenues, and achieve a profitable level of operations the Company will need, among other things, additional capital resources. Management’s plans to continue as a going concern include raising additional capital through borrowing and sales of common stock. However, management cannot provide any assurances that the Company will be successful in accomplishing raising additional capital or any of its plans.
The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Note 3 — Summary of Significant Accounting Policies
Accounting 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These estimates and assumptions also affect the reported amounts of revenues, costs and expenses during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts, inventory obsolescence and accruals for potential liabilities.
| F-57 |
Fair Value of Financial Instruments
The Company follows paragraph 820-10-35-37 of the FASB Accounting Standards Codification (“Paragraph 820-10-35-37”) to measure the fair value of its financial instruments and paragraph 825-10-50-10 of the FASB Accounting Standards Codification for disclosures about fair value of its financial instruments. Paragraph 820-10-35-37 establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (U.S. GAAP), and expands disclosures about fair value measurements. To increase consistency and comparability in fair value measurements and related disclosures, Paragraph 820-10-35-37 establishes a fair value hierarchy which prioritizes the inputs to valuation techniques used to measure fair value into three (3) broad levels. The three (3) levels of fair value hierarchy defined by Paragraph 820-10-35-37 are described below:
| Level 1 | Quoted market prices available in active markets for identical assets or liabilities as of the reporting date. | |
| Level 2 | Pricing inputs other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. | |
| Level 3 | Pricing inputs that are generally observable inputs and not corroborated by market data. |
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
The fair value hierarchy gives the highest priority to quoted prices (unadjusted) in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expense, accounts payable and accrued payables, approximate their fair values because of the short maturity of these instruments.
Revenue Recognition
Revenue is recognized after all of the following have occurred: a bidder wins and confirms an auction, the orders are placed with ticket agents or third party suppliers (e.g. airlines, hotels or both), the auction winner is notified that the auction has been fulfilled and collection is reasonably assured. Generally, a credit card is charged or a check is received before revenue is recognized. Revenues include service, shipping and handling charges and cancellation fees but exclude excise taxes.
Sale of reservations are final and non-refundable. However, on a case by case basis, the Company may grant a refund to a customer. Claims for refunds are recorded as a reduction to the Company’s revenues and are recorded at the time that such refunds are processed. Refunds during the years December 31, 2017 and 2016 were insignificant and immaterial of the financial statements.
Deferred revenue represents amounts received from customers before the Company’s criteria for revenue recognition is met.
Advertising Costs
The Company has marketing relationship agreements with various online companies such as portal networks, contextual sites, search engines and affiliate partners. Advertising costs are generally charged to the Company monthly per vendor agreements, which typically are based on visitors and/or registrations delivered to the site or at a set fee. Agreements do not provide for guaranteed renewal and may be terminated by the Company without cause. Such advertising costs are charged to expense as incurred and reported as part of selling, general and administrative expenses in the accompanying statement of operations.
During the years ended December 31, 2017 and 2016, advertising costs amounted to $44,000 and $52,000 respectively and recorded as part of selling, general and administrative expense in the accompanying statements of operations.
| F-58 |
Income Tax Provision
The Company follows the FASB Accounting Standards Codification, which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the Statements of Operations in the period that includes the enactment date.
The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent (50%) likelihood of being realized upon ultimate settlement. Section 740-10-25 also provides guidance on de-recognition, classification, interest and penalties on income taxes, accounting in interim periods and requires increased disclosures.
Accounts Receivable
All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the amount of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered.
The Company recorded an expense of $18,000 related to bad debt and doubtful accounts during the year ended December 31, 2017 versus $0 for the year ended December 31, 2016.
As of December 31, 2017, the Company has provided a reserve for doubtful accounts of $4,000. There was no such reserve as of December 31, 2016.
Concentrations
Accounts Payable and Purchase
During the year ended December 31, 2017, the Company had 3 vendors that accounted for approximately 58% of purchases. No other vendors accounted for more than 10% of purchase during the year ended December 31, 2017. Included in account payable as of December 31, 2017, is approximately $151,000 due to these vendors.
During the year ended December 31, 2016, the Company had 2 vendors that accounted for approximately 26% of purchases. No other vendors accounted for more than 10% of purchase during the year ended December 31, 2016. Included in account payable as of December 31, 2016, is approximately $0 due to these vendors.
| F-59 |
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09 will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract. The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures. The Company will adopt the provisions of this statement in the first quarter of fiscal 2018.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and disclosures.
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.
Note 3 — Related Party Transactions
Due from/to Related Party
Due from/to related party represents net advances made to or by the Company’s Chief Executive Officer, Michael Hering. As of December 31, 2017, there was an outstanding amount due to Mr. Hering of $79,000. As of December 31, 2016, there was an outstanding amount due from Mr. Hering of $92,000. Officer advances are unsecured, non-interest bearing and due on demand.
Service Agreement
In January 2016, the Company entered into a services agreement with Magical Holidays which is owned by Mr. Michael Hering, President and Chief Executive Officer. Under this agreement, Magical Holidays will provide us with ticketing fulfillment services for travel inventory sold by us, transaction review services, administrative services, including office supplies and equipment, secretarial and clerical services, and other services. The Company will pay Magical Holidays $20,000 quarterly for the transaction review services. In addition, for each ticket for which fulfillment services are provided by Magical Holidays, the Company will pay to Magical Holidays a fulfillment fee $25.
For the years ended December 31, 2017 and 2016, the Company paid $80,000, respectively, for administrative services and none for ticket fulfillment services.
| F-60 |
NOTE 4 – Stockholders’ Deficit
Common stock
The authorized capitalization consists of 2,000,000 shares of common stock, $0.01 par value per share of which 1,000,000 shares are currently issued and outstanding as of December 31, 2017 and 2016.
Preferred stock
The authorized to issue 1,043,738 shares of preferred stock. The following are the preferred shares issued and outstanding during the years ended December 31, 2017 and 2016:
Series A
Pursuant to the Certificate of Designation that sets forth the rights, preferences, privileges and restrictions of the Series A Preferred Stock, which include the following:
| · | Holders of Series B Preferred Stock are entitled to dividends at a compounded rate of $5.75 per share, as and when declared by the Company’s Board of Directors and are payable with the Series B Preferred Stock’s liquidation preference of $19 million. Pursuant to current accounting guidelines, dividends are only recorded upon declaration of the Company’s Board of Directors. As of December 31, 2017 and 2016, and through the date of this report, the Company’s Board of Directors has not declared or paid a dividend on the Series A Preferred Stockholders. The estimated accumulated and unpaid dividends as of December 31, 2017 and 2016 amounted to approximately $27.3 million, and $25.8 million, respectively; |
| · | Each share of Series A Preferred Stock shall be convertible into common stock, at the option of the holder, at any time at the rate of one common share per each preferred share. The Series A Preferred Stockholders have a mandatory conversion upon the closing of a sale of Common Shares to the public resulting in at least $50 million of proceeds to the Company; |
| · | On any matters presented to the stockholders of the Company, each holder of the outstanding shares of Series A Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series A Preferred Stock held by such holder are convertible as of the date of record. The Series A Preferred Stock shall vote together with the holders of Common Stock as a single class; and |
| · | The preferred shares are subject to a registration rights agreement. |
During the years ended and as of December 31, 2017 and 2016, total Series A shares issued and outstanding totaled 418,506 shares, respectively
Series B
Pursuant to the Certificate of Designation that sets forth the rights, preferences, privileges and restrictions of the Series B Preferred Stock, which include the following:
| · | Holders of Series B Preferred Stock are entitled to dividends at a compounded rate of $5.75 per share, as and when declared by the Company’s Board of Directors and are payable with the Series B Preferred Stock’s liquidation preference of $6 million. Pursuant to current accounting guidelines, dividends are only recorded upon declaration of the Company’s Board of Directors. As of December 31, 2017 and 2016, and through the date of this report, the Company’s Board of Directors has not declared or paid a dividend on the Series B Preferred Stockholders. The estimated accumulated and unpaid dividends as of December 31, 2017 and 2016 amounted to approximately $5.5 million, and $5.25 million, respectively; |
| F-61 |
| · | Each share of Series B Preferred Stock shall be convertible into common stock, at the option of the holder, at any time at the rate of one common share per each preferred share. The Series B Preferred Stockholders have a mandatory conversion upon the closing of a sale of Common Shares to the public resulting in at least $50 million of proceeds to the Company; |
| · | On any matters presented to the stockholders of the Company, each holder of the outstanding shares of Series B Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series B Preferred Stock held by such holder are convertible as of the date of record. The Series B Preferred Stock shall vote together with the holders of Common Stock as a single class; and |
| · | The preferred shares are subject to a registration rights agreement. |
During the years ended and as of December 31, 2017 and 2016, total Series B shares issued and outstanding totaled 56,317 shares, respectively
Series C
Pursuant to the Certificate of Designation that sets forth the rights, preferences, privileges and restrictions of the Series C Preferred Stock, which include the following:
| · | Holders of Series CB Preferred Stock are entitled to dividends at a compounded rate of $1.09 per share, as and when declared by the Company’s Board of Directors and are payable with the Series B Preferred Stock’s liquidation preference of $16 million. Pursuant to current accounting guidelines, dividends are only recorded upon declaration of the Company’s Board of Directors. As of December 31, 2017 and 2016, and through the date of this report, the Company’s Board of Directors has not declared or paid a dividend on the Series B Preferred Stockholders. The estimated accumulated and unpaid dividends as of December 31, 2017 and 2016 amounted to approximately $5.1 million, and $4.8 million, respectively; |
| · | Each share of Series B Preferred Stock shall be convertible into common stock, at the option of the holder, at any time at the rate of one common share per each preferred share. The Series B Preferred Stockholders have a mandatory conversion upon the closing of a sale of Common Shares to the public resulting in at least $100 million of proceeds to the Company; |
| · | On any matters presented to the stockholders of the Company, each holder of the outstanding shares of Series B Preferred Stock shall be entitled to cast the number of votes equal to the number of whole shares of Common Stock into which the shares of Series B Preferred Stock held by such holder are convertible as of the date of record. The Series B Preferred Stock shall vote together with the holders of Common Stock as a single class; and |
| · | The preferred shares are subject to a registration rights agreement. |
During the years ended and as of December 31, 2017 and 2016, total Series C shares issued and outstanding totaled 293,738 shares, respectively
Treasury Shares
Treasury shares pertain to 67,578 shares of Series A Preferred and 26,436 shares of Series C Preferred acquired in fiscal year 2008 at an average price of $0.55. There were no acquisition or transaction related to our treasury shares during the years ended December 31, 2017 and 2016.
| F-62 |
Stock Options and Warrants
The Company is authorized to issue 80,000 shares of stock options and warrants. As of December 31, 2017 and 2016, there are no stock options and warrants issued and outstanding.
NOTE 5 – Deposit to Credit Card Processor
In 2004, the Company signed an agreement with a vendor, JetPay, to be the Company’s credit card processor. The JetPay is a publicly traded company in the US that was incorporated in Delaware in November 2010. JetPay is an end-to-end processor of credit and debit card and automated clearing house (“ACH”) payment transactions that focuses on processing omni-channel (internet, mobile, and point-of-sale) transactions and recurring billings for traditional retailers, government and utility, and service providers.
As part of the agreement, the Company is required to make a security deposit. The security deposit is refundable in case the agreement is terminated. Outstanding security deposit to JetPay amounted to $350,000 as of December 31, 2017 and $500,000 as of December 31, 2016.
NOTE 6 – Commitments and Contingencies
Rent
Effective March 1, 2013, the Company began leasing approximately 1,800 square feet of general office space at 241North Ave West, Westfield, New Jersey pursuant to a 12-month lease that expired April 30, 2014. The Company pays $3,300 per month. The lease is now on a month to month basis.
Effective July 1, 2017, the Company began leasing approximately 1,440 square feet of general office space at 4635 Southwest Freeway Houston, Texas pursuant to a 12 month lease. The Company pays $2,040 per month. The Company signed a renewal for one year effective July 1, 2018 at the same base rent of $2,040 per month.
Legal Proceedings
We are involved in certain legal proceedings that arise from time to time in the ordinary course of our business. Except for income tax contingencies, we record accruals for contingencies to the extent that our management concludes that the occurrence is probable and that the related amounts of loss can be reasonably estimated. Legal expenses associated with the contingency are expensed as incurred. There is no current or pending litigation of any significance with the exception of the matters that have arisen under, and are being handled in, the normal course of business.
NOTE 7 - Income Tax Provision
The Company did not record any income tax provision for the years ended December 31, 2017 and 2016 due to the Company’s utilization of its Net Operating Loss carryover (NOL). The Company files income tax returns in the United States (“Federal”) and California and New Jersey (“State”) jurisdictions. The Company is subject to Federal and State income tax examinations by tax authorities for all years since its inception.
At December 31, 2017, the Company had Federal and State net operating loss carry forwards available to offset future taxable income of approximately $30 million. These carry forwards will begin to expire in the year ending December 31, 2030, subject to IRS limitations, including change in ownership.
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and adjusts the carrying amount of the deferred tax assets by a valuation allowance to the extent the future realization of the deferred tax assets is not judged to be more likely than not. The Company considers many factors when assessing the likelihood of future realization of our deferred tax assets, including recent cumulative earnings experience by taxing jurisdiction, expectations of future taxable income or loss, the carry-forward periods available to us for tax reporting purposes, and other relevant factors.
| F-63 |
At December 31, 2017, based on the weight of available evidence, including cumulative losses in recent years and expectations of future taxable income, the Company determined that it was more likely than not that its deferred tax assets of approximately $8 million would not be realized. Accordingly, the Company has recorded a valuation allowance for 100% of its cumulative deferred tax assets. The components of our deferred tax assets are as follows.
| 12/31/2017 | 12/31/2016 | |||||||
| Net Operating loss carryforwards | 8,076,000 | 12,088,000 | ||||||
| Total net deferred tax assets | 8,076,000 | 12,088,000 | ||||||
| Less valuation discount | (8,076,000 | ) | (12,088,000 | ) | ||||
| - | - | |||||||
A reconciliation of income taxes with the amounts computed at the statutory federal rate are as follows:
| 12/31/2017 | 12/31/2016 | |||||||
| Computed tax provision (benefit) at federal statutory rate | 34 | % | 34 | % | ||||
| State income taxes, net of federal benefit | 2 | % | 3 | % | ||||
| Permanent differences | 0 | % | 0 | % | ||||
| Net Operating loss | -36 | % | -37 | % | ||||
| 0 | % | 0 | % | |||||
As a result of the implementation of certain provisions of ASC 740-10, the Company performed an analysis of its previous tax filings and determined that there were no positions taken that it considered uncertain. Therefore, there were no unrecognized tax benefits as of December 31, 2017.
Future changes in the unrecognized tax benefit are not expected to have an impact on the effective tax rate due to the existence of the valuation allowance. The Company estimates that the unrecognized tax benefit will not change within the next twelve months. The Company will continue to classify income tax penalties and interest, if any, as part of interest and other expenses in its consolidated statements of operations. There are no interest or penalties accrued as of December 31, 2017.
NOTE 8 – Subsequent Events
Pursuant to FASB ASC 855, Management has evaluated all events and transactions that occurred from December 31, 2017 through the date of issuance of these financial statements.
On November 12, 2018, Incumaker, SA.com Acquisition Corp. and the Company entered into an Agreement and Plan of Merger. Pursuant to the terms of the SkyAuction Merger Agreement, each outstanding share of common stock of SkyAuction was entitled to receive approximately 96 shares of Incumaker common stock, par value $.001 per share, and $1.45 in cash to be paid under the terms of a promissory note in the principal amount of $2,500,000 with a maturity date three years after the closing of the SkyAuction merger. As a result of the SkyAuction Merger, the Company acquired 40.25% of the issued and outstanding shares of Incumaker. The secured note issued to the Company provides for repayment in full at the third anniversary date of the closing date of the SkyAuction Merger, such principal amount to be reduced by 15% of each capital raise we complete (less any finder’s or underwriter’s fees) and interest at 3% per annum payable at Incumaker’s discretion in common stock or cash. The promissory note is secured by all assets of Incumaker under the terms of a guaranty agreement. The SkyAuction merger was declared effective on November 13, 2018, by the Delaware Secretary of State. The Company is now a wholly-owned subsidiary of Incumaker.
| F-64 |
In addition under the terms of the SkyAuction merger agreement, Michael Hering who served as the Company’s President and Chief Executive Officer prior to the SkyAuction merger was issued a warrant to acquire 5,000,000 shares of Incumaker’s common stock as a bonus for arranging the SkyAuction merger. The warrant is exercisable for three years at an exercise price of $.05 per share. Also, as part of the SkyAuction merger agreement, Incumaker agreed to remove Michael Hering as guarantor from all of the company credit cards. Additionally, the Board of Directors of the Company, now has two directors, Michael Hering and Salvatore Esposito.
| F-65 |
OUTSIDE BACK COVER OF PROSPECTUS
We have not authorized any dealer, salesperson or any other person to give any information or to represent anything other than those contained in this prospectus in connection with the offer contained herein, and, if given or made, you should not rely upon such information or representations as having been authorized by uBid Holdings, Inc. This prospectus does not constitute an offer of any securities other than those to which it relates or an offer to sell, or a solicitation of an offer to buy, to those to which it relates in any state to any person to whom it is not lawful to make such offer in such state. The delivery of this prospectus at any time does not imply that the information herein is correct as of any time after the date of this prospectus.
DEALER PROSPECTUS DELIVERY EQUIREMENT
Until _______________, 2019 [90 days from the date of this prospectus], all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
UBID HOLDINGS, INC.
55,820,218 Shares
Common Stock
PROSPECTUS
_______ ___, 2019
.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered. None of the following expenses are payable by the Selling Securityholders. All of the amounts shown are estimates, except for the SEC registration fee.
| SEC registration fee | $ | * | ||
| Legal fees and expenses | * | |||
| Accounting fees and expenses | * | |||
| Miscellaneous | * | |||
| TOTAL | $ | * | ||
| *To be filed by amendment |
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Delaware General Corporation Law (“DGCL”) Section 145 provide us with the power to indemnify any of our directors, officers, employees and agents. The person entitled to indemnification must have conducted himself in good faith, and must reasonably believe that his conduct was in, or not opposed to, our best interests. In a criminal action, the director, officer, employee or agent must not have had reasonable cause to believe that his conduct was unlawful.
Under DGCL section 145, advances for expenses may be made by agreement if the director or officer affirms in writing that he has met the standards for indemnification and will personally repay the expenses if it is determined that such officer or director did not meet those standards.
Our bylaws include an indemnification provision under which we have the power to indemnify our directors, officers, former directors and officers, employees and other agents (including heirs and personal representatives) against all costs, charges and expenses actually and reasonably incurred, including an amount paid to settle an action or satisfy a judgment to which a director or officer is made a party by reason of being or having been a director or officer of the Company. Our bylaws further provide for the advancement of all expenses incurred in connection with a proceeding upon receipt of an undertaking by or on behalf of such person to repay such amounts if it is determined that the party is not entitled to be indemnified under our bylaws. No advance will be made by the Company to a party if it is determined that the party acting in bad faith. These indemnification rights are contractual, and as such will continue as to a person who has ceased to be a director, officer, employee or other agent, and will inure to the benefit of the heirs, executors and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
Our Corporate Bylaws at Article IX, provide that the Corporation has accepted a provision indemnifying to the full extent permitted by the law, thereby eliminating or limiting the personal liability of directors, officers, employees or corporate agents for damages for breach of fiduciary duty as a director or officer, but such provision must not eliminate or limit the liability of a director or officer for (a) acts or omissions involving willful misconduct, gross negligence, fraud, or knowing violation of law; or (b) the payments of distributions in violation of Delaware General Corporation Law.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933 MAY BE PERMITTED TO OUR DIRECTORS, OFFICERS AND CONTROLLING PERSONS PURSUANT TO THE FORGOING PROVISIONS OR OTHERWISE, WE HAVE BEEN ADVISED THAT, IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THAT ACT AND IS, THEREFORE, UNENFORCEABLE.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since December 31, 2015, we have issued the following unregistered securities:
Common Stock and Convertible Note Issuances
On August 29, 2016, we issued 1,059,142 shares of our common stock to John Loud and 1,059,142 shares of common stock to John McFarland regarding our prior credit facility. On April 9, 2019, we issued 1,650,000 shares of our common stock to Louis Thomson to settle a lawsuit filed in a State of Georgia court by Mr. Thomson against us.
On April 12, 2017 holders of convertible notes payable in the aggregate of $8,977 plus accrued interest of $731 elected to convert $9,707 of the convertible notes for 323,566 shares of our common stock.
On May 1, 2017 holders of convertible notes payable in the aggregate of $59,141, elected to convert $10,800 of the convertible notes for 1,200,000 shares of our common stock.
On May 1, 2017 holders of convertible notes payable in the aggregate of $24,836 plus accrued interest of $6,968 elected to convert $31,804 of the convertible note for 8,520,218 shares of our common stock.
On July 17, 2017, we issued 250,000 shares of our common stock to Stuart Barton for services rendered.
On August 9, 2017, we issued 250,000 shares of our common stock to Darren Bankston, CEO for services rendered.
On August 29, 2017, we issued a Convertible Note for $4,200 for working capital. The Note is due August 29, 2018, and bears 8% interest annually. The note is convertible at the lesser of $0.07 or 70% of the lowest trade price of the common stock in the 15 days prior to conversion.
On August 29, 2017, we issued a Convertible Note for $3,500 for working capital. The Note is due August 29, 2018, and bears 8% interest annually. The note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the 15 days prior to conversion.
On August 29, 2017, we issued a Convertible Note for $14,400 for working capital. The Note is due August 29, 2018 and bears 8% interest annually. The note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the 15 days prior to conversion.
On November 30, 2017, we issued a Convertible Note for $6,400 for rent and compensation. The Note is due November 30, 2018 and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the 5 days prior to conversion.
On November 30, 2017, we issued a Convertible Note for $3,620 for working capital. The Note is due November 30, 2018 and bears 8% interest annually. The note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the five days prior to conversion.
On November 30, 2017, we issued a Convertible Note for $3,500 for working capital. The Note is due November 30, 2018 and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the five days prior to conversion.
On November 30, 2017, we issued a Convertible Note for $11,100 for working capital. The Note is due November 30, 2018 and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the five days prior to conversion.
On December 1, 2017, we issued 500,000 shares of our common stock to Brian Tucker, our former President, pursuant to his employment agreement.
On February 23, 2018, we issued a Convertible Note for $20,000 for working capital. The Note is due February 23, 2019, and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the in the five days prior to conversion.
On February 23, 2018, we issued a Convertible Note for $8,100 for working capital. The Note is due February 23, 2019 and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the five days prior to conversion.
On February 23, 2018, we issued a Convertible Note for $4,200 for rent and compensation. The Note is due February 23, 2019, and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the five days prior to conversion.
On March 22, 2018, we issued Darren Bankston, our former CEO, 1,000,000 restricted shares as additional compensation. On March 22, 2018, we issued 500,000 restricted shares to a consultant.
On March 15, 2018, we issued a Convertible Note for $20,000 for working capital. The Note is due March 15, 2019 and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of the common stock in the in the five days prior to conversion.
On March 15, 2018, we issued a Convertible Note for $15,000 for working capital. The Note is due March 15, 2019 and bears 8% interest annually. The note is convertible at the lesser of $0.07 or 70% of the lowest trade price of the common stock in the in the five days prior to conversion.
On April 3, 2018, a severance agreement was entered into with Brian Tucker in which we and Mr. Tucker have mutually agreed to terminate his employment and Board of Director position effective April 30, 2018. The severance agreement provided for Mr. Tucker to immediately vest the 1,500,000 shares of our stock included in Mr. Tucker’s employment agreement and to be issued ownership of the newly formed subsidiary, US Garden Products.
On May 3, 2018, the Company issued a Convertible Note for $10,000 for working capital. The Note is due May 3, 2019, and bears 8% interest annually. The Note is convertible at the lesser of $0.07 or 70% of the lowest trade price of our common stock in the in the five days prior to conversion.
On May 31, 2018, we issued Darren Bankston, CEO 250,000 restricted shares for services rendered.
On August 20, 2018, the Company issued a Convertible Note for $30,000 for working capital. The Note is convertible at the lesser of $0.07 or 70% of the lowest trading price of our common stock in the five days prior to conversion.
On November 13, 2018, under the terms of a Securities Purchase Agreement between us and FirstFire Global Opportunities Fund, LLC (“FirstFire Global”) we issued a senior secured convertible note to FirstFire Global in the principal amount of $220,000, bearing interest at 8% per annum, and with a 12 month maturity date.
On November 13, 2018, we issued 500,000 shares of our common stock to FirstFire Global as a commitment fee.
During the six months ended November 30, 2018, holders of convertible notes payable and accrued interest have converted the debt into 7,033,155 shares of our common stock.
In February 2019 we issued 9,000,000 shares of our common stock to our directors in the form of a restricted stock grant.
On April 9, 2019, we issued a Convertible Note in the principal amount of $253,000 to Auctus Fund, LLC.
Option Issuances
In April 2019, through the filing date of this registration statement, we granted to our directors, consultants and other service providers options to purchase an aggregate of 3,000,000 shares of our common stock under our equity compensation plans.
Securities Issued in Connection with Acquisitions
In November 2018, we issued 202,110,632 shares of our common stock for the acquisition of uBid Holdings, Inc. as well as 165,363,244 shares of our common stock for the acquisition of SkyAuction, Inc.
None of the foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering. We believe the offers, sales and issuances of the above securities were exempt from registration under the Securities Act (or Regulation D or Regulation S promulgated thereunder) by virtue of Section 4(a)(2) of the Securities Act because the issuance of securities to the recipients did not involve a public offering, or in reliance on Rule 701 because the transactions were pursuant to compensatory benefit plans or contracts relating to compensation as provided under such rule. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the stock certificates issued in these transactions. All recipients had adequate access, through their relationships with us, to information about us. The sales of these securities were made without any general solicitation or advertising.
ITEM 16. Exhibits and Financial Statement Schedules.
| (a) | Exhibits |
See the Exhibit Index immediately preceding the signature page hereto for a list of exhibits filed as part of this registration statement on Form S-1, which Exhibit Index is incorporated herein by reference.
| (b) | Financial Statement Schedules |
All financial statement schedules are omitted because the information called for is not required or is shown either in the consolidated financial statements or in the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(5) That, for the purpose of determining any liability under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§ 230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant. The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iii) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
(6) (i) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(i) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
EXHIBIT INDEX
| * | To be filed by amendment. All other exhibits are submitted herewith. |
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on the 13th day of June, 2019.
| UBID HOLDINGS, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: President and Chief Executive Officer | ||
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ketan Thakker as their true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for them and in their name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective on filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and all post-effective amendments thereto, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as they might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this registration statement on Form S-1 has been signed by the following persons in the capacities and on the dates indicated.
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Ketan Thakker | CEO (Principal Executive | June 13, 2019 | ||
| Ketan Thakker | Officer) and Director | |||
| /s/ M. Scot Wingo | Director | June 13, 2019 | ||
| M. Scot Wingo | ||||
| /s/ Kevin Harrington | Director | June 13, 2019 | ||
| Kevin Harrington | ||||
| /s/ Paul K. Danner | Director | June 13, 2019 | ||
| Paul K. Danner | ||||
| */s/ Ketan Thakker | As Attorney-In-Fact* | June 13, 2019 | ||
| Ketan Thakker |
Exhibit 2.1
page 1 of 36
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
INCUMAKER, INC.,
a Delaware corporation
AND
UBID HOLDINGS, INC.,
a Delaware corporation
DATED AS OF October 23, 2018
| Exhibit 2.1 page 2 of 36 |
TABLE OF CONTENTS
| Page No. | ||
| ARTICLE I THE MERGER | 1 | |
| 1.1. | The Merger | 1 |
| 1.2. | Closing; Effective Time | 1 |
| 1.3. | Effects of Merger | 2 |
| 1.4. | Certificate of Incorporation | 2 |
| 1.5. | Bylaws | 2 |
| 1.6. | Directors and Officers | 2 |
| 1.7. | Assumption of Liabilities | 2 |
| 1.8 | Change of Fiscal Year End | 2 |
| ARTICLE II EFFECT OF THE MERGER ON CAPITAL STOCK | 2 | |
| 2.1. | Conversion of UBID Shareholdership Interests | 2 |
| 2.2. | Exchange of Interests | 3 |
| 2.3. | Certain Adjustments | 4 |
| ARTICLE III REPRESENTATIONS AND WARRANTIES OF UBid | 4 | |
| 3.1. | Organization and Qualification | 4 |
| 3.2. | Equity Investments | 4 |
| 3.3. | Authority to Execute and Perform Agreement | 4 |
| 3.4. | Binding Effect | 5 |
| 3.5. | Capitalization | 5 |
| 3.6. | Vote Required; Managers’ Approval | 5 |
| 3.7. | Litigation | 5 |
| 3.8. | Title to Properties; Absence of Liens | 5 |
| 3.9. | Compliance with Laws | 6 |
| 3.10. | Consents and Approvals | 6 |
| 3.11. | Non-contravention | 6 |
| 3.12. | Material Contracts | 6 |
| 3.13. | Taxes | 6 |
| 3.14. | Financial Statements | 7 |
| 3.15. | Books and Records | 8 |
| 3.16. | Intellectual Property | 8 |
| 3.17. | Environmental Matters | 8 |
| 3.18. | Real Property | 8 |
| 3.19. | Broker’s Fees | 8 |
| 3.20. | Labor Matters | 8 |
| 3.21. | Absence of Liabilities | 8 |
| 3.22. | Absence of Certain Changes or Events | 8 |
| 3.23. | Full Disclosure | 9 |
| ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY | 9 | |
| 4.1. | Organization and Qualification; Subsidiaries | 9 |
| Exhibit 2.1 page 3 of 36 |
| 4.2. | Equity Investment | 9 |
| 4.3. | Authority to Execute and Perform Agreement | 10 |
| 4.4. | Binding Effect | 10 |
| 4.5. | Capitalization | 10 |
| 4.6. | Board Approval | 11 |
| 4.7. | SEC Reports and Financial Statements | 11 |
| 4.8. | No Material Adverse Change | 11 |
| 4.9. | Books and Records | 11 |
| 4.10. | Litigation | 11 |
| 4.11. | Absence of Liabilities | 12 |
| 4.12. | Title to Properties; Absence of Liens | 12 |
| 4.13. | Compliance with Laws | 12 |
| 4.14. | Intellectual Property | 12 |
| 4.15. | Non-Contravention | 12 |
| 4.16. | Consents and Approvals | 12 |
| 4.17. | Material Contracts | 12 |
| 4.18. | Taxes | 13 |
| 4.19. | Environmental Matters | 14 |
| 4.20. | Real Property | 14 |
| 4.21. | Broker’s Fees | 14 |
| 4.22. | Labor Matters | 14 |
| 4.23. | Articles of Incorporation, Bylaws, and Minute Books | 15 |
| 4.24. | Full Disclosure | 15 |
| ARTICLE V ADDITIONAL AGREEMENTS OF THE PARTIES | 15 | |
| 5.1. | Actions Pending Closing | 15 |
| 5.2. | Company Stockholders’ Approval; Information Statement | 17 |
| 5.3. | UBID Shareholder’s Approval | 17 |
| 5.4. | Efforts; Consents | 17 |
| 5.5. | Filing of Tax Returns; Payment of Taxes | 18 |
| 5.6. | Access to Information | |
| 5.7. | Confidentiality | 18 |
| 5.8. | Notification of Certain Matters | 18 |
| 5.9. | Non-Solicitation | 19 |
| 5.10. | Further Assurances | 19 |
| 5.11. | Public Disclosure | 19 |
| 5.12. | Board of Directors | 20 |
| ARTICLE VI CONDITIONS TO CLOSING | 20 | |
| 6.1. | Conditions to Each Party’s Obligations to Consummate the Transactions | 20 |
| 6.2. | Conditions to Obligations of the Company to Consummate the Transactions | 20 |
| 6.3. | Conditions to Obligations of to Consummate the Transactions | 21 |
| ARTICLE VII TERMINATION | 22 | |
| 7.1. | Termination | 22 |
| 7.2. | Effect of Termination | 23 |
| Exhibit 2.1 page 4 of 36 |
| 7.3. | Expenses; Termination Fees | 23 |
| ARTICLE VIII MISCELLANEOUS | 24 | |
| 8.1. | Certain Definitions; Rules of Construction | 24 |
| 8.2. | Waivers and Amendments | 29 |
| 8.3. | Governing Law | 29 |
| 8.4. | Notices | 30 |
| 8.5. | Section Headings | 30 |
| 8.6. | Counterparts | 30 |
| 8.7. | Assignments | 30 |
| 8.8. | Entire Agreement; Enforceability | 31 |
| 8.9. | Severability | 31 |
Schedules
| Schedule 3.5 | UBID Capitalization |
| Schedule 3.7 | UBID Litigation |
| Schedule 3.8 | UBID Title to Properties; Absence of Liens |
| Schedule 3.10 | UBID Consents and Approvals |
| Schedule 3.16 | UBID Intellectual Property |
| Schedule 3.22(d) | UBID Absence of Certain Changes or Events. |
| Schedule 4.11 | Company Absence of Liabilities |
| Schedule 4.16 | Company Consents and Approvals |
| Schedule 4.18 | Company Taxes |
| Exhibit 2.1 page 5 of 36 |
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of October 23, 2018, is entered into by and between Incumaker, Inc., a Delaware corporation (the “Company”), and uBid Holdings, Inc., a Delaware corporation (“UBID”), that hereby agree as follows:
WITNESSETH:
WHEREAS, the respective Boards of Directors of the Company and UBID have each approved the merger of UBID with and into the Company, with the Company surviving (the “Merger”), on the terms and conditions contained herein and in accordance with the Delaware General Corporation Law (the “DGCL”) and have determined that the Merger and the transactions contemplated herein are advisable and in the best interest of each company and their respective stockholders;
WHEREAS, the parties hereto desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe various conditions to the Merger; and
WHEREAS, for U.S. federal income tax purposes, it is intended that the Merger qualify as a reorganization under the provisions of Section 368(a) and Section 351 of the Code, and that this Agreement shall constitute a “plan of reorganization” for the purposes of Section 368 and Section 351 of the Code.
NOW THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:
Article I
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions of this Agreement, at the Effective Time (as defined below), UBID shall be merged with and into the Company in accordance with the applicable provisions of the DGCL and in accordance with this Agreement, and the separate existence of UBID shall cease. The Company shall be the surviving corporation in the Merger (hereinafter sometimes referred to as the “Surviving Corporation”) and shall continue under the laws of Delaware.
1.2. Closing; Effective Time. Subject to the satisfaction or waiver of all of the conditions to Closing contained in Article VI, the closing of the Merger (the “Closing”), shall take place at the offices of Culhane Meadows PLLC, 1101 Pennsylvania Avenue, N.W., Suite 200, Washington, D.C. 20004, as soon as practicable (but not later than five (5) Business Days) after the satisfaction or waiver of the conditions to Closing contained in Article VI (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the fulfillment or waiver of those conditions), unless another date or place is agreed to in writing by the parties hereto. The date on which the Closing actually occurs is hereinafter referred to as the “Closing Date.” As soon as is practicable after the Closing, the parties hereto shall cause the Merger to be consummated by (i) delivering to the Secretary of State of the State of Delaware a Certificate of Merger (the “DE Certificate of Merger”), in such form as required by, and executed and acknowledged in accordance with, the relevant provisions of the DGCL. The Merger shall become effective as of the date and at such time (the “Effective Time”) as the DE Certificate of Merger is filed with the Secretary of State of the State of Delaware with respect to the Merger.
| 1 |
| Exhibit 2.1 page 6 of 36 |
1.3. Effects of Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. Without limiting the generality of the foregoing, and subject thereto, at the Effective Time, all the properties, rights, privileges, powers and franchises of UBID shall vest in the Surviving Corporation, and all debts, liabilities and duties of UBID shall become the debts, liabilities and duties of the Surviving Corporation.
1.4. Certificate of Incorporation. The Certificate of Incorporation of the Company in effect immediately prior to the Effective Time, as amended and restated, shall become, from and after the Effective Time, the Certificate of Incorporation of the Surviving Corporation, as amended pursuant to the terms included herein and until amended or repealed in accordance with the terms thereof and with Applicable Law.
1.5. Bylaws. The Bylaws of the Company in effect immediately prior to the Effective Time shall become, from and after the Effective Time, the Bylaws of the Surviving Corporation, until thereafter amended or repealed in accordance with the terms thereof and with Applicable Law.
1.6. Directors and Officers. The directors and officers of UBID immediately prior to the Effective Time shall become at the Effective Time, the directors and officers of the Surviving Corporation, each to hold office from the Effective Time in accordance with the Certificate of Incorporation and Bylaws of the Surviving Corporation until their respective successors are duly elected or appointed and qualify, or they resign or are removed.
1.7. Assumption of Liabilities. At the Effective Time, the Company shall have no liabilities, including those liablities.as set forth in the Company’s financial statements.
1.8. Change of Fiscal Year End. At the Effective Time, the fiscal year end of the Company shall change from May 31 to December 31, the fiscal year end of UBID.
Article II
EFFECT OF THE MERGER ON CAPITAL STOCK
2.1. Conversion of UBID Common Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the parties or the registered holders of any shares of capital stock of the Company (each a “Company Stockholder,” and collectively, the “Company Stockholders”):
| 2 |
| Exhibit 2.1 page 7 of 36 |
(a) The Company shall issue an aggregate of such number of shares of its common stock in exchange for the issued and outstanding common stock of UBID to ensure that at the Effective Time the shareholders of the Company shall hold 17.8% of the issued and outstanding shares of the common stock of the Surviving Corporation or 43,771,555 shares of common stock and the shareholders of UBID shall hold 82.2% of the issued and outstanding shares of common stock of the Surviving Corporation or 202,110,632 shares of its common stock. The number of shares of Company common stock issued to each shareholder in accordance with this Section 2.1(a) shall hereafter be referred to as the “Merger Shares.” Each share of UBID’s issued and outstanding common stock shall be converted into and become approximately 11 fully paid and non-assessable shares of common stock (the “Exchange Ratio”), par value $0.001 per share, of the Surviving Corporation (the “Company Common Stock”). At the Effective Time, all UBID Securities shall no longer be outstanding and shall automatically be cancelled and retired and shall cease to exist, and each UBID shareholder shall cease to have any rights with respect thereto, except the right to receive the Merger Shares.
(b) No fraction of a share of Company Common Stock will be issued, but in lieu of such issuance, each UBID Shareholder who would otherwise be entitled to a fraction of a share of Company Common Stock as a result of the conversion and exchange of shares contemplated by this Article II shall receive from the Company one (1) additional share of Company Common Stock. The fractional share interest of UBID Shareholders shall be aggregated such that no UBID Shareholder shall receive more than the one (1) share of Company Common Stock with respect to any interest in fractional shares.
2.2. Exchange of Interests.
(a) Immediately prior to the Closing, the Company shall deposit, or shall cause to be deposited, with Island Stock Transfer (the “Exchange Agent”), for the benefit of the UBID Shareholders certificates in the names of each such UBID Shareholder evidencing the number of Merger Shares to be issued to such UBID Shareholder in accordance with this Article II. As soon as reasonably practicable after the Effective Time, the Company will instruct the Exchange Agent to deliver to each holder of UBID Share a letter of transmittal containing instructions for use in effecting the exchange of UBID Shares for certificates evidencing the relevant number of Merger Shares. No interest shall be paid on the Merger Shares. All Merger Shares issued upon exchange of the UBID Share in accordance with the terms hereof shall be deemed to have been issued or paid in full satisfaction of all rights pertaining to such shares of Company Common Stock.
(b) It is understood that the certificates evidencing the Merger Shares will bear the legends set forth below:
(i) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS;
| 3 |
| Exhibit 2.1 page 8 of 36 |
(ii) Any additional legend required by Applicable Law.
The legend set forth in (i) above shall be removed from any certificate evidencing such Merger Shares upon delivery to the Company of an opinion by counsel, reasonably satisfactory to the Company, that such security can be freely transferred without such a registration statement being in effect and that such transfer will not jeopardize the exemption or exemptions from registration pursuant to which the Company issued such Merger Shares.
2.3. Certain Adjustments. If after the date hereof and prior to the Effective Time and to the extent permitted by this Agreement, the outstanding UBID Shares shall be changed into a different number, class or series of shares by reason of any reclassification, recapitalization or combination, forward stock split, reverse stock split, stock dividend or rights issued in respect of such stock, or any similar event shall occur (any such action, an “Adjustment Event”), the number of Merger Shares issued in exchange for each UBID Share shall be adjusted correspondingly to provide to the UBID Shareholders the right to receive the same economic effect as contemplated by this Agreement immediately prior to such Adjustment Event.
Article III
REPRESENTATIONS AND WARRANTIES OF UBID
Except as set forth on the disclosure schedules, UBID hereby represents and warrants to the Company as follows:
3.1. Organization and Qualification. UBID is a Delaware corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, has requisite corporate power and authority and governmental approvals to own, lease and operate its properties and to carry on its business as currently conducted. UBID is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the ownership or leasing of its property or the conduct of its business requires such qualification or licensing, except where the failure to be so qualified or licensed or in good standing would not, individually or in the aggregate, have a Material Adverse Effect on UBID.
3.2 Equity Investments. UBID does not own any equity interest in any corporation, partnership, limited liability company or other form of business entity.
3.3 Authority to Execute and Perform Agreement. UBID has the requisite power and all authority required to enter into, execute and deliver this Agreement and the Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Merger contemplated hereby and thereby (collectively, the “Transactions”). The execution, delivery and performance by UBID of this Agreement and the consummation by UBID of the Merger have been duly authorized and approved by all necessary corporate action.
| 4 |
| Exhibit 2.1 page 9 of 36 |
3.4 Binding Effect. This Agreement has been validly executed and delivered by UBID and, assuming the due execution and delivery hereof by the Company, constitutes a valid and binding obligation of UBID, enforceable against UBID in accordance with its terms, except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting or relating to enforcement of creditors’ rights generally, and (ii) general equitable principles (regardless of whether such enforceability is considered in equity or at law).
3.5 UBID Warrants/Capitalization. At Closing UBID shall have an aggregate of 31,622,288 Common Shares (the “UBID Shares”) issued and outstanding and such additional number of Common Stock Purchase Warrants (the “Warrants”), issued and outstanding, each exercisable to purchase one share of UBID’s Common Stock, to be disclosed to the Company prior to Closing. All of the holders of these warrants are set forth on Schedule 3.5, including termination date and exercise price, as adjusted to reflect the Exchange Ratio herein. There are no other existing options, rights, subscriptions, warrants, unsatisfied preemptive rights, calls, commitments or agreements relating to (i) the authorized and unissued UBID Common or Preferred Shares, or (ii) any securities or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire from UBID any UBID Shares
3.6 Vote Required; Board of Directors’ and Shareholder Approval. The Board of Directors, by resolutions duly adopted at a meeting duly called and held at which a quorum was present or by the unanimous written consent in lieu of such a meeting, and the holders of a majority of the voting securities of UBID have each approved this Agreement, the Merger and the Transactions in accordance with the requirements of the DGCL.
3.7 Litigation. There are no judicial, governmental, administrative or arbitral actions, claims, suits or proceedings or investigations (collectively, “Legal Proceedings”) pending or, to the Knowledge of UBID, threatened against or involving UBID or any of its respective property or assets, except as set forth on Schedule 3.7. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, governmental or regulatory body or arbitration tribunal against or involving UBID.
3.8 Title to Properties; Absence of Liens. UBID has (i) good and marketable title free and clear of any and all liens and encumbrances of any kind in and to all of its assets and properties, excluding immaterial matters and (ii) sufficient rights to all of their respective assets and properties to permit them to carry on their business as currently contemplated, whether real, personal or fixed, free and clear of all Liens, in each case, except (a) for Liens set forth on Schedule 3.8, (b) for Liens for Taxes not yet due and payable or which UBID is contesting in good faith and for which adequate reserves have been established, (c) for such properties and assets as may have been sold since the date hereof in the ordinary course of business, and (d) for Liens not securing debt that do not materially detract from the value or materially interfere with the use of the property subject thereto (collectively, “Permitted Liens”).
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| Exhibit 2.1 page 10 of 36 |
3.9 Compliance with Laws. UBID is not in violation of, default under, or conflict with, any applicable order, consent, approval, authorization, registration, declaration, filing, judgment, injunction, award, decree or writ of any Governmental Body or court of competent jurisdiction (collectively, “Orders”) or any Applicable Law, except for any such violations that would not, individually or in the aggregate, have a Material Adverse Effect on the Company.
3.10 Consents and Approvals. Except for (i) those consents, approvals, orders, authorizations, filings or notices set forth on Schedule 3.10, (ii) applicable requirements of the Securities Act, and (iii) the DE Certificate of Merger, no consent, approval or authorization of, filing with, or notice to, any Governmental Body is required by UBID in connection with the execution, delivery and performance by UBID of this Agreement, each and every agreement contemplated hereby, and the consummation by UBID of the Transactions.
3.11 Non-contravention. The execution and delivery of this Agreement and the Transaction Documents by UBID, the performance by UBID of its obligations hereunder and thereunder, and the consummation of the Transactions contemplated hereby and thereby by UBID (A) do not and will not conflict with, or result in a breach or violation of (i) any provision of UBID’s charter or bylaws, (ii) any applicable laws, (iii) any material agreement, contract, lease, license or instrument to which UBID is a party or by which it or any of its properties or assets are bound and (B) will not result in the creation or imposition of any Lien upon any of the property or assets of UBID pursuant to any provision of any contract or Lien.
3.12 UBID Material Contracts. UBID is not in default under any Material Contract of UBID, nor to the Knowledge of UBID does any condition exist that, with notice or lapse of time or both, would constitute a default thereunder. To the Knowledge of UBID, no other party to any such Material Contract of UBID is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default thereunder. No approval or consent of any person is needed in order that the Material Contracts of UBID continue in full force and effect following the consummation of the transactions contemplated by this Agreement.
3.13 Taxes.
(a) Filing of Tax Returns. UBID has timely filed, or has had timely filed on its behalf, with the appropriate Taxing authorities all Tax Returns in respect of Taxes it is required to file. The Tax Returns filed (including any amendments thereof) are complete and accurate in all material respects. UBID has not requested any extension of time within which to file any Tax Return in respect of any Taxes, which Tax Return has not since been filed in a timely manner. To the Knowledge of UBID, no claim has ever been made by any Taxing authority in a jurisdiction where UBID does not file Tax Returns, or has Tax Returns filed on its behalf, that UBID is or may be subject to taxation by that jurisdiction, or liable for Taxes owing to that jurisdiction.
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| Exhibit 2.1 page 11 of 36 |
(b) Payment of Taxes. All Taxes owed by UBID (whether or not shown as due on any Tax Returns) have been paid in full. UBID has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. UBID has made all required estimated Tax payments sufficient to avoid any underpayment penalties. The unpaid Taxes of UBID (A) do not, as of the Closing Date, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect the timing differences between book and Tax income) set forth on the face of UBID’s most recent balance sheets (rather than any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of UBID in filing, or having filed on its behalf, its Tax Returns. The charges, accruals and reserves on the books of UBID in respect of any liability for Taxes (x) based on or measured by net income for any years not finally determined, (y) with respect to which the applicable statute of limitations has not expired or (z) that has been previously deferred, are adequate to satisfy any assessment for such Taxes for any such years.
(c) Audits, Investigations or Claims. There is no dispute or claim which has not been resolved concerning any Tax liability of UBID either (A) claimed or raised by any Taxing authority in writing or (B) as to which any of the directors and officers (and employees responsible for Tax matters) of UBID has Knowledge. There is no currently pending audit of any Tax Return of UBID by any Taxing authority, and UBID has not been notified in writing that any Taxing authority intends to audit any Tax Return of UBID. UBID has not executed any outstanding waivers or consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns.
3.14 Financial Statements.
(a) UBID has delivered to the Company copies of its audited consolidated financial statements for the fiscal year ended December 31, 2016 and unaudited financial statements for the fiscal year ended December 31, 2017 (together, the “UBID Financial Statements”). The UBID Financial Statements present fairly the financial condition and results of operations of UBID at the dates and for the periods covered by the UBID Financial Statements. UBID represents and warrants that there has been no material adverse change in the financial condition of UBID from that stated in the UBID Financial Statements.
(b) The UBID Financial Statements and any notes related thereto comply as to form in all material respects with applicable accounting requirements, have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto) and fairly present in all material respects (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end adjustments none of which are or will be material in amount, individually or in the aggregate) the consolidated financial position of UBID as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended.
(c) UBID does not have any direct or indirect liabilities that were not fully and adequately reflected or reserved against on the balance sheet or described in the notes to the audited financial statements of UBID. UBID has no Knowledge of any circumstance, condition, event or arrangement that has taken place at any time that may hereafter give rise to any liabilities.
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| Exhibit 2.1 page 12 of 36 |
3.15 Books and Records. The books and records, financial and otherwise, of UBID are in all material respects complete and correct and have been maintained in accordance with sound business and bookkeeping practices so as to accurately and fairly reflect, in reasonable detail, the transactions and dispositions of the assets and liabilities of UBID.
3.16 Intellectual Property. Except as set forth on Schedule 3.16, UBID has no Intellectual Property for its business as now conducted and as proposed to be conducted. To the Knowledge of UBID, the business as conducted and as proposed to be conducted by UBID does not and will not cause UBID to infringe or violate any of the Intellectual Property of any other Person.
3.17 Environmental Matters. (i) UBID is in compliance in all material respects with applicable Environmental Laws; (ii) UBID has all Permits required pursuant to Environmental Laws and are in compliance in all material respects with the terms thereof; (iii) there are no past or present events, activities, practices, incidents, actions or plans in connection with the operations of UBID which have given rise to or are reasonably likely to give rise to any material liability on the part of UBID under any Environmental Law; (iv) UBID has not generated, used, transported, treated, stored, released or disposed of, or has suffered or permitted anyone else to generate, use, transport, treat, store, release or dispose of any Hazardous Substance in violation of any Environmental Laws; and (v) there has not been any generation, use, transportation, treatment, storage, release or disposal of any Hazardous Substance in connection with the conduct of the business of UBID or the use of any property or facility by UBID, or to the Knowledge of UBID, any nearby or adjacent properties, in each case, which has created or might reasonably be expected to create any material liability under any Environmental Law or which would require reporting to or notification of any Governmental Body.
3.18 Real Property. UBID does not own, and has not owned, any real property or any interest in any real property.
3.19 Broker’s Fees. No broker, finder, agent or similar intermediary has acted on behalf of UBID in connection with this Agreement or the Transactions, and there are no brokerage commissions, finders’ fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with UBID.
3.20 Labor Matters. UBID is not now, and has not been in the last five years, bound by or party to any collective bargaining agreement and, to the Knowledge of UBID, no application for certification of a collective bargaining agent is pending. UBID is in compliance with all Applicable Laws applicable to UBID affecting employment practices and terms and conditions of employment.
3.21 Absence of Liabilities. As of December 31, 2017, the date of UBID’s most recent balance sheet, except as set forth on such balance sheet, UBID does not have any debts, liabilities or obligations of any kind, whether accrued, absolute, contingent or otherwise, and whether due or to become due, which balance sheet shall be updated as of the Closing Date.
3.22 Absence of Certain Changes or Events. Since December 31, 2017, UBID has not:
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| Exhibit 2.1 page 13 of 36 |
(a) Conducted any business or engaged in any activities other than activities related to the negotiation and execution of this Agreement or activities in the ordinary course of its business;
(b) Declared or made any payment of dividends or other distributions to its shareholders or upon or in respect of any of its UBID Shares or purchased, or obligated itself to purchase, retire or redeem, any of its Common Shares or other securities;
(c) Amended its Certificate of Incorporation or Bylaws;
(d) Borrowed or agreed to borrow any funds; incurred or agreed to incur or become subject to any debts, liabilities or obligations of any kind whatsoever (other than (i) in conjunction with the negotiation and execution of this Agreement, (ii) legal, accounting, advisory and board of director fees and expenses, (iii) obligations incurred in the ordinary course of business or (iv) as set forth on Schedule 3.22(d); subjected or agreed to subject any of the assets or properties of UBID to any lien, security interest, charge, interest or other encumbrance or suffered such to be imposed; or guaranteed or agreed to guarantee the debts or obligations of others.
3.23 Full Disclosure. This Agreement (including the information contained in the disclosure schedules) does not (i) contain any representation, warranty or information that is false or misleading with respect to any material fact, or (ii) omit to state any material fact necessary in order to make the representations, warranties and information contained herein, in the context in which made or provided, not false or misleading.
Article IV
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
Except as set forth on the disclosure schedules and the any OTC Documents, the Company hereby represents and warrants to UBID as follows:
4.1. Organization and Qualification; Subsidiaries. The Company is a corporation, duly incorporated or organized, validly existing and in good standing under the laws of its jurisdiction of incorporation or organization, has requisite power and authority and governmental approvals to own, lease and operate its properties and to carry on its business as currently conducted. The Company is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the ownership or leasing of its property or the conduct of its business requires such qualification or licensing, except where the failure to be so qualified or licensed or in good standing would not, individually or in the aggregate, have a Material Adverse Effect on the Company. The Company has not engaged in any business activities of any type or kind whatsoever. The Company does not have any subsidiaries.
4.2. Equity Investment. The Company does not own any equity interest in any other corporation or in any partnership, limited liability company or other form of business entity.
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| Exhibit 2.1 page 14 of 36 |
4.3. Authority to Execute and Perform Agreement. The Company has the requisite power and all authority required to enter into, execute and deliver this Agreement and the Transaction Documents to which it is a party, to perform its obligations hereunder and thereunder and to consummate the Transactions. The execution, delivery and performance of this Agreement and the consummation of the Transactions have been duly authorized by all necessary corporate action.
4.4. Binding Effect. This Agreement has been validly executed and delivered by the Company and, assuming the due execution and delivery hereof by UBID, constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except to the extent such enforceability may be limited by (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws of general applicability affecting or relating to enforcement of creditors’ rights generally, and (ii) general equitable principles (regardless of whether such enforceability is considered in equity or at law).
4.5. Capitalization.
(a) As of the date hereof, the authorized capital stock of the Company consists of (i) 750,000,000 shares of Common Stock, par value $0.001 per share, of which 43,271,555 shares of Common Stock are issued and outstanding, all of which are validly issued, fully paid and non-assessable and (ii) 10,000,000 Preferred Shares authorized, of which none are issued or outstanding. The Company has no other authorized, issued or outstanding class of capital stock.
(b) Obligations. There are no obligations, contingent or otherwise, of the Company to repurchase, redeem or acquire shares of the Company.
(c) Options, Warrants, etc. Other than certain convertible promissory notes as included in Schedule 4.5(d), there are no existing options, rights, subscriptions, warrants, unsatisfied preemptive rights, calls or commitments relating to (i) the authorized and unissued capital stock of the Company, or (ii) any securities or obligations convertible into or exchangeable for, or giving any Person any right to subscribe for or acquire from the Company any shares of capital stock of the Company and no such convertible or exchangeable securities or obligations are outstanding.
(d) Registration. The outstanding shares of the capital stock of the Company have been issued in full compliance with the registration and prospectus delivery requirements of the Securities Act or in compliance with applicable exemptions therefrom, and the registration and qualification requirements of all applicable securities laws of states of the United States.
(e) Merger Shares. The Merger Shares, when paid for and then issued as provided in this Agreement, will be duly authorized and validly issued, fully paid and nonassessable, and will be free of any Liens or encumbrances and of restrictions on transfer, other than restrictions on transfer under applicable state and federal securities laws or the Transaction Documents.
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| Exhibit 2.1 page 15 of 36 |
4.6. Approval. The holders of a majority of the issued and outstanding voting securities of the Company and the Board of Directors of the Company, by resolutions duly adopted at a meeting duly called and held at which a quorum was present or by written consent in lieu of such a meeting have each approved this Agreement, the Merger and the Transactions pursuant to the laws of the State of Delaware.
4.7. Financial Statements.
(a) The consolidated financial statements of the Company and any notes related thereto provided to UBID have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto and fairly present in all material respects (subject, in the case of the unaudited interim financial statements, to normal, recurring year-end adjustments none of which are or will be material in amount, individually or in the aggregate) the consolidated financial position of the Company as at the dates thereof and the consolidated results of their operations and cash flows for the periods then ended.
(b) The Company does not have any direct or indirect liabilities that were not fully and adequately reflected or reserved against on the balance sheet or described in the notes to the financial statements of the Company. The Company has no Knowledge of any circumstance, condition, event or arrangement that has taken place at any time that may hereafter give rise to any liabilities.
4.8. No Material Adverse Change. Since August 31, 2018, the Company has not conducted any business or engaged in any activities other than activities related to the negotiation and execution of this Agreement or activities in the ordinary course, consistent with past practice, and there has been no change in the business, properties, assets, operations or condition (financial or otherwise) which has resulted or reasonably could be expected to result in or which the Company has reason to believe could reasonably be expected to result in a Material Adverse Effect on it, and the Company has no Knowledge of any such change that is threatened, nor has there been any damage, destruction or loss affecting the assets, properties, business, operations or condition (financial or otherwise), whether or not covered by insurance which has resulted or reasonably could be expected to result in or which the Company has reason to believe could reasonably be expected to result in a Material Adverse Effect on the Company.
4.9. Books and Records. The books and records, financial and otherwise, of the Company are in all material respects complete and correct and have been maintained in accordance with sound business and bookkeeping practices so as to accurately and fairly reflect, in reasonable detail, the transactions and dispositions of the assets and liabilities of the Company
4.10. Litigation. Other than as disclosed in Schedule 4.10 there are no Legal Proceedings pending or, to the Knowledge of the Company, threatened against or involving the Company, or any of its respective property or assets. There are no outstanding orders, judgments, injunctions, awards or decrees of any court, governmental or regulatory body or arbitration tribunal against or involving the Company.
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| Exhibit 2.1 page 16 of 36 |
4.11. Absence of Liabilities. As of August 31, 2018, the date of the Company’s most recent balance sheet, the Company has no debts, liabilities or obligations of any kind, whether accrued, absolute, contingent or otherwise, and whether due or to become due, that are not otherwise set forth on Schedule 4.11, which shall be updated as of the Closing Date.
4.12. Title to Properties; Absence of Liens. The Company has good and marketable title to all of their respective assets and properties, whether real, personal or fixed, free and clear of all Liens, except for Liens for Taxes not yet due and payable or which the Company is contesting in good faith and for which adequate reserves have been established.
4.13. Compliance with Laws. The Company is not in violation of, default under, or conflict with, any applicable Order or any Applicable Law, except for any such violations that would not, individually or in the aggregate, have a Material Adverse Effect on the Company.
4.14. Intellectual Property. The Company does not own, license or otherwise has any rights in or to any Intellectual Property.
4.15. Non-Contravention. The execution and delivery of this Agreement and the Transaction Documents by the Company, the performance by the Company of its obligations hereunder and thereunder, and the consummation of the Transactions contemplated hereby and thereby by such entities (A) do not and will not conflict with, or result in a breach or violation of (i) any provision of the charter or bylaws of any of the Company, (ii) any applicable laws, (iii) any material agreement, contract, lease, license or instrument to which the Company is a party or by which the Company or any of each of its properties or assets are bound and (B) will not result in the creation or imposition of any Lien upon any of the property or assets of the Company pursuant to any provision of any contract or Lien.
4.16. Consents and Approvals. Except for (i) those consents, approvals, authorizations, filings or notices set forth on Schedule 4.16 and (ii) state notices and filings in connection with the Merger, no consent, approval or authorization of, filing with, or notice to, any Governmental Body is required by the Company in connection with the execution, delivery and performance by the Company of this Agreement, each and every agreement contemplated hereby, and the consummation by the Company of the Transactions.
4.17. Material Contracts. The Company is not in default under any Material Contract, nor to the Knowledge of the Company, does any condition exist that, with notice or lapse of time or both, would constitute a default thereunder. To the Knowledge of the Company, no other party to any such Material Contract of the Company is in default thereunder, nor does any condition exist that with notice or lapse of time or both would constitute a default thereunder. No approval or consent of any person is needed in order that the Material Contracts of the Company shall continue in full force and effect following the consummation of the transactions contemplated by this Agreement.
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| Exhibit 2.1 page 17 of 36 |
4.18. Taxes. Except as set forth on Schedule 4.18:
(a) Filing of Tax Returns. The Company has filed, or has had filed on their behalf, with the appropriate Taxing authorities all Tax Returns in respect of Taxes required to be filed by them. The Tax Returns filed (including any amendments thereof) are complete and accurate in all material respects. The Company has not requested any extension of time within which to file any Tax Return in respect of any Taxes, which Tax Return has not since been filed in a timely manner. To the Knowledge of the Company, no claim has ever been made by any Taxing authority in a jurisdiction where the Company does not file Tax Returns, or has Tax Returns filed on their behalf, that they are or may be subject to taxation by that jurisdiction, or liable for Taxes owing to that jurisdiction.
(b) Payment of Taxes. All Taxes owed by the Company (whether or not shown as due on any Tax Returns) have been paid in full or adequate reserves on their respective books and/or records have been established. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party. The Company has made all required estimated Tax payments sufficient to avoid any underpayment penalties. The unpaid Taxes of the Company (A) do not, as of the Closing Date, exceed the reserve for Tax liability (rather than any reserve for deferred Taxes established to reflect the timing differences between book and Tax income) set forth on the face of the Company’s most recent balance sheets (rather than any notes thereto) and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing, or having filed on their behalf, their Tax Returns. The charges, accruals and reserves on the books of the Company in respect of any liability for Taxes (x) based on or measured by net income for any years not finally determined, (y) with respect to which the applicable statute of limitations has not expired or (z) that has been previously deferred, are adequate to satisfy any assessment for such Taxes for any such years.
(c) Audits, Investigations or Claims. There is no dispute or claim which has not been resolved concerning any Tax liability of the Company either (A) claimed or raised by any Taxing authority in writing or (B) as to which any of the directors and officers (and employees responsible for Tax matters) of the Company has Knowledge. There is no currently pending audit of any Tax Return of the Company by any Taxing authority, and the Company has not ever been notified in writing that any Taxing authority intends to audit any Tax Return of the Company. The Company has not executed any outstanding waivers or consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns.
(d) Lien. There are no encumbrances for Taxes (other than for current Taxes not yet due and payable) on any assets of the Company.
(e) Tax Elections. The Company (i) has not agreed, or are required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise; (ii) have not made an election pursuant to Code Sections 338 or 336(e) or the regulations thereunder or any comparable provisions of any foreign or state or local income tax law; (iii) is not subject to any constructive elections under Code Section 338 or the regulations thereunder; (iv) has not made any payments, are obligated to make any payments, or are a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under §280G and §162(m) of the Code; and (v) has not made any of the foregoing elections or are required to apply any of the foregoing rules under any comparable state or local income Tax provision.
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| Exhibit 2.1 page 18 of 36 |
(f) Prior Affiliated Groups. The Company (A) has never been a UBID Shareholder of an affiliated group of corporations within the meaning of Section 1504 of the Code and (B) does not have any liability for the Taxes of any person under Treas. Reg. §1502-6 (or any similar provision of state, local or foreign law), as a transferee or successor, by contract or otherwise. The Company is not a successor to any other person by way of merger, reorganization or similar transaction.
(g) Tax Sharing Agreements. The Company is not a party to any Tax allocation, indemnity or sharing or similar agreement.
(h) Section 355. The Company has not distributed the stock of a “controlled corporation” (within the meaning of that term as used in Section 355(a) of the Code) in a transaction subject to Section 355 of the Code within the past two years.
(i) Partnerships. The Company does not own an interest in a partnership for Tax purposes.
4.19. Environmental Matters. (i) The Company is in compliance in all material respects with applicable Environmental Laws; (ii) the Company has all Permits required pursuant to Environmental Laws and are in compliance in all material respects with the terms thereof; (iii) there are no past or present events, activities, practices, incidents, actions or plans in connection with the operations of the Company which have given rise to or are reasonably likely to give rise to any liability on the part of the Company under any Environmental Law; (iv) the Company has not generated, used, transported, treated, stored, released or disposed of, or has suffered or permitted anyone else to generate, use, transport, treat, store, release or dispose of any Hazardous Substance in violation of any Environmental Laws; and (v) there has not been any generation, use, transportation, treatment, storage, release or disposal of any Hazardous Substance in connection with the conduct of the business of the Company or the use of any property or facility by the Company, or to the Knowledge of the Company, any nearby or adjacent properties, in each case, which has created or might reasonably be expected to create any material liability under any Environmental Law or which would require reporting to or notification of any Governmental Body.
4.20. Real Property. The Company has not owned, any real property or any interest in any real property.
4.21. Broker’s Fees. No broker, finder, agent or similar intermediary has acted on behalf of the Company in connection with this Agreement or the Transactions, and there are no brokerage commissions, finders’ fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with the Company.
4.22. Labor Matters. The Company is not now, and has not been in the last five years, bound by or party to any collective bargaining agreement and, to the Knowledge of the Company, no application for certification of a collective bargaining agent is pending. The Company is in compliance with all Applicable Laws applicable to the Company affecting employment practices and terms and conditions of employment.
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| Exhibit 2.1 page 19 of 36 |
4.23. Certificate of Incorporation, Bylaws, and Minute Books. The copies of the Certificate of Incorporation and of the Bylaws of the Company which have been delivered to UBID are true, correct and complete copies thereof. The corporate minutes of the Company, which have been delivered to UBID are complete and accurate minutes of all meetings and accurate consents in lieu of meetings of the Board of Directors (and any committee thereof) and of the stockholders of the Company since the date of incorporation and accurately reflects all transactions referred to in such minutes and consents in lieu of meetings. The Company has delivered to Company all books, records, agreements and other material information of the Company relating to the business of the Company. All documents furnished or caused to be furnished to UBID by the Company are true and correct copies, and there are no amendments or modifications thereto except as set forth in such documents.
4.24. Full Disclosure. This Agreement (including the information contained in the disclosure schedules), does not (i) with respect to the Company, contain any representation, warranty or information that is false or misleading with respect to any material fact, or (ii) with respect to the Company, omit to state any material fact necessary in order to make the representations, warranties and information contained herein (including the information contained in the disclosure schedules), in the context in which made or provided, not false or misleading.
Article V
ADDITIONAL AGREEMENTS OF THE PARTIES
5.1. Actions Pending Closing. From the date hereof until the Effective Time, unless otherwise agreed to in writing, each of the parties to this Agreement agree to conduct its business and operations only in the ordinary course and in substantially the same manner as heretofore conducted and the Company shall continue to make timely filings (except pursuant to valid extensions) as required by the SEC pursuant to the Securities Act and the Exchange Act and shall not take any action that will adversely affect the ability of the Company to qualify for quotation of its common stock on the over the counter bulletin board. Without limiting the generality of the foregoing, prior to the Effective Time, none of the parties to this Agreement shall, except as contemplated by this Agreement, without the prior written consent of the other parties to this Agreement, directly or indirectly, do any of the following:
(a) except to the extent required by Applicable Law, as contemplated by this Agreement, amend or otherwise change the certificate of incorporation, Bylaws, operating agreement or other similar organizational document;
(b) issue or authorize or propose the issuance of, sell, pledge or dispose of, grant or otherwise create, or agree to issue or authorize or propose the issuance, sale, pledge, disposition, grant or creation of any additional shares of, or any options, warrants, convertible securities or other rights of any kind to acquire any shares of, its capital stock or any debt or equity securities convertible into or exchangeable for such capital stock;
(c) purchase, redeem or otherwise acquire or retire, or offer to purchase, redeem or otherwise acquire or retire, any shares of its capital stock (including any security convertible or exchangeable into its capital stock);
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| Exhibit 2.1 page 20 of 36 |
(d) enter into any Material Contract, except in the ordinary course of business;
(e) declare, set aside, make or pay any dividend or other distribution, payable in cash, stock, property or otherwise, with respect to any of its capital stock, reclassify, recapitalize, split, combine or exchange any of its shares of capital stock;
(f) incur or become contingently liable with respect to any indebtedness for borrowed money or guarantee any such indebtedness or issue any debt securities;
(g) (i) increase the compensation payable or to become payable to, or enter into any employment agreement with, any of its directors, executive officers or employees, (ii) grant any severance or termination pay to any director, officer or employee, (iii) enter into any severance agreement with any director, officer or employee, (iv) establish, adopt, enter into, terminate, withdraw from or amend in any material respect or take action to accelerate any rights or benefits under any collective bargaining agreement, any stock option plan or any employee Benefit Plan or policy, or (v) hire any employee or consultant;
(h) take any action, other than reasonable actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures, except as may be required by GAAP;
(i) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or a substantial portion of the assets of, or by any other means, any business or any corporation, partnership, association or other business entity;
(j) mortgage or otherwise encumber, subject to any Lien, or sell, transfer or otherwise dispose of, any of its properties or assets that are material, individually or in the aggregate;
(k) adopt a plan of complete or partial liquidation, dissolution, restructuring, recapitalization or other reorganization;
(l) pay, discharge or satisfy any claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of liabilities reflected or reserved against in its financial statements or incurred in the ordinary course of business and consistent with past practice;
(m) take, or agree in writing or otherwise to take, any of the actions described in Sections 6.1(a) through (l) above, or any action which would make any of the representations or warranties contained in this Agreement untrue or incorrect in any material respect or prevent the parties to this Agreement from performing or cause the parties to this Agreement not to perform their respective covenants under this Agreement in any material respect;
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| Exhibit 2.1 page 21 of 36 |
(n) waive, release, assign, settle or compromise any material rights, claims or litigation (including any confidentiality agreement);
(o) authorize any of, or commit or agree to take any of, the foregoing actions; or
(p) make or change any Tax election, settle any audit, claim or examination of Taxes, adopt or apply to change any method of accounting or accounting practice for Tax purposes, file any amended Tax Return, enter into any closing agreement or request a Tax ruling from a Tax authority, settle any claims for Taxes, surrender any right to claim a refund of Taxes, consent to any extension or waiver of the limitation period applicable to any Taxes, Tax Return or claim for Taxes, or take any action or fail to take any action that would have a material adverse effect on the Tax liability of any of the parties to this Agreement.
5.2. Company Stockholders’ Approval; Information Statement. As soon as practicable after the date hereof, the Company will take all steps necessary to solicit the approval of the requisite number of stockholders of the Company approving the Merger and this Agreement in accordance with the provisions of the DGCL (the “Company Consent”). Except as otherwise contemplated by this Agreement and subject to the exercise of the fiduciary duties of the Company’s directors, the Board of Directors of the Company (i) shall recommend to the stockholders of the Company that they approve the Merger, and (ii) shall use its reasonable best efforts to obtain the Company Consent.
5.3. UBID Shareholder’s Approval. As soon as practicable after the date hereof, UBID will take all steps necessary to solicit the approval of the requisite number of its UBID Shareholders approving the Merger and this Agreement in accordance with the provisions of the DGCL (the “UBID Consent”). Except as otherwise contemplated by this Agreement and subject to the exercise of the fiduciary duties of UBID’s Board of Directors, the Board of Directors of UBID (i) shall recommend to the UBID Shareholders that they approve the Merger, and (ii) shall use its reasonable best efforts to obtain the UBID Consent.
5.4. Efforts; Consents. Each of the parties to this Agreement agrees to, and to cause its respective Subsidiaries to, use reasonable best efforts to take or cause to be taken all actions necessary, proper or advisable to consummate the Merger and the Transactions. Without limiting the generality of the foregoing, each of the parties hereto shall use, and shall cause its respective Subsidiaries to use, reasonable best efforts to obtain all authorizations, consents, orders and approvals of Federal, state, and local regulatory bodies, that are or may become necessary for the performance of its respective obligations pursuant to this Agreement, the Transactions Documents and the consummation of the Transactions, and shall cooperate fully in promptly seeking to obtain such authorizations, consents, orders and approvals as may be necessary for the performance of its respective obligations pursuant to this Agreement, the Transaction Documents and the Transactions. The parties shall not take, and shall cause their respective Subsidiaries not to take, any action which would have the effect of delaying, impairing or impeding the receipt of any required regulatory approvals, and the parties shall use, and shall cause their respective Subsidiaries to use, reasonable best efforts to secure such approvals as promptly as possible. The parties shall use, and shall cause their respective Subsidiaries to use, reasonable best efforts not to take any action or enter into any transaction which would result in a breach of any covenant made by such party in this Agreement.
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| Exhibit 2.1 page 22 of 36 |
5.5. Filing of Tax Returns; Payment of Taxes. Each of the parties to this Agreement will prepare in a manner consistent with its past practice and timely file all Tax Returns it is required to file, the due date of which (without extensions) occurs on or before the Closing Date and shall pay all Taxes due with respect to any such Tax Returns.
5.6. Confidentiality. Unless (i) otherwise expressly provided in this Agreement, (ii) required by Applicable Law, (iii) necessary to secure any required consents as to which the other party has been advised, or (iv) consented to in writing by UBID and the Company, this Agreement and any information or documents furnished in connection herewith shall be kept strictly confidential by the Company, UBID and their respective officers, directors, employees and agents. Prior to any disclosure pursuant to the preceding sentence, the party intending to make such disclosure shall consult with the other party to the extent practicable regarding the nature and extent of the disclosure. In the event the Merger is not consummated, UBID and the Company shall return to the other all documents furnished by the other and all copies thereof made by such party and will hold in absolute confidence all information obtained from the other party except to the extent (i) such party is required to disclose such information by Law or such disclosure is necessary in connection with the pursuit or defense of a claim, (ii) such information was known by such party prior to such disclosure or was thereafter developed or obtained by such party independent of such disclosure, (iii) such party received such information on a non-confidential basis from a source, other than the other party, which is not known by such party to be bound by a confidentiality obligation with respect thereto or (iv) such information becomes generally available to the public or is otherwise no longer confidential. Prior to any disclosure of information pursuant to the exception in clause (i) of the preceding sentence, the party intending to disclose the same shall so notify the party which provided the same to the extent practicable in order that such party may seek a protective order or other appropriate remedy should it choose to do so.
5.7. Notification of Certain Matters. The Company shall give prompt notice to UBID if any of the following occurs after the date of this Agreement: (i) receipt of any notice or other communication in writing from any person alleging that the consent of such person is or may be required in connection with the transactions contemplated by this Agreement; (ii) receipt of any notice or other communication from any Governmental Authority (including, but not limited to, FINRA, the SEC or any securities exchange) in connection with the transactions contemplated by this Agreement; (iii) the occurrence or non-occurrence of any fact or event which could reasonably be expected to cause any covenant, condition or agreement hereunder not to be complied with or satisfied in any material respect; (iv) the commencement or threat of any litigation involving or affecting the Company, or any of their respective properties or assets; (v) the occurrence or non-occurrence of any fact or event that causes or is reasonably likely to cause a breach by the Company of any provision of this Agreement, and (vi) the occurrence of any event that, had it occurred prior to the date of this Agreement without any additional disclosure hereunder, would have constituted a Material Adverse Effect on the Company.
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| Exhibit 2.1 page 23 of 36 |
5.8. Non-Solicitation.
(a) No party to this Agreement, nor any of their respective officers, directors, employees, agents, affiliates, accountants, counsel, investment bankers, financial advisors or other representatives (collectively, “Representatives”), shall (i) directly or indirectly, initiate, solicit or encourage, or take any action to facilitate the making of, any Acquisition Proposal, (ii) enter into any agreement or take any other action that by its terms could reasonably be expected to adversely affect the ability of the parties hereto to consummate the Merger, or (iii) directly or indirectly engage or otherwise participate in any discussions or negotiations with, or provide any information or data to, or afford any access to their properties, books or records to, or otherwise assist, facilitate or encourage, any person (other than UBID or any affiliate or associate thereof) relating to any Acquisition Proposal.
(b) Each of the parties to this Agreement and each of their Representatives shall immediately cease and cause to be terminated all existing discussions and negotiations, if any, with any other persons conducted heretofore with respect to any Acquisition Proposal.
For purposes of this Agreement, an “Acquisition Proposal” means any inquiry, proposal or offer from any person relating to (i) any direct or indirect acquisition or purchase of a business that constitutes 50% or more of the net revenues, net income or assets of any party to this Agreement, taken as a whole, or 50% or more of the common stock or voting power (or of securities or rights convertible into or exercisable for such common stock or voting power) of the Company or UBID, (ii) any tender offer or exchange offer that if consummated would result in any person beneficially owning 50% or more of the common stock or voting power (or of securities or rights convertible into or exercisable for such common stock or voting power) of the Company or UBID, or (iii) any merger, consolidation, business combination, recapitalization, liquidation, dissolution or similar transaction involving the Company, UBID or any of their Subsidiaries that constitutes 50% or more of the net revenues, net income or assets of the Company and its Subsidiaries or UBID and its Subsidiary, as the case may be, taken as a whole, or that results in the stockholders of the Company or the UBID Shareholders, as the case may be, immediately prior to such transaction owning less than 50% of the outstanding voting securities of the Company or UBID, as the case may be, immediately after such transaction, in each case other than the transactions contemplated by this Agreement. Each of the transactions referred to in clauses (i) - (iii) of the foregoing definition of Acquisition Proposal, other than the Merger proposed by this Agreement, is referred to herein as an “Acquisition Transaction.”
5.9. Further Assurances. At any time and from time to time after the Closing, each party to this Agreement agrees to cooperate with each other party and to execute and deliver such other documents, instruments of transfer or assignment, files, books and records and do all such further acts as may be reasonably required to consummate the Transactions, including to provide any necessary information in connection with the Company’s filing its Information Statement with the SEC.
5.10. Public Disclosure. Prior to the Closing, each party to this Agreement shall consult with each other party before issuing any press release or otherwise making any public statements, announcements or communications with respect to this Agreement or any of the Transactions and shall not issue any such press release or make any such public statement, announcement or communication without the prior written consent of the other parties, which consent shall not be unreasonably withheld, except as may be required by Applicable Law.
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| Exhibit 2.1 page 24 of 36 |
5.11 Board of Directors. Prior to the Effective Time, the Board of Directors of the Company, in accordance with applicable law, shall take all necessary action (including the resignation of existing directors) to cause its Board of Directors, as of the Effective Time, to consist of a total of six (6) members, with all such directors to be designated in writing by UBID, each to hold office from the Effective Time until their respective successors are duly elected or appointed and qualify, or they resign or are removed.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 Conditions to Each Party’s Obligations to Consummate the Transactions. The respective obligations of each party to this Agreement to consummate the Transactions shall be subject to the following conditions, unless waived in writing prior to the Closing Date by such party:
(a) Consents and Approvals. All consents, approvals, authorizations, orders and action of any Governmental Body required to permit the consummation of the Transactions shall have been obtained or made and shall be in full force and effect.
(b) No Restraints. No action shall have been taken, and no statute, rule, regulation, executive order, judgment, decree, or injunction shall have been enacted, entered, promulgated or enforced (and not repealed, superseded, lifted or otherwise made inapplicable), by any court or governmental or regulatory agency of competent jurisdiction which restrains, enjoins or otherwise prohibits the consummation of the Transactions (each party agreeing to use its reasonable best efforts to avoid the effect of any such statute, rule, regulation or order or to have any such order, judgment, decree or injunction lifted).
6.2 Conditions to Obligations of the Company to Consummate the Transactions. The obligation of the Company to consummate the Transactions shall be subject to the satisfaction of the following conditions, unless waived in writing prior to the Closing Date by the Company:
(a) Representations and Warranties. The representations and warranties of UBID contained herein that are qualified as to materiality or a Material Adverse Effect (or similar concept) shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case at and as of the Effective Time with the same force and effect as though made at and as of the Effective Time (except to the extent a representation or warranty speaks specifically as of an earlier date, in which case as of such date).
(b) Performance of Obligations. UBID shall have performed, in all material respects, all obligations and complied with all covenants required by this Agreement to be performed or complied with, in all material respects, including the disclosure of the number of warrant shares to be issued to UBID’s shareholders as set forth in section 3.5 herein, by each of them prior to the Effective Time.
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| Exhibit 2.1 page 25 of 36 |
(c) Officer’s Certificate. UBID shall have executed and delivered to the Company a certificate, dated the date of Closing and signed by an officer of UBID, evidencing compliance with Sections 6.2(a) and 6.2(b) hereof.
(c) Due Diligence. The Company shall have completed its financial, business and legal due diligence investigation of UBID to the Company’s and its counsel’s satisfaction which shall be determined at the sole and absolute discretion of the Company and its counsel.
(d) Stock Certificates. Certificates evidencing the number of Merger Shares to be issued to each UBID Shareholder in the names of such UBID Shareholders shall have been delivered by the Company’s agent to counsel to UBID in accordance with Section 2.2.
(e) Approval. Holders of at least a majority of the Company’s outstanding capital stock shall have approved the Merger and this Agreement in accordance with the DGCL.
(f) Resignations. The member(s) of the Board of Directors and officers of the Company shall have each delivered his or her resignation effective as of the Closing in a form reasonably acceptable to UBID.
(g) Material Adverse Effect. There shall not have occurred after the date hereof any event or events that, individually or in the aggregate, constitute a Material Adverse Effect on UBID.
6.3 Conditions to Obligations of UBID to Consummate the Transactions. The obligation of UBID to consummate the Transactions shall be subject to the satisfaction of the following conditions, unless waived in writing prior to the Closing Date by Parent and Merger Sub:
(a) Representations and Warranties. The representations and warranties of the Company contained herein that are qualified as to materiality or a Material Adverse Effect (or similar concept) shall be true and correct, and those not so qualified shall be true and correct in all material respects, in each case at and as of the Effective Time with the same force and effect as though made at and as of the Effective Time (except to the extent a representation or warranty speaks specifically as of an earlier date, in which case as of such date).
(b) Performance of Obligations. The Company shall have performed, in all material respects, all obligations and complied with all covenants required by this Agreement to be performed or complied with, in all material respects, by it prior to the Effective Time.
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| Exhibit 2.1 page 26 of 36 |
(c) Officer’s Certificate. The Company shall have executed and delivered to UBID a certificate, dated the date of Closing and signed by an officer of the Company, evidencing compliance with Sections 6.3(a) and 6.3(b) hereof.
(d) Due Diligence. UBID shall have completed its financial, business and legal due diligence investigation of the Company to UBID’s and its counsel’s satisfaction which shall be determined at the sole and absolute discretion of UBID and its counsel.
(e) Approval. Holders of at least a majority of the outstanding UBID voting securities shall have approved the Merger and this Agreement in accordance with the DGCL.
(f) Material Adverse Effect. There shall not have occurred after the date hereof any event or events that, individually or in the aggregate, constitute a Material Adverse Effect on the Company.
Article VII
TERMINATION
7.1 Termination. This Agreement may be terminated at any time prior to the Effective Time, whether before or after approval of this Agreement and the Merger by the stockholders of the Company:
(a) by the mutual written consent of the parties to this Agreement;
(b) by either the Company or UBID, by written notice to the other if, for any reason, the Closing has not occurred prior to the close of business on or before October 31, 2018; provided, however, that (i) the right to terminate this Agreement pursuant to this Section 7.1(b) shall not be available to the Company or UBID, as applicable, if the party seeking to terminate the Agreement is responsible for the delay;
(c) by either the Company or UBID, by written notice to the other, if any court of competent jurisdiction shall have issued an order, judgment or decree (other than a temporary restraining order) restraining, enjoining or otherwise prohibiting the Merger and such order, judgment or decree shall have become final and nonappealable;
(d) at the election of the Company, if (i) UBID has materially breached any representation, warranty, covenant or agreement contained in this Agreement, which breach has not been cured on or before thirty (30) Business Days following delivery of written notice of such breach by the Company to UBID; provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(d) (A) shall not be available to the Company if the Company at such time, is in material breach of any representation, warranty, covenant or agreement set forth in this Agreement, or (B) if the Company or its counsel is not satisfied with the financial, business or legal due diligence investigation of UBID or any item or issue that is discovered in the course of such investigation as determined by the Company or its counsel in its sole and absolute discretion; and
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| Exhibit 2.1 page 27 of 36 |
(e) at the election of UBID, if the Company has materially breached any representation, warranty, covenant or agreement contained in this Agreement, which breach has not been cured on or before thirty (30) Business Days following delivery of written notice to the Company of such breach by UBID; provided, however, that the right to terminate this Agreement pursuant to this Section 7.1(e) shall not be available to UBID if UBID, at such time, is in material breach of any representation, warranty, covenant or agreement set forth in this Agreement.
7.2 Effect of Termination. In the event of the termination of this Agreement by either the Company or UBID pursuant to Section 7.1, (i) this Agreement shall forthwith become void and have no further force or effect, and (ii) there shall be no further liability under this Agreement on the part of UBID or the Company, other than pursuant to the provisions of Section 5.6, Section 5.7, this Section 7.2 and Section 7.3.
7.3 Expenses; Termination Fees.
(a) Except as set forth in this Section 7.3, all costs and expenses incurred in connection with this Agreement and the Transaction shall be paid by the party incurring such costs and expenses, whether or not the Merger is consummated. In the event a party terminates this Agreement, other than as may be permitted in accordance with Section 7.1, such terminating party shall be required to pay the other party’s fees incurred in connection with the transactions contemplated hereunder.
(b) All payments under this Section 7.3 shall be made by wire transfer of immediately available funds to an account designated by the party to whom such payment will be made.
(c) The term “Expenses” shall mean all out-of-pocket expenses incurred by the Company and its affiliates in connection with this Agreement, any letter of intent related to this Agreement, and the transactions and due diligence contemplated hereby, including, without limitation, fees and expenses of accountants, attorneys and financial advisors.
(d) The parties acknowledge that the agreements contained in this Section 7.3 are an integral part of the transactions contemplated by this Agreement, and that, without these agreements, neither UBID nor the Company would enter into this Agreement. Accordingly, if either party fails to promptly pay any amounts owing pursuant to this Section 7.3 when due, then the party from whom such payment is due shall in addition thereto pay to the other party all costs and expenses (including fees and disbursements of counsel) incurred in collecting such amounts, together with interest on such amounts (or any unpaid portion thereof) from the date such payment was required to be made until the date such payment is received by the party entitled to such payment hereunder at the prime rate of Chase Manhattan as in effect from time to time during such period.
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| Exhibit 2.1 page 28 of 36 |
Article VIII
MISCELLANEOUS
8.1 Certain Definitions; Rules of Construction. Definitions shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed to be references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. All Exhibits and Schedules attached hereto shall be deemed incorporated herein as if set forth in full herein and, unless otherwise defined therein, all terms used in any Exhibit or Schedule shall have the meaning ascribed to such term in this Agreement. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise expressly provided herein, any agreement, plan, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, plan, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. For the purposes of this Agreement, the following terms shall have the following meanings:
“Acquisition Proposal” has the meaning set forth in Section 5.9.
“Acquisition Transaction” has the meaning set forth in Section 5.9.
“Adjustment Event” has the meaning set forth in Section 2.3.
“Affiliate” shall mean, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. The term “control” means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise.
“Articles of Merger” has the meaning set forth in Section 1.2.
“Applicable Law” means any Federal, state or local law, regulation, code, ordinance, statute, rule, Order, judgment, decree or other requirement of a Governmental Body applicable to the business of the Company or UBID, as the context may require.
“Benefit Plan” means each deferred compensation, executive compensation, incentive compensation, stock purchase or other stock-based compensation plan, severance or termination pay, holiday, vacation or other bonus plan or practice, hospitalization or other medical, life or other insurance, supplemental unemployment benefits, profit sharing, pension, or retirement plan, program, agreement, commitment or arrangement, and each other employee Benefit Plan, program, agreement or arrangement, including, without limitation, each “employee Benefit Plan” as such term is defined under Section 3(3) of ERISA.
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| Exhibit 2.1 page 29 of 36 |
“Business Day” means any day other than Saturday or Sunday or any other day on which banks in the State of New York are permitted or obligated to be closed for business.
“Claim” means any action, suit, claim, complaint, demand, litigation or similar proceeding.
“Closing” has the meaning set forth in Section 1.2.
“Closing Date” has the meaning set forth in Section 1.2.
“Code” means the Internal Revenue Code of 1986, as amended.
“Company” has the meaning set forth in the preamble.
“Company Certificates” has the meaning set forth in Section 2.2(a).
“Company Common Stock” has the meaning set forth in Section 2.1(a).
“Company Consent” has the meaning set forth in Section 5.2.
“Company Stockholder” and “Company Stockholders” have the meaning set forth in Section 2.1.
“Company Warrant” has the meaning set forth in Section 2.4(a).
“Effective Time” has the meaning set forth in Section 1.2.
“Environmental Laws” means all applicable statutes, rules, regulations, ordinances, orders, decrees, judgments, permits, licenses, consents, approvals, authorizations, and governmental requirements or directives or other obligations lawfully imposed by Governmental Body under federal, state, local or common law, indemnity agreements or other contractual obligations, in each case, pertaining to the protection of the environment, protection of public health, protection of worker health and safety, the treatment, emission and/or discharge of gaseous, particulate and/or effluent pollutants, and/or the handling of hazardous materials, including, without limitation, the Clean Air Act, 42 U.S.C. § 7401, et seq., the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA”), 42 U.S.C. § 9601, et seq., the Federal Water Pollution Control Act, 33 U.S.C. § 1321, et seq., the Hazardous Materials Transportation Act, 49 U.S.C. § 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et seq. (“RCRA”), and the Toxic Substances Control Act, 15 U.S.C. § 2601, et seq.
“Exchange Act” means the Securities and Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“Exchange Agent” has the meaning set forth in Section 2.2.
“Expenses” has the meaning set forth in Section 7.3(d).
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| Exhibit 2.1 page 30 of 36 |
“Certificate of Merger” has the meaning set forth in Section 1.2.
“Fully Diluted Basis” shall mean that the amount of common stock of an entity outstanding shall be determined on the basis that all outstanding options, warrants and other convertible securities shall be deemed to be fully exercised or converted (as the case may be) into common stock.
“GAAP” has the meaning set forth in Section 4.7(b).
“Governmental Body” means any court, administrative or regulatory agency or commission or other governmental authority of competent jurisdiction.
“Government Agency” means (i) the United States Government, including all departments and agencies of any branch of the United States Government, all independent agencies or instrumentalities and all non-appropriated fund activities within the United States Government and United States Government corporations, and (ii) any state or local government, including all departments, agents, agencies, branches, independent agencies or instrumentalities, activities, and non-appropriated fund activities of or within a state or local government and all state or local government corporations.
“Hazardous Substances” means any pollutants, contaminants, toxic or hazardous or extremely hazardous substances, materials, wastes, constituents, compounds, chemicals (including, without limitation, petroleum or any by-products or fractions thereof, any form of natural gas, Bevill Amendment materials, lead, asbestos and asbestos-containing materials, building construction materials and debris, polychlorinated biphenyls (“PCBs”) and PCB-containing equipment, radon and other radioactive elements, ionizing radiation, electromagnetic field radiation and other non-ionizing radiation, sonic forces and other natural forces, infectious, carcinogenic, mutagenic, or etiologic agents, pesticides, defoliants, explosives, flammables, corrosives and urea formaldehyde foam insulation) that are regulated by any Environmental Laws.
“Intellectual Property” means all of the following as they are used in connection with the business of a Person as presently conducted and as they exist in all jurisdictions throughout the world, in each case, to the extent owned by such Person:
(a) patents, patent applications and inventions, designs and improvements described and claimed therein, patentable inventions and other patent rights (including any divisions, continuations, continuations-in-part, substitutions, or reissues thereof, whether or not patents are issued on any such applications and whether or not any such applications are modified, withdrawn, or resubmitted);
(b) trademarks, service marks, trade dress, trade names, brand names, designs, logos, or corporate names, whether registered or unregistered, and all registrations and applications for registration thereof;
(c) copyrights and mask works, including all renewals and extensions thereof, copyright registrations and applications for registration thereof;
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| Exhibit 2.1 page 31 of 36 |
(d) trade secrets, confidential business information and other proprietary information, concepts, ideas, designs, research or development information, processes, procedures, techniques, technical information, specifications, operating and maintenance manuals, engineering drawings, methods, know-how, technical data and databases, discoveries, inventions, modifications, extensions, improvements, and other proprietary rights (whether or not patentable or subject to copyright, mask work, or trade secret protection);
(e) computer software programs, including, without limitation, all source code, object code, and documentation related thereto; and
(f) Internet addresses, domain names, web sites, web pages and similar rights and items.
“Investment Letter” has the meaning set forth in Section 6.1(c).
“Knowledge” with respect to any Person, means the actual knowledge of any of the officers or directors of such Person after diligent inquiry.
“Legal Proceedings” has the meaning set forth in Section 3.7.
“Lien” means any mortgage, pledge, lien, charge, easement, restrictive covenant, encumbrance, voting or transfer restriction, or security interest.
“Material Adverse Effect” means any change, effect, event or occurrence that is materially adverse to the condition (financial or otherwise), assets, properties, business or operations of a Person and its Subsidiaries, taken as a whole.
“Material Contract” means all of the following contracts, agreements, undertakings or arrangements, whether or not in writing, to which a Person is a party or by or to which any of them or any of their assets or properties are bound or subject, with respect to: (i) any current or former officer, director, stockholder, employee, consultant, agent or other representative or with an entity in which any of the foregoing is a contracting person; (ii) any labor union or association representing any employee; (iii) the purchase or sale of materials, supplies, equipment, merchandise or services that contain an escalation, renegotiation or redetermination clause calling for an aggregate purchase or sale price or payments of more than $1,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements); (iv) the sale of any of its assets or properties other than in the ordinary course of business or for the grant to any person of any preferential rights to purchase any of its assets or properties; (v) joint ventures, strategic alliances or partnerships; (vi) an indemnity or sharing of any tax liability of any third party; (vii) the purchase or sale price or payments of more than $5,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) that cannot be canceled by such Person with less than ninety days’ notice without incurring liability, premium or penalty; (viii) the sharing of fees, the rebating of charges or other similar arrangements; (ix) obligations or liabilities of any kind to holders of such Person securities as such; (x) covenants of such Person not to compete in any line of business or with any person in any geographical area or covenants of any other person not to compete with the such Person in any line of business or in any geographical area; (xi) the acquisition by the such Person of any operating business, including the assets or the capital stock of any other person; (xii) options for the purchase of any asset, tangible or intangible, requiring the payment to any person of a commission or fee; (xiii) the payment of fees or other consideration on behalf of any officer or director of such Person or to any other entity in which any of the foregoing has an interest; (xiv) the borrowing of money; (xv) any purchase price or sale price or payments of more than $5,000 in any one case (or in the aggregate, in the case of any related series of contracts and other agreements) whether or not made in the ordinary course of business; (xvi) the purchase or sale of material, supplies, equipment, merchandise, intellectual property, real property, assets (whether tangible or intangible) or services where the purchase or sale price, the estimated purchase or sale price, the maximum order price, the maximum contract price, or the ceiling price (whether in one case or in the aggregate, in the case of a related series of contracts or other agreements) is more than $10,000, and a party to the contract or the known end or ultimate user, seller, or purchaser is any Government Agency; (xvii) any schedule contracts with the United States General Services Administration or any multiple award schedule contracts, basic agreements, basic ordering agreements, or blanket purchase agreements with any Government Agency; and (xviii) any other contract, agreement or arrangement that is material to the business of a Person.
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| Exhibit 2.1 page 32 of 36 |
“Maximum Capitalization” has the meaning set forth in Section 4.5(a).
“Merger” has the meaning set forth in the recitals.
“Merger Shares” has the meaning set forth in Section 2.1(b).
“Orders” has the meaning set forth in Section 3.9.
“OTC Documents” shall mean all forms, reports, schedules, statements, and other documents required to be filed by the Company under the Alternative Reporting Standard of the OTC Pink Open Market.
“Permitted Liens” has the meaning set forth in Section 3.8.
“Person” means any individual, corporation, partnership, limited liability company or partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof).
“Recent Reports” has the meaning set forth in Section 4.8.
“Representatives” has the meaning set forth in Section 5.9.
“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“Subsidiary” of any Person means any corporation, partnership, joint venture or other legal entity of which such Person (either directly or through or together with any other Subsidiary of such Person), owns, directly or indirectly, 50% or more of the stock or other equity interests the holders of which are generally entitled to vote for the election of the board of directors or similar governing body of such corporation, partnership, joint venture or other legal entity.
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| Exhibit 2.1 page 33 of 36 |
“Surviving Corporation” has the meaning set forth in Section 1.1.
“Tax” or “Taxes” means any taxes, charges, fees, imposts, levies or other assessments, including, without limitation, all net income, franchise, profits, gross receipts, capital, sales, use, ad valorem, value added, transfer, transfer gains, inventory, capital stock, license, withholding, payroll, employment, social security (or similar), unemployment, excise, severance, stamp, occupation, real or personal property, premium, windfall profits, environmental (including taxes under Section 59A of the Code), customs duties, registration, alternative or add-on minimum, and estimated taxes, customs duties, fees, assessments and charges of any kind whatsoever, together with any interest and any penalties, fines, additions to tax or additional amounts thereon whether disputed or not, imposed by any taxing authority (Federal, state, local or foreign) and shall include any transferee liability in respect of Taxes.
“Tax Return” means any returns, declarations, reports, estimates, information returns or statements relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
“Transaction Documents” means this Agreement and each of the agreements and instruments contemplated hereby or thereby, including, without limitation, the Delaware Certificate of Merger and the Delaware Articles of Merger, the officer’s certificate to be delivered by UBID pursuant to Section 6.2(c) and the Company pursuant to Section 6.3(c), the disclosure schedules and all documents, instruments or agreements attached to or contemplated by any of the foregoing.
“Transactions” has the meaning set forth in Section 3.3.
“UBID” has the meaning set forth in the preamble.
“UBID Financial Statements” has the meaning set forth in Section 3.14.
“UBID Shareholder” and “UBID Shareholders” have the meaning set forth in Section 2.1(a).
“UBID Warrant” has the meaning set forth in Section 2.4.
8.2 Waivers and Amendments. Subject to Applicable Law, this Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the parties hereto or, in the case of a waiver, by or on behalf of the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege.
8.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS OF SUCH STATE, APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
| 29 |
| Exhibit 2.1 page 34 of 36 |
8.4 Notices. Any notices or other communications required under this Agreement shall be in writing and be effective upon delivery if given by hand delivery, electronic mail with confirmation of receipt or facsimile transmission or on the next day after given if delivered by overnight courier, and shall be given at the addresses or facsimile numbers set forth below, with copies provided as follows:
| (g) | if to the Company: |
Incumaker, Inc.
327 Dahlonega Road
Suite 1701B
Cumming, Georgia 30040
Attn: Darren Bankston, CEO
Email: incumaker@gmail.com
| (h) | if to UBID: |
UBid Holdings, Inc.
566 W. Adams Street
Suite 250
Chicago, Illinois 60661
Attn: Ketan Thakker, CEO
Email: ketan.thakker@ubid.com
or at such other place or places or to such other person or persons as shall be designated in writing by the parties to this Agreement in the manner herein proved.
8.5 Section Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
8.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which, together, shall constitute one and the same instrument. This Agreement may be executed by facsimile or other electronic image transmission technology. Copies of signature pages delivered by facsimile or other means of electronic image transmission shall have the same force and effect as originals thereof.
8.7 Assignments. This Agreement, by operation of law or otherwise, shall be binding upon and inure to the benefit of successors and legal representatives of the parties hereto.
| 30 |
| Exhibit 2.1 page 35 of 36 |
8.8 Entire Agreement; Enforceability. This Agreement and the Transaction Documents, including the Exhibits and Schedules attached hereto and thereto: (i) constitute the entire agreement among the parties with respect to the Transactions and supersedes all prior agreements and understandings, both written and oral, among the parties, with respect to the subject matter hereof and thereof; and (ii) shall be binding upon, and are solely for the benefit of each party hereto and nothing in this Agreement is intended to confer upon any other Person any rights or remedy of any nature whatsoever hereunder or by reason of this Agreement or any of the Transaction Documents.
8.9 Severability. Any term or provision of this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without rendering invalid, illegal or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.
8.10 Third Party Beneficiary. The parties intend that there are no third party beneficiaries to this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan of Merger to be duly executed as of the date first above written.
| UBID HOLDINGS, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: President | ||
| INCUMAKER, INC. | ||
| By: | /s/ Darren Bankston | |
| Name: Darren Bankston | ||
| Title: CEO | ||
| 31 |
| Exhibit 2.1 page 36 of 36 |
UBID AND INCUMAKER DISCLOSURE SCHEDULES
Schedule 3.13(a) uBID has not filed any federal or state tax returns since 2012 but is preparing those tax returns and expects to have them filed within 30 calendar days from the Closing Date.
Schedule 4.10 On December 17, 2017, a lawsuit that had been dismissed by the plaintiff on July 21, 2017, was refiled against the Company pursuant to Georgia's renewal statute (O.C.G.A. 9-2-61), titled Oelshlager v. Cryomist II, Cryomist III and Incumaker, Inc. (Fulton County Georgia State Court). The lawsuit alleges that Incumaker is liable for the conduct of its subsidiary on the theory that it is the parent of these separate corporations and that the Cryomist Companies were merely the alter ego of Incumaker. The Company plans to vigorously defend itself against this lawsuit.
On May 11, 2018, a lawsuit was filed by Louis Thomson claiming that the Company had failed to reimburse him rent money he paid as the Guarantor under the lease for the Cryomist III premises, located in Buford, Georgia. The Company and Mr. Thomson had entered into a joint venture whereby the Company would purchase from Mr. Thomson all of his shares and interest in Cryomist III. The joint venture included terms whereby the Company would assume the five-year lease pursuant to a Lease Assignment dated February 13, 2014. In addition, Mr. Thomson was to remain as the guarantor of the lease. Cryomist III ceased operations only three months after the execution of the joint venture with several years remaining on the lease. Mr. Thomson negotiated and paid a large settlement to the landlord of the lease for the remaining rent without ever consulting the Company as the principal under the lease. The Company has denied that it is liable for the reimbursement of such rent payments since Mr. Thomson entered into a settlement for the payment of such rent without the Company’s knowledge. The Company has also filed counterclaims against Mr. Thomson for breach of contract and set-off for monies Mr. Thomson owes the Company but refuses to pay. The Company plans to vigorously defend itself against the claims in this lawsuit and to diligently pursue its counterclaims.
Schedule 4.5 – See attached Incumaker Debt Schedule
Schedule 4.5(c) – 500,000 warrants issued to Street Capital convertible at $0.07 with an exercise termination date of November 11, 2018
Schedule 4.18 – The Company has not filed its 2017 Federal and state tax returns which will be filed following receipt by the Company’s tax preparer of the Company’s final audited financial report expected no later than October 31, 2018.
| 32 |
Exhibit 2.2
page 1 of 34
AGREEMENT AND PLAN OF MERGER,
DATED AS OF NOVEMBER 12, 2018
AMONG
INCUMAKER, INC., a Delaware corporation,
SA.COM ACQUISITION CORP., a Delaware corporation
and
SKYAUCTION.COM, INC., a Delaware corporation
| Exhibit 2.2 page 2 of 34 |
MERGER AGREEMENT
THIS AGREEMENT AND PLAN OF MERGER, dated as of November 12, 2018 (this “Agreement”), by and among INCUMAKER, INC., a Delaware corporation with executive offices located at 327 Dahlonega Road, Suite 1701B, Cumming, GA 30040 (“Incumaker”), SA.COM ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of Incumaker (“SAC”), SkyAUCTION.COM, INC., a Delaware corporation with executive offices located at 241 North Avenue West, Westfield, New Jersey 07090 (“Sky”), and Michael Hering (“Hering”), as the Shareholder Representative (as defined hereinafter) of the sky shareholders set forth on Exhibit B attached hereto (“Sky Shareholders”). Sky, in its capacity as the surviving corporation, is hereinafter sometimes referred to as the “Surviving Corporation,” and SAC and Sky are hereinafter sometimes referred to as the “Constituent Corporations” and all of the aforesaid parties hereinafter jointly referred to as the “Parties.”
WITNESSETH:
WHEREAS, SAC is a newly formed Delaware corporation to be used to complete the Merger described herein;
WHEREAS, the respective Boards of Directors of the Parties have each approved the merger of SAC with and into Sky, with Sky surviving (the “Merger”), on the terms and conditions contained herein and in accordance with the Delaware General Corporation Law (the “DGCL”) and have determined that the Merger and the transactions contemplated herein are advisable and in the best interest of their respective entities and stockholders;
WHEREAS, the Parties desire to make certain representations, warranties, covenants and agreements in connection with the Merger and to prescribe various conditions to the Merger;
and
WHEREAS, for U.S. federal income tax purposes, it is intended that the Merger qualify as a reorganization under the provisions of Section 368(a)(2)(E) and Section 351 of the Internal Revenue Code of 1986, as amended (the “Code”), and that this Agreement shall constitute a “plan of reorganization” for the purposes of Section 368 and Section 351 of the Code.
NOW THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the parties hereto agree as follows:
| Exhibit 2.2 page 3 of 34 |
ARTICLE I
THE MERGER
Section 1.01 The Merger. Upon the terms set forth herein and subject to the conditions set forth in Article VI, and in accordance with the DGCL, at the Effective Time, SAC shall be merged with and into Sky, whereupon the separate corporate existence of SAC shall cease, and Sky shall continue as the surviving corporation (the “Surviving Corporation”).
Section 1.02 Effective Time; Closing . As promptly as practicable following the execution of this Agreement, immediately after the satisfaction or, to the extent permitted by applicable law, waiver of the conditions set forth in Article VI, other than those conditions that only can be satisfied at the Closing (the “Effective Time”), the parties hereto shall cause the Merger to be consummated by filing a Certificate of Merger (the “Certificate of Merger”) with the Secretary of State of the State of Delaware, in such form as is required by and executed in accordance with the DGCL. Immediately prior to the filing of the Certificate of Merger, a closing will be held at the offices of Culhane Meadows PLLC (the “Closing”), or such other place, date and time as the parties mutually may agree.
Section 1.03 Effect of the Merger. From and after the Effective Time, all the property, rights, privileges, powers and franchises of Sky and SAC shall vest in the Surviving Corporation, and all debts, liabilities, obligations, restrictions, disabilities and duties of each of Sky and SAC shall become the debts, liabilities, obligations, restrictions, disabilities and duties of the Surviving Corporation. Without limitation of the foregoing, the Merger shall have the effects specified in Section 906 of the DGCL.
Section 1.04 Certificate of Incorporation; By-Laws The Certificate of Incorporation and Bylaws of Sky shall be the certificate of incorporation and bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by the DGCL.
Section 1.05 Officers and Directors of the Surviving Corporation. At the Effective Time, all members of the boards of directors of SAC and the officers of SAC shall tender their resignations and such vacancies shall be filled by the members of the board of directors and current officers of Sky (as disclosed on Section 1.05 of the Disclosure Schedules) immediately prior to the Effective Time and such Officers and directors, together with any additional directors as thereafter may be elected, shall hold office in accordance with the certificate of incorporation and by-laws of the Surviving Corporation until their respective successors are duly elected and qualified. Notwithstanding anything to the foregoing contained herein, Hering or his appointed designee (for purposes of this section Hering shall also refer to his appointed designee) shall serve as Chief Executive Officer of the Surviving Corporation. Hering shall be entitled to maintain his position as Chief Executive Officer for so long as he is a shareholder of Incumaker. Hering or his appointed designee shall also be granted one (1) seat on the board of directors of the Surviving Corporation. Hering shall be entitled to maintain his seat on the board of directors of the Surviving Corporation for so long as he is a shareholder in Incumaker. Additionally, for so long as Hering is a shareholder of Incumaker, he shall be allowed one non-voting representative (or himself) to attend and participate in all meetings and other activities of the board of directors of Incumaker. Such representative shall receive notice of such meetings of the board of directors of Incumaker pursuant to Incumaker’s incorporating documents. For so long as Hering is on the board of directors of the Surviving Corporation, the Surviving Corporation shall not enter into any material transaction related to the business or operations of the Surviving Corporation unless Hering gives his written consent to enter into such transaction. For so long as Hering is the Chief Executive Officer of the Surviving Corporation, he shall have the sole authority to approve of all spending by the Surviving Corporation, unless such authority is specifically delegated to another officer of the Surviving Corporation.
| Exhibit 2.2 page 4 of 34 |
Section 1.06 Tax Consequences. The parties intend that, for United States federal income tax purposes, (a) the Merger shall constitute a tax-free reorganization within the meaning of Section 368 of the Internal Revenue Code (the “Code”), except with respect to any cash consideration paid which shall be taxable under Section 356 of the Code, and each of the Parties shall be a party within the meaning of Section 368(b) of the Code to such reorganization, (b) this Agreement shall constitute a “plan of reorganization” for purposes of Sections 354 and 361 of the Code, and (c) the Incumaker Common Stock shall be treated as a “common stock” under Section 305 of the Code.
Section 1.07 Board of Directors and Stockholder Approvals. All required action on the part of the respective board of directors of each of the Parties hereto has been taken to consider, vote upon, and approve the adoption and approval of this Agreement, the Merger, and the other transactions contemplated by this Agreement.
Section 1.08 Effects Under the DGCL. When the Merger becomes effective, the separate existence of SAC shall cease, SAC shall be merged into Sky, and the Surviving Corporation shall possess all the rights, privileges, powers, and shall be subject to all the restrictions, disabilities, and duties of each of the Constituent Corporations; and all and singular, the rights, privileges, powers, and franchises of each of the Constituent Corporations, and all property, real, personal, and mixed, and all debts due to either of the Constituent Corporations on whatever account, as well for stock subscriptions as all other things in action or belonging to each of the Constituent Corporations shall be vested in the Surviving Corporation; and all property, rights, privileges, powers, and franchises, and all and every other interest shall be thereafter as effectually the property of the Surviving Corporation as they were of the several and respective Constituent Corporations; and the title to any real estate vested by deed or otherwise, under the laws of the State of Delaware or any other jurisdiction, in either of the Constituent Corporations, shall not revert or be in any way impaired by reason of the Merger; but all rights of creditors and all liens upon any property of either of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities, and duties of the respective Constituent Corporations shall thenceforth attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts, liabilities, and duties had been incurred or contracted by it.
| Exhibit 2.2 page 5 of 34 |
ARTICLE II
STATUS AND CONVERSION OF SECURITIES
Section 2.01 Consideration.
(a) The shares of common stock of Sky (“Sky Common Stock”) outstanding at the Effective Time shall, subject to compliance with Section 2.01(d), be converted into and exchanged for (i) an aggregate of 165,363,244 shares of common stock of Incumaker (the “Newly issued Incumaker Common Stock” which shall also be referred to simply as Incumaker Common Stock where applicable). A warrant (the “Warrant”) in the form attached hereto as Exhibit C shall be issued to Hering that is exercisable for three years at an exercise price of $.05 per share to purchase five million shares of Incumaker Common Stock as a bonus for arranging this transaction. In addition, a promissory noteshall be issued to the Shareholder Representative (on behalf of the Sky Shareholders) in the aggregate principal amount of $2,500,000 in the form of Exhibit A attached hereto (the “Merger Note”), which Merger Note shall provide for an initial payment of $500,000 within 120 days of the date of the Merger Note, repayment in full at the earlier of certain financings closed by Incumaker or the third anniversary date of the Closing Date, with such payments under the Merger Note being made to the Shareholder Representative, which shall allocate such payments to Sky’s Shareholders set forth in Exhibit B attached hereto. The Merger Note shall be guaranteed by the Surviving Corporation (the “Guaranty”), in the form of Exhibit D attached hereto, with such Guaranty secured by the Surviving Corporation’s assets via a security agreement (“Security Agreement”), in the form of Exhibit D attached hereto.
(b) Notwithstanding Section 2.01(a) of this Agreement, merger consideration shall not be issued in respect of any shares of Sky Common Stock, the holders of which shall object to the Merger in writing and demand payment of the value of their shares of Sky Common Stock pursuant to, and in accordance with, Section 262 of the DGCL and as a result payment therefor is made. Such holders shall have only the rights provided by such Section 262.
(c) Subject to the provisions of Section 2.01(b) of this Agreement, after the Effective Time, each holder of an outstanding certificate or certificates (the “Old Certificates”), or a lost stock certificate affidavit, in a form reasonably suitable to Incumaker, theretofore representing shares of Sky Common Stock, upon surrender thereof to Incumaker, shall be entitled to receive in exchange therefor a certificate or certificates (the “New Certificates”) in the form of electronic book entry by Island Stock Transfer, Incumaker’s transfer agent, to be acknowledged by letter from Island Stock Transfer as soon as practicable after the Effective Time reflecting the number of shares of Newly Issued Incumaker Common Stock represented by such Old Certificate or Old Certificates, representing the number of shares of Newly Issued Incumaker Common Stock into and for which the shares of Sky Common Stock theretofore represented by such surrendered Old Certificates have been converted. No certificates or scrip for fractional shares of Newly Issued Incumaker Common Stock will be issued, no Incumaker stock split or dividend shall relate to any fractional share interest, and no such fractional share interest shall entitle the owner thereof to vote or to any rights of a stockholder of Incumaker. In lieu of the issuance or recognition of fractional shares of Newly Issued Incumaker Common Stock or interests or rights therein, Incumaker shall round such fraction to the next higher whole number of shares of Newly Issued Incumaker Common Stock. Until surrendered and exchanged, each Old Certificate shall after the Effective Time be deemed for all corporate purposes, other than the payment of dividends or liquidating or other distributions, if any, to holders of record of Newly Issued Incumaker Common Stock, to represent only the right to receive the number of shares of Newly Issued Incumaker Common Stock into and for which the shares of Sky Common Stock theretofore represented by such Old Certificate shall have been converted. No dividend or liquidating or other distribution, if any, payable to holders of record of shares of Sky Common Stock at or after the Effective Time on shares of Newly Issued Incumaker Common Stock, or payable subsequent to the Effective Time to holders of record of shares of Sky Common Stock at a time prior to the Effective Time shall be paid to the holders of Old Certificates; provided, however, that upon surrender and exchange of such Old Certificates there shall be paid (subject to the last sentence of this Section 2.01(c)) to the record holders of the New Certificates issued in exchange therefor (i) the amount, without interest thereon, of dividends and liquidating or other distributions, if any, which theretofore have become payable to holders of record of shares of Sky Common Stock on or after the Effective Time with respect to the number of whole shares of Newly Issued Incumaker Common Stock represented by such New Certificates and (ii) the amount, without interest thereon, of dividends and liquidating or other distributions, if any, declared by Sky payable to holders of record of shares of Sky Common Stock at a time prior to the Effective Time, but payable subsequent to the Effective Time. In the event an outstanding Old Certificate or lost stock certificate affidavit is not surrendered and exchanged for shares of Newly Issued Incumaker Common Stock pursuant hereto, such Newly Issued Incumaker Common Stock owed to such Sky Shareholder shall be held by the Shareholder Representative. If outstanding Old Certificates or lost stock certificate affidavits are not surrendered and exchanged for shares of Newly Issued Incumaker Common Stock pursuant hereto within time-frames specified by applicable law, the Shareholder Representative shall make the proper filings with such state regarding escheatment, with the understanding that the Shareholder Representative shall have no liability to any holder of Old Certificates regarding the property being escheated. e.
| Exhibit 2.2 page 6 of 34 |
(d) If any New Certificate is to be issued in a name other than that in which the Old Certificate surrendered for exchange is issued, the Old Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and the person requesting such exchange shall pay to the Incumaker any transfer or other taxes required by reason of the issuance of the New Certificate in any name other than that of the registered holder of the Old Certificate surrendered, or establish to the satisfaction of Incumaker that such tax has been paid or is not payable.
(e) As of the Effective Time, no transfer of the shares of Sky Common Stock outstanding prior to the Effective Time shall be made on the stock transfer books of the Surviving Corporation. If, after the Effective Time, Old Certificates are presented to Incumaker or the Surviving Corporation, they shall be exchanged pursuant to Section 2.01(c).
Section 2.02 Sky Stock Options and Sky Warrants. Sky has no options or warrants outstanding.
Section 2.03 Affiliates of Sky. Each of Sky and Incumaker agrees that it comply in all material respects with applicable securities laws of the United States or of any state or other jurisdiction while pursuing the Merger and the other transactions contemplated hereby.
Section 2.04 Sky Convertible Securities. Except for shares of Series A, Series B,Series C Preferred Stock, and Series A Restricted Stock, Sky has no securities convertible into, or exchangeable for, capital stock of Sky outstanding.
| Exhibit 2.2 page 7 of 34 |
Section 2.05 Capital Stock of Incumaker. Except as contemplated by this Agreement, all issued shares of Incumaker Common Stock, whether outstanding or held in the treasury of Incumaker, shall continue unchanged as shares of capital stock of Incumaker.
Section 2.06 Piggyback Registration Rights. In the event Incumaker proposes to file a registration statement under the Securities Act of 1933 (“Securities Act” or “Act”) which relates to a current offering of securities of Incumaker, such registration statement (and the prospectus included therein) shall also at such time, promptly give each holder of New Certificates notice of such registration. Upon the request of each holder of New Certificates given within fifteen (15) days after such notice is given by Incumaker, Incumaker shall use its best commercial efforts to cause to be registered all of the shares that each such holder has requested to be included in such registration so as to permit the public sale of such Incumaker shares. Incumaker shall have the right to terminate or withdraw any registration initiated by it under this Section 2.06 before the effective date of such registration, whether or not any holder of New Certificates has elected to include registered shares in such registration.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SKY
As an inducement to, and to obtain the reliance of Incumaker, subject to such exceptions as are specifically disclosed in the disclosure schedule (referencing the appropriate section and paragraph numbers) supplied by Sky to Incumaker on the date hereof (the “Disclosure Schedule”), Sky hereby represents, warrants and covenants as follows:
Section 3.01 Organization. Sky is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Sky has the corporate power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business as it is now being conducted, including qualification to do business as a foreign corporation in any states in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification, except where such failure would not have a material adverse effect on business or financial condition of Sky.
Section 3.02 Capitalization. As of the date hereof, the entire authorized capitalization of Sky consists of 2,000,000 shares of common stock, and 1,043,738 shares of preferred stock, $0.01 par value per share (collectively referred to as the “Sky Stock”).1,000,000 shares of Sky Common Stock are currently issued and outstanding, while 267,506 shares of Series A Preferred Stock are currently issued and outstanding, 56,317 shares of Series B Preferred Stock are currently issued and outstanding, 293,738 shares of Series C Preferred Stock are currently issued and outstanding and 200,000 shares of Series A Restricted Stock are currently issued and outstanding. All of the issued and outstanding shares of Sky Common Stock are validly issued, fully paid, and non-assessable. No shares of Sky Common Stock are reserved for issuance upon exercise of outstanding options and warrants, or upon conversion of any outstanding Sky convertible securities. Sky Common Stock is not owned or held in violation of any preemptive right of any other person or entity. Except as described herein, there is no commitment, plan, subscription rights, or arrangement to issue, no preemptive right to acquire, and no outstanding option, warrant, or other right calling for the issuance of, any shares of Sky Common Stock or any security or other instrument convertible into, exercisable for, or exchangeable for Sky Common Stock.
| Exhibit 2.2 page 8 of 34 |
Section 3.03 Subsidiaries. .Sky does not have any subsidiaries and does not own, beneficially or of record, any shares of any other corporation.
Section 3.04 Financial Condition. Sky has delivered to Incumaker Sky’s unaudited financial statements for the fiscal years ended December 31, 2017 and 2016 (the “Sky Financial Statements”). The Sky Financial Statements present fairly and accurately in all material respects the information contained therein and does not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; each such statement of income and statement of retained earnings presents fairly and accurately in all material respects the results of operations of Sky for the period indicated; and each such statement of changes in financial position presents fairly and accurately in all material respects the information purported to be shown therein. The financial statements (including the notes thereto) referred to in this Section 3.04 have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) are correct and complete and are in accordance with the books and records of Sky.
Section 3.05 Tax and Other Liabilities. Sky has filed all state and federal Tax returns that it was required to file, and has paid all Taxes shown thereon as owing, except where the failure to file Tax returns or to pay Taxes would not have a material adverse effect on the financial condition of Sky and its subsidiaries taken as a whole. Sky has delivered to Incumaker correct and complete copies of all federal Income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Sky. None of such tax returns are under audit. Sky has not waived any statute of limitations in respect of any Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. Sky is not a party to any Tax allocation or sharing agreement. As used herein “Taxes” shall include all federal, state, local or foreign taxes, including but not limited to income, gross receipts, windfall profits, goods and services, value added, severance, property, production, sales, use, license, excise, franchise, employment, withholding or similar taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
Section 3.06 Absence of Certain Changes or Events. Except as set forth in this Agreement, since December 31, 2017:
(a) To the best of Sky’s knowledge, there has not been (i) any material adverse change in the business, operations, properties, assets, or condition of Sky; or (ii) any damage, destruction, or loss to Sky (whether or not covered by insurance) materially adversely affecting the business, operations, properties, assets, or condition of Sky;
| Exhibit 2.2 page 9 of 34 |
(b) Sky has not (i) amended its certificate of incorporation or bylaws; (ii) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of Sky; (iv) made any material change in its method of management, operation, or accounting; (v) entered into any other transaction not in the ordinary course of business; (vi) made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers, directors or employees or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with its officers, directors, or employees; and
(c) Sky has not except in the ordinary course of business (i) borrowed or agreed to borrow any funds or incurred, or become subject to, any obligation or liability (absolute or contingent); (ii) paid any obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most Sky balance sheet dated December 31, 2017; (iii) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights (except (A) the transactions contemplated by the Purchase Agreement, and (B) assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $10,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $1,000); (iv) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of Sky; or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or other corporate securities of whatever kind or nature including without limitation debentures (whether authorized and unissued or held as treasury stock), convertible securities, warrants, options, or preferred stock).
Section 3.06 Issuance. The shares of Sky Common Stock issued are duly authorized and, are validly issued, fully paid and non-assessable, free from all taxes, liens and charges with respect to the issue thereof, and shall not be subject to preemptive rights or other similar rights of stockholders of Sky.
Section 3.07 Approval of Agreement. The board of directors of Sky has authorized the execution and delivery of this Agreement and has approved the transactions contemplated hereby and approved the submission of this Agreement and the transactions contemplated hereby to the stockholders of Sky for their approval with the recommendation that the transaction be accepted if it has been deemed necessary.
Section 3.08 Sky Minutes. Sky has delivered to Incumaker a copy of all the board of directors’ minutes of Sky approving this transaction.
Section 3.09 Litigation and Proceedings. There are no actions, suits, proceedings, or investigations pending or, to the best of Sky’s knowledge, threatened by or against Sky or affecting Sky or its properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator that would have a material adverse effect on its business. Sky does not have any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality or of any circumstances which, after reasonable investigation, would result in the discovery of such a default.
| Exhibit 2.2 page 10 of 34 |
Section 3,10 Material Contract Defaults. To the best of Sky’s knowledge, Sky is not in default under the terms of any outstanding contract, agreement, lease, or other commitment which is material to the business, operations, properties, assets, or condition of Sky and there is no event of default in any material respect under any such contract, agreement, lease, or other commitment in respect of which Sky has not taken adequate steps to prevent such a default from occurring.
Section 3.11 No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which Sky is a party or to which any of its properties or operations are subject.
Section 3.12 Governmental Authorizations. To the best of Sky’s knowledge, Sky has all licenses, franchises, permits, and other governmental authorizations that are legally required to enable it to conduct its business in all material respects as conducted on the date hereof; except for compliance with federal and state securities and corporation laws, as hereinafter provided, no authorization, approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by Sky of this Agreement and the consummation by Sky of the transactions contemplated hereby.
Section 3.13 Compliance With Laws and Regulations. To the best of Sky’s knowledge, Sky has complied with all applicable statutes and regulations of any federal, state, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of Sky or except to the extent that noncompliance would not result in the incurrence of any material liability for Sky.
Section 3.14 Insurance. All the insurable properties of Sky are insured in their full replacement value against all risks customarily insured against by persons operating similar properties in localities where such properties are located and under valid and enforceable policies by insurers of recognized responsibility. Such policy or policies containing substantially equivalent coverage will be outstanding on the date of consummation of the transactions contemplated by this Agreement.
| Exhibit 2.2 page 11 of 34 |
Section 3.15 Labor. Sky is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and, there has been no effort by any labor union or any other person during the twenty-four (24) months prior to the date hereof to organize any employees of Sky into one or more collective bargaining units, nor are any such efforts being conducted. To the best of Sky’s knowledge, there is no pending or threatened labor dispute, strike or work stoppage which affects or which may affect the business of Sky, or which may interfere with its continued operations. To the best of Sky’s knowledge, neither Sky nor any agent, representative or employee thereof has within the last twenty-four (24) months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against Sky by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees or consultants of Sky during the twenty-four (24) months prior to the date hereof. To the best of Sky’s knowledge, Sky has complied with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities or other employment practices, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, as amended and the Immigration Reform and Control Act of 1986, as amended.
Section 3.16 Employment. Except as disclosed to Incumaker, the employment of each employee of Sky is “at will,” and may be terminated, subject to applicable law, at any time by Sky, without the imposition of penalties or damages. Sky has received no notice of any claim before any governmental body brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of employees or any governmental body or, is any such claim threatened against Sky. Sky is not a party to, or otherwise bound by, any order relating to its employees or employment practices. Sky has paid in full to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employees in accordance with its normal payroll practices. No current or former employee of Sky is (i) absent on a military leave of absence and/or eligible for rehire under the terms of the Uniformed Services Employment and Reemployment Rights Act, or (ii) absent on a leave of absence under the Family and Medical Leave Act.
Section 3.17 Employee Benefits. There is no employee benefit plan which is sponsored, maintained or contributed to by Sky or to which Sky has an obligation to contribute, or otherwise affecting or involving Sky or any of the employees of or consultants to Sky.
Section 3.18 Environmental Matters. To the best of Sky’s knowledge, Sky has no liability under, and each are presently in compliance in all material respects with all environmental laws applicable to Sky, its assets or business. Sky has no knowledge of the releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing, or dumping of hazardous substances into the soil, surface waters, ground waters, land, stream sediments, surface of subsurface strata, ambient air, sewer system, or any environmental medium at or from any property or asset owned, used or occupied by Sky in violation of any applicable environmental law. To the best of Sky’s knowledge, none of the following exists at any property owned, occupied or controlled by Sky: (1) underground storage tanks, (2) materials or equipment containing polychlorinated biphenyls in concentrations greater than 50 parts per million, or (3) landfills or disposal areas.
Section 3.19 Loans. Schedule 3.19 sets forth (i) the name of each individual, entity, bank, trust association or other financial institution and stock or other broker with which Sky has an account, credit line or loan, and the names of all persons authorized by proxies, powers of attorney or other like instrument to act on behalf of Sky in matters concerning any of its business or affairs. No such proxies, powers of attorney or other like instruments are irrevocable.
| Exhibit 2.2 page 12 of 34 |
Section 3.20 Absence of Certain Business Practices. To the best of Sky’s knowledge, neither Sky, nor any other affiliate or agent of Sky, or any other person acting on behalf of or associated with Sky, acting alone or together, has (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, employee or agent of any customer or supplier; or (b) directly or indirectly given or agreed to give any money, gift or similar benefit to any customer, supplier, employee or agent of any customer or supplier, any official or employee of any government (domestic or foreign), or any political party or candidate for office (domestic or foreign), or other person who was, is or may be in a position to help or hinder the business of Sky (or assist Sky in connection with any actual or proposed transaction), in each case which (i) may subject Sky to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the assets, business, operations or prospects of Sky, or (iii) if not continued in the future, may adversely affect the assets, business, operations or prospects of Sky.
Section 3.21 No Undisclosed Liabilities. To the best of Sky’s knowledge, Sky has no liabilities or obligations of any nature (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, due or to become due), including without limitation any liability for Taxes or any obligations or liabilities of the nature or type required to be disclosed under GAAP, which are, individually or in the aggregate, material to the business, results of operations, assets or financial condition of Sky, taken as a whole, other than such liabilities or obligations that have been specifically disclosed in the Sky Financial Statements or incurred thereafter in the ordinary course of business.
Section 3.22 Materiality. To the best of Sky’s knowledge, no representation or warranty in this Article III contains any materially untrue statement of a material fact or omits to state any material fact required to make the statements contained therein not materially misleading or materially necessary in order to provide Incumaker with reasonably complete information as to Sky’ business or financial condition.
| Exhibit 2.2 page 13 of 34 |
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF INCUMAKER AND SAC
As an inducement to, and to obtain the reliance of Sky, subject to such exceptions as are specifically disclosed in the disclosure schedules (referencing the appropriate section and paragraph numbers) supplied by Incumaker to Sky on the date hereof (the “Disclosure Schedule”), and the all forms, reports, schedules, statements, and other documents required to be filed by the Company under the Alternative Reporting Standard of the OTC Pink Open Market. Incumaker and SAC hereby represent, warrant and covenant as follows:
Section 4.01 Organization. Each of Incumaker and SAC is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware. Incumaker has no subsidiary corporations other than SAC and SAC has no subsidiary corporations and was formed on October 23, 2018, solely to complete this transaction. Each of Incumaker and SAC has the power and is duly authorized, qualified, franchised, and licensed under all applicable laws, regulations, ordinances, and orders of public authorities to own all of its properties and assets and to carry on its business in all material respects as it is now being conducted, including qualification to do business as a foreign corporation in the countries, provinces, territories and states in which the character and location of the assets owned by it or the nature of the business transacted by it requires qualification. Each of Incumaker and SAC has furnished to Sky complete and correct copies of its certificate of incorporation, as amended, and bylaws as in effect on the date hereof. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement in accordance with the terms hereof will not, violate any provision of such certificates of incorporation or bylaws. Each of Incumaker and SAC has taken all action required by law, its certificate of incorporation, bylaws, or otherwise to authorize the execution and delivery of this Agreement. Each of Incumaker and SAC has full power, authority, and legal right and has taken all action required by law, its incorporation and bylaws, and otherwise to consummate the transactions herein contemplated.
Section 4.02 Capitalization. As of the date hereof, the entire authorized capitalization of Incumaker consists of 750,000,000 authorized shares of common stock, par value $0.001 per share (the “Incumaker Common Stock”), of which 43,271,555 shares are issued and outstanding, all of which are validly issued, fully paid and non-assessable and (b) 10,000,000 shares of preferred stock (the “Incumaker Preferred Stock”) authorized, of which none are issued or outstanding. The Incumaker Common Stock and Incumaker Preferred Stock are hereinafter collectively referred to as the “Incumaker Stock.” All of the issued and outstanding shares of Incumaker Stock are validly issued, fully paid, and non-assessable. There are currently no shares of Incumaker Common Stock reserved for issuance upon exercise of outstanding Incumaker options and warrants. Incumaker Common Stock is not owned or held in violation of any preemptive right of any other person or entity.
Section 4.03 No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which Incumaker or SAC is a party or to which any of their properties or operations are subject.
Section 4.04 Approval of Agreement. The Board of Directors of Incumaker and SAC have authorized the execution and delivery of this Agreement, the Merger Note and the Warrant and have approved the transactions contemplated hereby and thereby. Incumaker has delivered to Sky a copy of the resolutions of the Board of Directors approving this transaction.
| Exhibit 2.2 page 14 of 34 |
Section 4.05 Incumaker Financial Statements. Incumaker has delivered to Sky its audited financial statements for the fiscal years ended May 31, 2018 and May 31, 2017 (together, the “Incumaker Financial Statements”). The Incumaker Financial Statements present fairly and accurately the information contained therein and do not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; each such statement of income and statement of retained earnings presents fairly and accurately the results of operations of Incumaker for the periods indicated; and each such statement of changes in financial position presents fairly and accurately the information purported to be shown therein. The financial statements (including the notes thereto) referred to in this Section 4.05 have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) are correct and complete and are in accordance with the books and records of Incumaker.
Section 4.06 Tax and Other Liabilities. Each of Incumaker and SAC has filed all state and federal Tax returns that it was required to file, and has paid all Taxes shown thereon as owing, except where the failure to file Tax returns or to pay Taxes would not have a material adverse effect on the financial condition of Sky and its subsidiaries taken as a whole. Each of Incumaker and SAC has delivered to Sky correct and complete copies of all federal Income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by Incumaker. None of such tax returns are under audit. Neither Incumaker nor SAC has waived any statute of limitations in respect of any Taxes or agreed to any extension of time with respect to any Tax assessment or deficiency. Neither Incumaker nor SAC is a party to any Tax allocation or sharing agreement. As used herein “Taxes” shall include all federal, state, local or foreign taxes, including but not limited to income, gross receipts, windfall profits, goods and services, value added, severance, property, production, sales, use, license, excise, franchise, employment, withholding or similar taxes, together with any interest, additions or penalties with respect thereto and any interest in respect of such additions or penalties.
Section 4.07 Absence of Certain Changes or Events. Except as set forth in this Agreement, since May 31, 2018:
(a) To the best of Incumaker’s knowledge, there has not been (i) any material adverse change in the business, operations, properties, assets, or condition of Incumaker; or (ii) any damage, destruction, or loss to Incumaker (whether or not covered by insurance) materially adversely affecting the business, operations, properties, assets, or condition of Incumaker;
(b) Incumaker has not (i) amended its certificate of incorporation or bylaws; (ii) declared or made, or agreed to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders or purchased or redeemed, or agreed to purchase or redeem, any of its capital stock; (iii) waived any rights of value which in the aggregate are extraordinary or material considering the business of Incumaker; (iv) made any material change in its method of management, operation, or accounting; (v) entered into any other transaction not in the ordinary course of business; (vi) made any accrual or arrangement for payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (vii) increased the rate of compensation payable or to become payable by it to any of its officers, directors or employees or (viii) made any increase in any profit sharing, bonus, deferred compensation, insurance, pension, retirement, or other employee benefit plan, payment, or arrangement made to, for, or with its officers, directors, or employees; and
| Exhibit 2.2 page 15 of 34 |
(c) Incumaker has not except in the ordinary course of business (i) borrowed or agreed to borrow any funds or incurred, or become subject to, any obligation or liability (absolute or contingent); (ii) paid any obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent Incumaker balance sheet dated December 31, 2017; (iii) sold or transferred, or agreed to sell or transfer, any of its assets, properties, or rights (except (A) the transactions contemplated by the Purchase Agreement, and (B) assets, properties, or rights not used or useful in its business which, in the aggregate have a value of less than $10,000), or canceled, or agreed to cancel, any debts or claims (except debts or claims which in the aggregate are of a value of less than $1,000); (iv) made or permitted any amendment or termination of any contract, agreement, or license to which it is a party if such amendment or termination is material, considering the business of Incumaker; or (v) issued, delivered, or agreed to issue or deliver any stock, bonds or other corporate securities of whatever kind or nature including without limitation debentures (whether authorized and unissued or held as treasury stock), convertible securities, warrants, options, or preferred stock).
Section 4.08 Issuance. The shares of Incumaker Common Stock issued are duly authorized and, are validly issued, fully paid and non-assessable, free from all taxes, liens and charges with respect to the issue thereof, and shall not be subject to preemptive rights or other similar rights of stockholders of Incumaker. When issued, the shares of Newly Issued Incumaker Common Stock will be duly authorized and will be validly issued, fully paid and non-assessable, free from all taxes, liens and charges with respect to the issue thereof, and shall not be subject to preemptive rights or other similar rights of stockholders of Incumaker.
Section 4.09 Approval of Agreement. The board of directors of Incumaker has authorized the execution and delivery of this Agreement and has approved the transactions contemplated hereby and approved the submission of this Agreement and the transactions contemplated hereby to the stockholders of Incumaker for their approval with the recommendation that the transaction be accepted if it has been deemed necessary.
Section 4.10 Incumaker Minutes. Incumaker has delivered to Sky a copy of all the board of directors’ minutes of Incumaker approving this transaction.
Section 4.11 Litigation and Proceedings. There are no actions, suits, proceedings, or investigations pending or, to the best of Incumaker’s and SAC’s knowledge, threatened by or against Incumaker or SAC or affecting Incumaker or SAC or either of their properties, at law or in equity, before any court or other governmental agency or instrumentality, domestic or foreign, or before any arbitrator that would have a material adverse effect on its business. Neither Incumaker nor SAC has any knowledge of any default on its part with respect to any judgment, order, writ, injunction, decree, award, rule, or regulation of any court, arbitrator, or governmental agency or instrumentality or of any circumstances which, after reasonable investigation, would result in the discovery of such a default.
| Exhibit 2.2 page 16 of 34 |
Section 4.12 Contracts. Other than as disclosed to Sky or included in the Incumaker Schedules, (a) there are no material contracts, agreements, franchises, license agreements, or other commitments to which Incumaker is a party or by which it or any of its assets, products, or properties are bound outside of the ordinary course of business; and (b) Incumaker is not a party to any oral or written (i) contract for the employment of any officer or employee which is not terminable on 30 days or less notice; (ii) profit sharing, bonus, deferred compensation, stock option, severance pay, pension benefit or retirement plan, agreement, or arrangement covered by Title IV of the Employee Retirement Income Security Act, as amended; (iii) agreement, contract, or indenture relating to the borrowing of money; (iv) guaranty of any obligation, other than one on which Incumaker is a primary obligor, for the borrowing of money or otherwise, excluding endorsements made for collection and other guaranties of obligations, which, in the aggregate do not exceed more than one year or providing for payments in excess of $10,000 in the aggregate; (vi) collective bargaining agreement; (vii) agreement with any present or former officer or partner of Incumaker or (viii) contract, agreement, or other commitment involving payments by it of more than $10,000 in the aggregate.
Section 4,13 Material Contract Defaults. To the best of Incumaker’s knowledge, Incumaker is not in default under the terms of any outstanding contract, agreement, lease, or other commitment which is material to the business, operations, properties, assets, or condition of Incumaker and there is no event of default in any material respect under any such contract, agreement, lease, or other commitment in respect of which Incumaker has not taken adequate steps to prevent such a default from occurring.
Section 4.14 No Conflict With Other Instruments. The execution of this Agreement and the consummation of the transactions contemplated by this Agreement will not result in the breach of any term or provision of, or constitute an event of default under, any material indenture, mortgage, deed of trust, or other material contract, agreement, or instrument to which Incumaker or SACis a party or to which any of its properties or operations are subject.
Section 4.15 Governmental Authorizations. To the best of Incumaker’s SAC’s knowledge, each of Incumaker and SAC has all licenses, franchises, permits, and other governmental authorizations that are legally required to enable it to conduct its business in all material respects as conducted on the date hereof; except for compliance with federal and state securities and corporation laws, as hereinafter provided, no authorization, approval, consent, or order of, or registration, declaration, or filing with, any court or other governmental body is required in connection with the execution and delivery by Incumaker and SAC of this Agreement and the consummation by Incumaker and SAC of the transactions contemplated hereby.
Section 4.16 Compliance With Laws and Regulations. To the best of Incumaker’s and SAC’s knowledge, each of Incumaker and SAC has complied with all applicable statutes and regulations of any federal, state, or other governmental entity or agency thereof, except to the extent that noncompliance would not materially and adversely affect the business, operations, properties, assets, or condition of Incumaker or SAC or except to the extent that noncompliance would not result in the incurrence of any material liability for Incumaker or SAC.
Section 4.17 Insurance. All the insurable properties of Incumaker are insured in their full replacement value against all risks customarily insured against by persons operating similar properties in localities where such properties are located and under valid and enforceable policies by insurers of recognized responsibility. Such policy or policies containing substantially equivalent coverage will be outstanding on the date of consummation of the transactions contemplated by this Agreement.
| Exhibit 2.2 page 17 of 34 |
Section 4.18 Labor. Incumaker is not a party to or bound by any collective bargaining agreement or any other agreement with a labor union, and, there has been no effort by any labor union or any other person during the twenty-four (24) months prior to the date hereof to organize any employees of Incumaker into one or more collective bargaining units, nor are any such efforts being conducted. To the best of Incumaker’s knowledge, there is no pending or threatened labor dispute, strike or work stoppage which affects or which may affect the business of Incumaker, or which may interfere with its continued operations. To the best of Incumaker’s knowledge, neither Incumaker nor any agent, representative or employee thereof has within the last twenty-four (24) months committed any unfair labor practice as defined in the National Labor Relations Act, as amended, and there is no pending or threatened charge or complaint against Incumaker by or with the National Labor Relations Board or any representative thereof. There has been no strike, walkout or work stoppage involving any of the employees or consultants of Incumaker during the twenty-four (24) months prior to the date hereof. To the best of Incumaker’s knowledge, Incumaker has complied with applicable laws, rules and regulations relating to employment, civil rights and equal employment opportunities or other employment practices, including but not limited to, the Civil Rights Act of 1964, the Fair Labor Standards Act, the Americans with Disabilities Act, as amended and the Immigration Reform and Control Act of 1986, as amended.
Section 4.19 Employment. Except as disclosed to Sky, the employment of each employee of Incumaker is “at will,” and may be terminated, subject to applicable law, at any time by Incumaker, without the imposition of penalties or damages. Incumaker has received no notice of any claim before any governmental body brought by or on behalf of any employee, prospective employee, former employee, retiree, labor organization or other representative of employees or any governmental body or, is any such claim threatened against Incumaker. Incumaker is not a party to, or otherwise bound by, any order relating to its employees or employment practices. Incumaker has paid in full to all of its employees all wages, salaries, commissions, bonuses, benefits and other compensation due and payable to such employees in accordance with its normal payroll practices. No current or former employee of Incumaker is (i) absent on a military leave of absence and/or eligible for rehire under the terms of the Uniformed Services Employment and Reemployment Rights Act, or (ii) absent on a leave of absence under the Family and Medical Leave Act.
Section 4.20 Employee Benefits. There is no employee benefit plan which is sponsored, maintained or contributed to by Incumaker or to which Incumaker has an obligation to contribute, or otherwise affecting or involving Incumaker or any of the employees of or consultants to Incumaker.
Section 4.21 Environmental Matters. To the best of Incumaker’s and SAC’s knowledge, neither Incumaker nor SAC has any liability under, and each are presently in compliance in all material respects with all environmental laws applicable to Incumaker and SAC, their assets or business. Neither Incumaker nor SAC has no knowledge of the releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, disposing, or dumping of hazardous substances into the soil, surface waters, ground waters, land, stream sediments, surface of subsurface strata, ambient air, sewer system, or any environmental medium at or from any property or asset owned, used or occupied by Incumaker or SAC, respectively,in violation of any applicable environmental law. To the best of Incumaker’s or SAC’s knowledge, none of the following exists at any property owned, occupied or controlled by Incumaker or SAC: (1) underground storage tanks, (2) materials or equipment containing polychlorinated biphenyls in concentrations greater than 50 parts per million, or (3) landfills or disposal areas.
| Exhibit 2.2 page 18 of 34 |
Section 4.22 Loans . Schedule 4.22 sets forth the name of each bank, trust or other financial institution and stock or other broker with which Incumaker has an account, credit line or loan, and the names of all persons authorized by proxies, powers of attorney or other like instrument to act on behalf of Incumaker in matters concerning any of its business or affairs. No such proxies, powers of attorney or other like instruments are irrevocable.
Section 4.23 Absence of Certain Business Practices. To the best of Incumaker’s knowledge, neither Incumaker, nor any other affiliate or agent of Incumaker, or any other person acting on behalf of or associated with Incumaker, acting alone or together, has (a) received, directly or indirectly, any rebates, payments, commissions, promotional allowances or any other economic benefits, regardless of their nature or type, from any customer, supplier, employee or agent of any customer or supplier; or (b) directly or indirectly given or agreed to give any money, gift or similar benefit to any customer, supplier, employee or agent of any customer or supplier, any official or employee of any government (domestic or foreign), or any political party or candidate for office (domestic or foreign), or other person who was, is or may be in a position to help or hinder the business of Incumaker (or assist Incumaker in connection with any actual or proposed transaction), in each case which (i) may subject Incumaker to any damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, may have had an adverse effect on the assets, business, operations or prospects of Incumaker, or (iii) if not continued in the future, may adversely affect the assets, business, operations or prospects of Incumaker.
Section 4.24 No Undisclosed Liabilities. To the best of Incumaker’s and SAC’s knowledge, neither Incumaker nor SAC has any liabilities or obligations of any nature (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, due or to become due), including without limitation any liability for Taxes or any obligations or liabilities of the nature or type required to be disclosed under GAAP, which are, individually or in the aggregate, material to the business, results of operations, assets or financial condition of Incumaker or SAC, taken as a whole, other than such liabilities or obligations that have been specifically disclosed in the Incumaker Financial Statements or incurred thereafter in the ordinary course of business.
| Exhibit 2.2 page 19 of 34 |
Section 4.25 Materiality. To the best of Incumaker’s and SAC’s knowledge, no representation or warranty in this Article IV contains any materially untrue statement of a material fact or omits to state any material fact required to make the statements contained therein not materially misleading or materially necessary in order to provide Sky with reasonably complete information as to Incumaker’s or SAC’s business or financial condition.
ARTICLE V
DELIVERIES AT CLOSING
Section 5.01 Taking of Necessary Action. Sky and Incumaker shall use commercially reasonable efforts to take all such actions as may be necessary or appropriate to effectuate the transactions contemplated by this Agreement. If, at any time after the execution hereof, any further action is necessary or desirable to carry out the purposes of this Agreement, to (a) vest Incumaker with title to 100% of the issued and outstanding shares of Sky Stock, or (b) vest the Sky Stockholders with title to 100% of the issued and outstanding shares of Newly Issued Incumaker Common Stock, the officers and directors of Incumaker or Sky, as the case may be, shall take such necessary or desirable action in order to effectuate the transactions contemplated by this Agreement.
Section 5.02 Stock Legends. Certificates representing all shares of Incumaker Common Stock (such definition for purposes of this section shall include Newly Issued Incumaker Common Stock) shall bear a legend restricting transfer of the shares of Incumaker Common Stock represented by such certificate in substantially the form set forth below:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY OTHER JURISDICTIONS. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
Incumaker shall, from time to time, make stop transfer notations in its records to ensure compliance in connection with any proposed transfer of the shares with the Securities Act, and all applicable state securities laws.
Section 5.03 Fees and Expenses. Each of Incumaker and Sky shall be responsible for all of their respective fees and expenses incurred in connection with the negotiation, execution, delivery and performance of this Agreement and the transactions contemplated hereby, including, without limitation, the professional fees of counsel for each of the parties incurred in connection with this Agreement.
| Exhibit 2.2 page 20 of 34 |
Section 5.04 Closing Events. At the Closing, each of the respective Parties hereto shall execute, acknowledge, and deliver (or shall cause to be executed, acknowledged, and delivered) any and all certificates, opinions, financial statements, schedules, agreements, resolutions, rulings, or other instruments required by this Agreement to be so delivered at or prior to the Closing, together with such other items as may be reasonably requested by the parties hereto and their respective legal counsel in order to effectuate or evidence the transactions contemplated hereby. Deliveries at Closing shall include, without limitation, the following:
(a) Deliveries by Sky. At or prior to the Closing, Sky shall deliver to Incumaker:
(i) resolutions or consents signed by the Sky stockholders approving, adopting and ratifying this Agreement, the Merger and the transactions contemplated hereby;
(ii) resolutions of the Board of Directors of Sky approving, adopting and ratifying this Agreement, the Merger and the transactions contemplated herein;
(iii) a certificate executed by Sky to the effect that the conditions set forth in Section 6.01 and 6.03 have been satisfied; and
(iv) to the extent available, all outstanding stock certificates that have been issued and which are outstanding, duly endorsed in favor of Incumaker.
(b) Deliveries by Incumaker. At or prior to the Closing, Incumaker shall deliver to the Shareholder Representative:
(i) resolutions or consents of the Board of Directors of Incumaker approving, adopting and ratifying this Agreement, the Merger and the transactions contemplated hereby;
(ii) Incumaker Common Stock with respect to stock certificates surrendered at closing by Sky stockholders pursuant to Section 5.04(a)(iv) above,
(iii) a certificate executed by an authorized officer of Incumaker, to the effect that the conditions set forth in Section 6.01 and 6.02 have been satisfied;
(iv) the Merger Note in the form attached hereto and incorporated herein as Exhibit A; and
(v) the Warrant in the form attached hereto and incorporated herein as Exhibit C.
ARTICLE VI
CONDITIONS TO CLOSING
Section 6.01 Mutual Conditions. The respective obligations of the parties hereto to enter into and complete the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by the parties, to the extent permitted by applicable law.
| Exhibit 2.2 page 21 of 34 |
(a) Litigation. On the Closing Date, there shall not be any action, judgment, order, decree, stipulation, injunction or charge from any governmental authority in effect preventing consummation of any of the Transactions, and there shall be no litigation, proceeding or investigation pending or threatened that seeks to prevent the Merger.
Notwithstanding the failure of any one or more of the foregoing conditions in this Section 6.01, the parties may proceed with the Closing without satisfaction, in whole or in part, of any one or more of such conditions and without written waiver.
Section 6.02 Conditions to the Obligation of Sky. The obligation of Sky to enter into and complete the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Sky, to the extent permitted by applicable law.
(a) Representations and Warranties. The representations and warranties of Incumaker and SAC contained in Article IV shall be true and correct on and as of the Closing Date as though made at and as of that date (other than representations and warranties that recite that they are only made as of an earlier date, in which case they shall be true and correct in all material respects as of such earlier date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality”, as set forth therein) does not result in, and would not reasonably be expected to result in, individually or in the aggregate, a material adverse effect on the ability of Incumaker or SAC to perform their obligations hereunder.
(b) Compliance with Covenants. Incumaker and SAC each shall in all material respects have performed and complied with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by them on or prior to the Closing Date.
(c) Good Standing. Incumaker shall have delivered to Sky certificates of officers and public officials as shall be reasonably requested by Sky to establish the existence and good standing of Incumaker and SAC in the State of Delaware.
(d) Delivery by Incumaker and SAC. Incumaker and SAC shall have delivered to Sky (or such other Person as noted) at Closing all of the items specified to be delivered by them in Section 5.04(b).
(e) Preferred Stock Conversion. All shares of Preferred Stock of Sky shall have been converted into shares of Common Stock of Sky.
(f) Shareholder Approval. Sky shall have received the requisite Sky Shareholder approval for the transactions contemplated hereby.
(g) Personal Guarantees. Incumaker shall cause Hering to be removed from all personal guarantees or similar obligations relating to any obligation of Sky, including those listed on Schedule 6.02(h).
| Exhibit 2.2 page 22 of 34 |
Notwithstanding the failure of any one or more of the foregoing conditions in this Section 6.02, Sky may proceed with the Closing without satisfaction, in whole or in part, of any one or more of such conditions and without written waiver. To the extent that, at the Closing, Incumaker delivers to Sky a written notice specifying in reasonable detail the failure of any such condition, and Sky nevertheless proceeds with the Closing, then Sky shall not be deemed to have waived any rights or remedies they may have against Incumaker or SAC by reason of the failure of such conditions to the extent described in such notice.
Section 6.03 Conditions to the Obligations of Incumaker and SAC. The obligation of Incumaker and SAC to enter into and complete the Closing is subject to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Incumaker, to the extent permitted by applicable law.
(a) Representations and Warranties. The representations and warranties of Sky contained in Article III shall be true and correct on and as of the Closing Date as though made at and as of that date (other than representations and warranties that recite that they are only made as of an earlier date, in which case they shall be true and correct in all respects as of such earlier date), except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to “materiality” or “material adverse effect” as set forth therein) does not result in, and would not reasonably be expected to result in, individually or in the aggregate, a material adverse effect.
(b) Compliance with Covenants. Sky shall in all material respects have performed and complied with all terms, agreements, covenants and conditions of this Agreement to be performed or complied with by it on or prior to the Closing Date.
(c) Consents and Approvals. All consents, if any, identified on a Schedule of Consents shall have been obtained, occurred or have been made. Such consents shall be on terms and conditions that would not result in the imposition on Incumaker, SAC or the Surviving Corporation or their respective businesses of any material costs, material liabilities or materials restrictions that are not consented to by the burdened party.
(d) No Material Adverse Effect. There shall not have been or occurred any event, change, occurrence or circumstance that, individually or in the aggregate with any such events, changes, occurrences or circumstances, has had or could reasonably be expected to have a material adverse effect since December 31, 2017, that continues to exist as of the Closing Date;
(e) Good Standing. Sky shall have delivered to Incumaker certificates of officers and public officials as shall be reasonably requested by Incumaker to establish the existence and good standing of Sky.
(f) Delivery by Sky. Sky shall have delivered to Incumaker at Closing all of the items specified to be delivered by them in Section 6.02.
| Exhibit 2.2 page 23 of 34 |
Notwithstanding the failure of any one or more of the foregoing conditions in this Section 6.03, Incumaker and SAC may proceed with the Closing without satisfaction, in whole or in part, of any one or more of such conditions and without written waiver. To the extent that, at the Closing, Sky delivers to Incumaker a written notice specifying in reasonable detail the failure of any such condition, and Incumaker and SAC nevertheless proceed with the Closing, Incumaker and SAC shall not be deemed to have waived any rights or remedies they may have against Sky (including rights under Article VII) by reason of the failure of such conditions to the extent described in such notice.
ARTICLE VII
TERMINATION
Section 7.01 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing:
(a) by the mutual written consent of Sky and Incumaker; or
(b) by any party, if: (i) a material breach shall exist with respect to the written representations and warranties made by the other party; (ii) the other party shall take any action prohibited by this Agreement, if such actions shall or may have a material adverse effect on Incumaker or on Sky, and/or the transactions contemplated hereby, and shall not fully remedy same within ten (10) Business Days after written notice thereof to such party; (iii) the other party shall not have furnished, upon reasonable notice therefore, such certificates and documents required in connection with the transactions contemplated hereby and matters incidental thereto as it or he shall have agreed to furnish, and it is reasonably unlikely that the other party will be able to furnish such item(s) prior to November 30, 2018 (the “Outside Closing Date”); or (iv) any consent of any third party to the transactions contemplated hereby (whether or not the necessity of which is disclosed herein or in any Schedule hereto) is reasonably necessary to prevent a default under any outstanding material obligation of either party hereto and such consent is not obtainable without material cost or penalty (unless the party not seeking to terminate this Agreement agrees or agree to pay such cost or penalty); or
(c) by any party, at any time on or after the Outside Closing Date, if the transactions contemplated hereby shall not have been consummated prior thereto; provided, that the party seeking to effect such termination of this Agreement shall not then be in breach or default of any material representation, warranty, covenant, agreement or obligation imposed upon such party by this Agreement; or
(d) by either party in the event that its due diligence investigation of the other shall reveal that the other (i) has any liabilities, obligations, contracts, commitments or contingencies of any kind, which could reasonably be expected to expose Sky or Incumaker to any cost, claim, expense, damage or liability from and after the Closing, or (ii) is subject to any claim, deficiency, legal or administrative proceeding or threats thereof which could reasonably be expected to result in litigation and liability to Sky or Incumaker from and after the Closing; or
| Exhibit 2.2 page 24 of 34 |
(e) by Incumaker or Sky in the event that the holders of a majority of the outstanding shares of the Sky Stock do not consent in writing to this Agreement, the Merger and the transactions contemplated hereby.
In the event of termination of this Agreement pursuant to this Section 7.01, prompt written notice shall be given by the terminating party to the other party, and, unless the party seeking to terminate this Agreement shall have no right to do so, neither party to this Agreement shall have any further liability to the other.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Shareholder Representative. For purposes of this Agreement, the Sky Shareholders hereby designate Michael Hering to serve as the sole and exclusive representative of the Shareholders (the “Shareholder Representative”) with respect to those provisions of this Agreement that contemplate action by the Shareholder Representative, including ancillary agreements such as the Merger Note, Guaranty and Security Agreement; provided, however, that if Michael Hering at any time is unable, due to incapacity or otherwise, to serve as Shareholder Representative or resigns as Shareholder Representative, then [Name] shall serve as successor Shareholder Representative. Each successor Shareholder Representative, if required to serve, shall sign an acknowledgment in writing agreeing to perform and be bound by all of the provisions of this Agreement applicable to the Shareholder Representative. Each successor Shareholder Representative shall have all of the power, authority, rights and privileges conferred by this Agreement upon the original Shareholder Representative, and the term “Shareholder Representative” as used herein shall be deemed to include any successor Shareholder Representative.
(a) The Shareholder Representative is hereby constituted and appointed as agent and attorney-in-fact for and on behalf of the Sky Shareholders with respect to the performance of his or her duties as the Shareholder Representative. This power of attorney and all authority hereby conferred is granted and shall be irrevocable and shall not be terminated by any act of any Sky Shareholder, by operation of Law, whether by such Sky Shareholder’s death, disability, protective supervision or any other event. The Shareholder Representative shall promptly deliver to each Sky Shareholder any notice received by the Shareholder Representative concerning this Agreement. Without limiting the generality of the foregoing, the Shareholder Representative has full power and authority, on behalf of each Sky Shareholder and such Sky Shareholder’s successors and assigns, to: (i) interpret the terms and provisions of this Agreement and the documents to be executed and delivered by the Shareholders in connection herewith, including the Merger Note, Guaranty and Security Agreement, (ii) execute and deliver and receive deliveries of all agreements, certificates, statements, notices, approvals, extensions, waivers, undertakings, amendments, and other documents required or permitted to be given in connection with the consummation of the transactions contemplated by this Agreement and the Merger Note, Guaranty and Security Agreement (including executing this Agreement, the Merger Note, the Guaranty and the Security Agreement, (iii) receive service of process in connection with any claims under this Agreement, the Merger Note, the Guaranty or the Security Agreement, (iv) agree to, negotiate, enter into settlements and compromises of, assume the defense of claims, and demand arbitration and comply with orders of courts and awards of arbitrators with respect to such claims, and to take all actions necessary or appropriate in the judgment of the Shareholder Representative for the accomplishment of the foregoing, (v) give and receive notices and communications, (vi) object to such deliveries, (viii) distribute the proceeds of the Merger Note and the Security Agreement (if applicable) and any earnings and proceeds thereon and (ix) take all actions necessary or appropriate in the judgment of the Shareholder Representative on behalf of the Sky Shareholders in connection with this Agreement, the Merger Note, the Guaranty and the Security Agreement.
| Exhibit 2.2 page 25 of 34 |
(b) The Shareholder Representative shall have no duties or responsibilities except those expressly set forth herein, and no implied covenants, functions, responsibilities, duties, obligations or liabilities on behalf of any Sky Shareholder shall otherwise exist against the Shareholder Representative. The Shareholder Representative shall not be liable to any Sky Shareholder relating to the performance of the Shareholder Representative’s duties under this Agreement for any errors in judgment, negligence, oversight, breach of duty or otherwise except to the extent it is finally determined in a court of competent jurisdiction by clear and convincing evidence that the actions taken or not taken by the Shareholder Representative constituted actual fraud or were taken or not taken in bad faith. The Shareholder Representative shall be indemnified and held harmless by the Sky Shareholders against all losses, including costs of defense, paid or incurred in connection with any action, suit, proceeding or claim to which the Shareholder Representative is made a party by reason of the fact that the Shareholder Representative was acting as the Shareholder Representative pursuant to this Agreement; provided, however, that the Shareholder Representative shall not be entitled to indemnification hereunder to the extent it is finally determined in a court of competent jurisdiction by clear and convincing evidence that the actions taken or not taken by the Shareholder Representative constituted actual fraud or were taken or not taken in bad faith. The Shareholder Representative shall be held harmless in acting upon any notice, statement or certificate believed by the Shareholder Representative to be genuine and to have been furnished by the appropriate person and in acting or refusing to act in good faith on any matter. The Shareholder Representative (in his capacity as such) shall not be liable to Incumaker or the Surviving Corporation by reason of this Agreement or the performance the Shareholder Representative’s duties hereunder or otherwise.
(c) Incumaker shall be entitled to rely upon any actions taken by the Shareholder Representative as the duly authorized action of the Shareholder Representative on behalf of each Sky Shareholder with respect to any matters set forth in this Agreement, the Merger Note, the Guaranty and the Security Agreement.
Section 8.02 Further Actions. At any time and from time to time, each party agrees, at its expense, to take such actions and to execute and deliver such documents as may be reasonably necessary to effectuate the purposes of this Agreement.
| Exhibit 2.2 page 26 of 34 |
Section 8.03 Survival; Knowledge. The covenants, agreements, representations, and warranties contained in or made pursuant to this Agreement shall not survive the Effective Time, except for those contained in or made pursuant to Articles III and IV. The statements contained in any document executed by Incumaker or SAC relating hereto or delivered to Sky in connection with the transactions contemplated hereby or thereby, or in any statement, certificate, or other instrument delivered by or on behalf of Incumaker or SAC pursuant hereto or thereto or delivered to Sky in connection with the transactions contemplated hereby or thereby shall be deemed representations and warranties, covenants and agreements, or conditions, as the case may be, of Incumaker and SAC hereunder for all purposes of this Agreement (including all statements, certificates, or other instruments delivered pursuant hereto or thereto or delivered in connection with this Agreement, the Merger, or any of the other transactions contemplated hereby or thereby). The statements contained in any document executed by Sky relating hereto or delivered to Incumaker or SAC in connection with the transactions contemplated hereby or thereby, or in any statement, certificate, or other instrument delivered by or on behalf of Sky pursuant hereto or thereto or delivered to Incumaker or SAC in connection with the transactions contemplated hereby or thereby shall be deemed representations and warranties, covenants and agreements, or conditions, as the case may be, of Sky hereunder for all purposes of this Agreement (including all statements, certificates, or other instruments delivered pursuant hereto or thereto or delivered in connection with this Agreement, the Merger, or any of the other transactions contemplated hereby or thereby). For the purposes of this Agreement, where an entity represents and warrants a fact “to its knowledge” or “to the best of its knowledge” it shall have imputed to its knowledge only the actual conscious awareness of facts or other information, without investigation, of the executive officers and the chief financial officer of the entity and its subsidiaries. Where an individual represents and warrants a fact “to the best of the individual’s knowledge” the individual shall have imputed to that individual only the actual conscious awareness of facts or other information, without investigation, of that individual.
Section 8.04 Modification. This Agreement sets forth the entire understanding of the parties with respect to the subject matter hereof and supersedes all existing agreements among them concerning such subject matter. This Agreement may be amended prior to the Effective Time (notwithstanding stockholder adoption and approval) by a written instrument executed by Incumaker, SAC, and Sky with the approval of their respective Boards of Directors; provided, however, that no such amendment shall, without stockholder adoption and approval by an appropriate vote by stockholders of the Constituent Corporation whose stockholders have been adversely affected, change the number of shares of Incumaker Common Stock which may be issued pursuant to this Agreement, or materially and adversely affect the rights of Incumaker or Sky stockholders. No amendment to accelerate or postpone the Effective Time shall be deemed to change such number of shares or affect adversely the rights of the Incumaker or Sky stockholders.
Section 8.05 Notices. All notices under this Agreement must be in writing and addressed, if to Incumaker or SAC, to its corporate secretary, and if to Sky, to its chief executive officer. Any notice or other communication in connection with this Agreement shall be deemed to have been given (i) if personally delivered to a party, when so delivered, (ii) (A) if by certified mail, three business days after mailing or (B) if by Federal Express or other recognized next day carrier timely posted for next business day delivery, the next business day following such timely posting, to the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 7.05), or (iii) if by electronic means to Incumaker to Sky, at the address set forth above, which shall be deemed received upon receipt to be confirmed by the recipient. Either party may change the address or email to which notices or other communications hereunder are to be delivered by giving the other party notice in the manner set forth.
| Exhibit 2.2 page 27 of 34 |
Section 8.06 Waiver. Any waiver by any party of a breach of any term of this Agreement shall not operate as or be construed to be a waiver of any other breach of that term or of any breach of any other term of this Agreement. The failure of a party to insist upon strict adherence to any term of this Agreement on one or more occasions will not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. Any waiver must be in writing and be authorized by a resolution of the Board of Directors or by an officer of the waiving party.
Section 8.07 Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of Incumaker, SAC, and Sky and their respective successors and assigns and shall inure to the benefit of each Incumaker indemnitee and each Sky indemnitee and its successors and assigns (if not a natural person) and his assigns, heirs, and personal representatives (if a natural person).
Section 8.08 No Third-Party Beneficiaries. This Agreement does not create, and shall not be construed as creating, any rights enforceable by any person not a party to this Agreement except for the Sky stockholders with respect to Section 2.01.
Section 8.09 Severability. If any provision of this Agreement is invalid, illegal, or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all other persons and circumstances, provided, however, that the economic and legal substance of the transactions contemplated by this Agreement are not affected in any way materially adverse to any party hereto.
Section 8.10 Headings. The headings in this Agreement are solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement.
Section 8.11 Counterparts; Governing Law. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. It shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to conflict of laws. Any action, suit, or proceeding arising out of, based on, or in connection with this Agreement, any document relating hereto or delivered in connection with the transactions contemplated hereby, any statement, certificate, or other instrument delivered by or on behalf of, or delivered to, any party hereto or thereto in connection with the transactions contemplated hereby or thereby, any breach of this Agreement or such other document, the Merger, or the other transactions contemplated hereby or thereby may be brought only in the state courts of the State of Delaware located in Kent County, or in the United States District Court for the District of Delaware, and each party covenants and agrees not to assert, by way of motion, as a defense, or otherwise, in any such action, suit, or proceeding, any claim that it is not subject personally to the jurisdiction of such court if it has been duly served with process, that its property is exempt or immune from attachment or execution, that the action, suit, or proceeding is brought in an inconvenient forum, that the venue of the action, suit, or proceeding is improper, or that this Agreement or the subject matter hereof may not be enforced in or by such court.
| Exhibit 2.2 page 28 of 34 |
IN WITNESS WHEREOF, this Agreement has been executed by duly authorized officers of each of the parties hereto as of the date first above written.
| INCUMAKER, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: President and CEO | ||
| SA.COM ACQUISITION CORP. | ||
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: President | ||
| SKYAUCTION.COM , INC. | ||
| By: | /s/ Michael Hering | |
| Name: Michael Hering | ||
| Title: President and CEO | ||
| SHAREHOLDER REPRESENTATIVE | ||
| By: | /s/ Michael Hering | |
| Name: Michael Hering | ||
| Exhibit 2.2 page 29 of 34 |
INCUMAKER AND SAC DISCLOSURE SCHEDULES
Schedule 4.06 Tax and Other Liabilities
Incumaker has not filed its 2017 Federal or state income tax returns which will be filed following receipt by the Company’s tax preparer of the Company’s final audited financial report expected no later than October 31, 2018.
Schedule 4.02 Capitalization
500,000 warrants issued to Street Capital convertible at $0.07 with an exercise termination date of November 11, 2018.
Schedule 4.22 Loans –
See attached Incumaker Debt Schedule
| Exhibit 2.2 page 30 of 34 |
Exhibit A
FORM OF PROMISSORY NOTE
| Exhibit 2.2 page 31 of 34 |
Exhibit B
LIST OF SKYAUCTION SHAREHOLDERS
| Exhibit 2.2 page 32 of 34 |
Exhibit C
FORM OF WARRANT
| Exhibit 2.2 page 33 of 34 |
Exhibit D
Form of Secured Unconditional Guaranty
| Exhibit 2.2 page 34 of 34 |
Exhibit E
Security Agreement
Exhibit 2.3
page 1 of 2
CERTIFICATE OF MERGER
MERGING
UBID HOLDINGS, INC.
A DELAWARE CORPORATION
WITH AND INTO
INCUMAKER, INC.
A DELAWARE CORPORATION
____________________________________
Pursuant to Section 252 of the General Corporation Law of the State of Delaware
____________________________________
Incumaker, Inc., a Delaware corporation (the “Company”), does hereby certify as follows:
FIRST: The Company is a Delaware corporation duly organized and existing under the laws of the State of Delaware.
SECOND: An Agreement and Plan of Merger dated October 23, 2018 (the “Merger Agreement”), by and between the Company and uBID Holdings, Inc., a Delaware corporation (the “Merger”), has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with Section 252 of the Delaware General Corporation Law.
THIRD: The Company is the surviving corporation in the Merger (the “Surviving Corporation”) and the name of the Surviving Corporation shall be Incumaker, Inc.
FOURTH: The Certificate of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation of the Surviving Corporation.
FIFTH: An executed copy of the Merger Agreement is on file at the principal place of business of the Surviving Corporation at the following address:
Incumaker, Inc.
327 Dahlonega Road
Suite 1701B
Cumming, GA 30040
SIXTH: A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of either constituent corporation.
SEVENTH: The Merger shall become effective upon filing of this Certificate of Merger with the Secretary of State of Delaware.
Exhibit 2.3
page 2 of 2
IN WITNESS WHEREOF, Company has caused this Certificate of Merger to be executed in its corporate name as of the 5th day of November, 2018.
| INCUMAKER, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: President and CEO | ||
Exhibit 2.4
page 1 of 2
CERTIFICATE OF MERGER
MERGING
SA.COM Acquisition Corp.
A DELAWARE CORPORATION
WITH AND INTO
SkyAuction.com, INC.
A DELAWARE CORPORATION
Pursuant to Section 251 of the General Corporation Law of the State of Delaware
SkyAuction.com, Inc., a Delaware corporation (the “Company”), does hereby certify as follows:
FIRST: The Company is a Delaware corporation duly organized and existing under the laws of the State of Delaware.
SECOND: An Agreement and Plan of Merger dated November 12, 2018 (the “Merger Agreement”), by and between the Company and SA.com Acquisition Corp., a Delaware corporation (the “Merger”), has been approved, adopted, certified, executed and acknowledged by each of the constituent corporations in accordance with Section 251 of the Delaware General Corporation Law.
THIRD: The Company is the surviving corporation in the Merger (the “Surviving Corporation”) and the name of the Surviving Corporation shall be SkyAuction.com, Inc.
FOURTH: The Certificate of Incorporation of the Surviving Corporation shall be the Certificate of Incorporation of the Surviving Corporation.
FIFTH: An executed copy of the Merger Agreement is on file at the principal place of business of the Surviving Corporation at the following address:
SkyAuction.com, Inc.
241 North Avenue West
Westfield, New Jersey 07090
SIXTH: A copy of the Merger Agreement will be furnished by the Surviving Corporation, on request and without cost, to any stockholder of either constituent corporation.
SEVENTH: The Merger shall become effective upon filing of this Certificate of Merger with the Secretary of State of Delaware.
Exhibit 2.4
page 2 of 2
IN WITNESS WHEREOF, Company has caused this Certificate of Merger to be executed in its corporate name as of the 13th day of November, 2018.
| SKYAUCTION.COM, INC. | |||
| By: | /s/ Michael Hering | ||
| Name: | Michael Hering | ||
| Title: | President | ||
Exhibit 3.1
page 1 of 18
| State of Delaware Secretary of State Division of Corporations Delivered 04:32 PM 04/13/2011 FILED 04:27 PM 04/13/2011 SRV 110412783 - 4968487 FILE |
CERTIFICATE OF INCORPORATION
OF
INCUMAKER, INC.
The undersigned, a natural person, for the purpose of organizing a corporation for conducting business and promoting the purposes hereinafter stated, under the provision and subject to the requirements of the laws of the State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and supplemental thereto, and known, identified, and referred to as the "General Corporation Law of the State of Delaware" or "DGLC"), hereby certifies that:
FIRST: Name. The name of the corporation is Incumaker, Inc. (the "Corporation").
SECOND: Registered Office. The registered office of the Corporation is to be located in the City of Wilmington, County of New Castle, in the State of Delaware. The name of its registered agent is the Corporation Service Company, whose address is 2711 Centerville Road, Suite 400, Wilmington, Delaware 19808.
THIRD: Purpose. The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
FOURTH: Capital Stock.
A. Authorized. The total number of shares of all classes of stock which the Corporation shall have authority to issue is Eighty-five Million (85,000,000), of which Seventy-Five Million (75,000,000) shares shall be common stock, $.001 par value per share (the "Common Stock"), and Ten Million (10,000,000) shares shall be preferred stock, $.001 par value per share (the "Preferred Stock").
B. Provisions Relating to Preferred Stock. Shares of Preferred Stock may be issued from time to time in series, and the Board of Directors of the Corporation is hereby authorized, subject to the limitations provided by law, to establish and designate one or more series of the Preferred Stock, to fix the number of shares constituting each series, and to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of each series and the variations and the relative rights, preferences and limitations as between series, and to increase and to decrease the number of shares constituting each series. The authority of the Board of Directors of the Corporation with respect to each series shall include, but shall not be limited to, the authority to determine the following:
(i) The designation of such series.
(ii) The number of shares initially constituting such series.
(iii) The increase, and the decrease to a number not less than the number of the outstanding shares of such series, of the number of shares constituting such series theretofore fixed.
(iv) The rate or rates, and the conditions upon and the times at which dividends on the shares of such series shall be paid, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes or on any other series of stock of the Corporation, and whether or not such dividends shall be cumulative, and, if such dividends shall be cumulative, the date or dates from and after which they shall accumulate.
| Exhibit 3.1 page 2 of 18 |
(v) Whether or not the shares of such series shall be redeemable, and, if such shares shall be redeemable, the terms and conditions of such redemption, including, but not limited to, the date or dates upon or after which such shares shall be redeemable and the amount per share which shall be payable upon such redemption, which amount may vary under different conditions and at different redemption dates.
(vi) The rights to which the holders of the shares of such series shall be entitled upon the voluntary or involuntary liquidation, dissolution or winding up of, or upon any distribution of the assets of, the Corporation, which rights may be different in the case of a voluntary liquidation, dissolution or winding up than in the case of such an involuntary event.
(vii) Whether or not the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if such shares shall have such voting rights, the terms and conditions thereof, including, but not limited to, the right of the holders of such shares to vote as a separate class either alone or with the holders of shares of one or more other series of Preferred Stock and the right to have more than one vote per share.
(viii) Whether or not a sinking fund or a purchase fund shall be provided for the redemption or purchase of the shares of such series, and, if such a sinking fund or purchase fund shall be provided, the terms and conditions thereof.
(ix) Whether or not the share of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation, and, if provision be made for conversion or exchange, the terms and conditions of conversion or exchange, including, but not limited to, any provision for the adjustment of the conversion or exchange rate or the conversion or exchange price.
(x) Any other relative rights, preferences and limitations.
C. Provisions Relating to Common Stock.
(i) Dividends. Subject to the preferential dividend rights applicable to shares of the Preferred Stock pursuant to Part D of this Article FOURTH and as determined by the Board of Directors of the Corporation pursuant to the provisions of Part B of this Article FOURTH, the holders of shares of the Common Stock shall be entitled to receive such dividends as may be declared by the Board of Directors of the Corporation.
(ii) Liquidation. Subject to the preferential liquidation rights pursuant to Part D of this Article FOURTH and as determined by the Board of Directors of the Corporation pursuant to the provisions of Part B of this Article FOURTH, in the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any distribution of the assets of, the Corporation, the holders of shares of the Common Stock shall be entitled to receive all of the assets of the Corporation available for distribution to its stockholders ratably in proportion to the number of shares of the Common Stock held by them.
(iii) Voting. Except pursuant to Part D of this Article FOURTH or as determined by the Board of Directors of the Corporation pursuant to the provisions of Part B of this Article FOURTH, the holders of shares of the Common Stock shall be entitled to vote on all matters at all meetings of the stockholders of the Corporation, and shall be entitled to one vote for each share of the Common Stock entitled to vote at such meeting, voting together with the holders of the Preferred Stock who are entitled to vote thereon, and not as a separate class.
| 2 |
| Exhibit 3.1 page 3 of 18 |
D. Designation of Series B Convertible Preferred Stock. The designations, powers, preferences, rights, qualifications, limitations or restrictions relating to the Series B Convertible Preferred Stock shall be as set forth in Exhibit A attached hereto.
FIFTH: Classified Directors.
A. Classification. The total number of directors shall be divided into three classes, designated Class I, Class II and Class III, with each class containing one-third of the total, as near as may be possible. The term of office of directors of one class shall expire at each meeting of stockholders. The initial term of office of directors of Class I shall expire at the annual meeting of stockholders in 2000; that of Class II shall expire at the annual meeting of stockholders in 2001; and that of Class III shall expire at the annual meeting of stockholders in 2002; and in any cases as to each director until his successor shall be elected and shall qualify or until his earlier resignation, removal from office, death or disability. Additional directorships resulting from an increase in the number of directors shall be apportioned among the classes as equally as possible. At each annual meeting of stockholders, the number of directors equal to the number of directors of the class whose term expires at such meeting (or, if less, the number of directors properly nominated and qualified for election) shall be elected to hold office until the third succeeding annual meeting of stockholders after their election. Notwithstanding the foregoing, whenever the holders of any one or more classes or series of Preferred Stock of the Corporation shall have the right, voting separately as a class, to elect a director or directors, the director or directors so elected shall not be classified pursuant to this Article FIFTH, and the term of the director or directors so elected shall expire at the next succeeding annual meeting of stockholders.
B. Vote to Change. Notwithstanding any other provision of this Certificate of Incorporation or the By-Laws of the Corporation (and in addition to any other vote that may be required by law, the Certificate of Incorporation or the By-Laws of the Corporation), the affirmative vote of the holders of sixty-six and two-thirds (66 2/3%) percent of all classes of stock of the Corporation entitled to vote generally in election of directors, considered for purposes of this Article FIFTH as one class, shall be required to amend, alter, change, repeal or adopt any provision inconsistent with this Article FIFTH.
SIXTH: Incorporator. The name and mailing address of the incorporator is:
| Name | Mailing Address | |
| Robert J. Mortem | Investment Law Group of Gillett, | |
| Mottern & Walker, LLP | ||
| 1230 Peachtree Street, N.E. | ||
| Suite 2445 | ||
| Atlanta, Georgia 30309 |
SEVENTH: Compromise. Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation under the provisions of Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said organization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
| 3 |
| Exhibit 3.1 page 4 of 18 |
EIGHTH: Board of Directors and By-Laws. All corporate powers shall be exercised by the Board of Directors, except as otherwise provided by statute, by this Certificate of Incorporation, by the By-Laws, or by any agreement among all of the stockholders. The By-Laws may be adopted, amended or repealed by the Board of Directors of the Corporation, except as otherwise provided by law, but any by-law made by the Board of Directors is subject to amendment or repeal by the stockholders of the Corporation.
NINTH: Limited Liability. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for any transaction from which the director derived any improper personal benefit. If the DGCL is hereafter amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
TENTH: Indemnification. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or complete action, suit or proceeding, whether civil, criminal, administrative or investigative, or by or in the right of the Corporation to procure judgment in its favor, by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, in accordance with and to the full extent permitted by statute. Expenses (including attorneys' fees) incurred in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the Corporation as authorized in this Article. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under this Certificate of Incorporation or any agreement or vote of stockholders of disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such person.
IN WITNESS WHEREOF, Incumaker, Inc. has caused this Certificate of Incorporation to be duly executed by the undersigned this 12th day of April, 2011.
| 4 |
| Exhibit 3.1 page 5 of 18 |
| INCUMAKER, INC |
| By: | /s/ Robert J. Mottern | ||
| Name: | Robert J. Mottern | ||
| Title: | Incorporator | ||
| 5 |
| Exhibit 3.1 page 6 of 18 |
EXHIBIT A
CERTIFICATE OF DESIGNATION,
OF THE RIGHTS AND PREFERENCES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
INCUMAKER, INC.
Incumaker, Inc., a corporation organized and existing under the laws of the State of Delaware (the "Company"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Company pursuant to the authority of the Board of Directors as required by Section 151 of the Delaware General Corporation Act (the "DGCL").
RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Company (the "Board of Directors" or the "Board") in accordance with the provisions of its Articles of Incorporation and Bylaws, each as amended through the date hereof, the Board of Directors hereby authorizes a series of the Company's previously authorized Preferred Stock, $.001 par value (the "Preferred Stock"), and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows:
I. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, capitalized terms are defined in this Certificate of Designation or shall have the following meanings:
"Change of Control" means the acquisition, directly or indirectly, by any Person of ownership of, or the power to direct the exercise of voting power with respect to, a majority of the issued and outstanding voting shares of the Company.
"Common Stock" means the common stock of the Company, par value $.001 per share.
"Issuance Date " means the date of the Closing under the Convertible Preferred Stock Purchase Agreement with respect to the initial issuance of the Series B Preferred Stock.
"Per Share Market Value " of the Common Stock means on any particular date (a) the last sale price of shares of Common Stock on such date or, if no such sale takes place on such date, the last sale price on the most recent prior date, in each case as officially reported on the principal national securities exchange on which the Common Stock is then listed or admitted to trading, or (b) if the Common Stock is not then listed or admitted to trading on any national securities exchange, the closing bid price per share as reported by Nasdaq, or (c) if the Common Stock is not then listed or admitted to trading on the Nasdaq, the closing bid price per share of the Common Stock on such date as reported on the OTCBB or if there is no such price on such date, then the last bid price on the date nearest preceding such date, or (d) if the Common Stock is not quoted on the OTCBB, the closing bid price for a share of Common Stock on such date in the over-the-counter market as reported by the Pinksheets LLC (or similar organization or agency succeeding to its functions of reporting prices) or if there is no such price on such date, then the last bid price on the date nearest preceding such date, or (e) if the Common Stock is no longer publicly traded, the fair market value of a share of the Common Stock as determined by an Appraiser (as defined in the Certificate of Designation) selected in good faith by the holders of a majority of the Series B Preferred Stock; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select an additional Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Appraiser.
| 6 |
| Exhibit 3.1 page 7 of 18 |
"Person " means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.
"Purchase Agreement" means the Convertible Preferred Stock Purchase Agreement dated March 24, 2004, by and between the Company and the purchaser set forth in Schedule 1 thereto (the "Purchaser").
"Redemption Price " means the Stated Value of any share of Series B Preferred Stock that is subject to redemption.
"Trading Day " means (a) a day on which the Common Stock is quoted on the OTCBB or principal stock exchange on which the Common Stock has been listed, or (b) if the Common Stock is not quoted on the OTCBB or any stock exchange, a day on which the Common Stock is quoted in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. ("NASD"), or (c) if the Common Stock is not quoted on the NASD, a day on which the Common Stock is quoted in the over-the-counter market as reported by the Pinksheets LLC (or any similar organization or agency succeeding its functions of reporting prices).
II. DESIGNATION AND AMOUNT
The designation of this series, which consists of three hundred fifty thousand (350,000) shares of Preferred Stock, is the Series B Convertible Preferred Stock (the "Series B Preferred Stock") and the stated value shall be U.S. ten dollars ($10.00) per share (the "Stated Value").
III. DIVIDENDS
The holder of the shares of Series B Preferred Stock as they appear on the stock records of the Company ("Holder" or "Holders") shall not be entitled to receive any dividends.
IV. CONVERSION
(a) Each outstanding share of Series B Preferred Stock shall be convertible into the number of shares of Common Stock determined by dividing the Stated Value by the Conversion Price as defined below, and subject to the Limitation on Conversion in Section 4.13 of the Purchase Agreement, at the option of the Holder in whole or in part, at any time commencing on or after the Issuance Date; provided that, any conversion under this Section IV(a) shall be for a minimum Stated Value of $10,000.00 of Series B Preferred Stock. The Holder shall effect conversions by sending the form of conversion notice attached hereto as Appendix I (the "Notice of Conversion") in the manner set forth in Section IV(j). Each Notice of Conversion shall specify the Stated Value of Series B Preferred Stock to be converted. The date on which such conversion is to be effected (the "Conversion Date") shall be on the date the Notice of Conversion is delivered pursuant to Section IV(j) hereof. Except as provided herein, each Notice of Conversion, once given, shall be irrevocable. If the Holder is converting less than all of the shares represented by a certificate for the Series B Preferred Stock tendered by the Holder in the Notice of Conversion, the Company shall deliver to the Holder a new Series B Preferred Stock certificate for such number of shares as has not been converted within five (5) Business Days of the Company's receipt of the original certificate of Series B Preferred Stock and Notice of Conversion. Upon the entire conversion of the Series B Preferred Stock or the redemption of the Series B Preferred Stock, the certificates for such Series B Preferred Stock shall be returned to the Company for cancellation.
| 7 |
| Exhibit 3.1 page 8 of 18 |
(b) Not later than ten (10) Business Days after the Conversion Date, the Company will deliver to the Holder (i) a certificate or certificates representing the number of shares of Common Stock being acquired upon the conversion of the Series B Preferred Stock and (ii) once received from the Company, the number of shares of Series B Preferred Stock equal to the number of shares of the Series B Preferred Stock not converted; provided, however, that the Company shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon conversion of any Series B Preferred Stock until the Series B Preferred Stock are either delivered for conversion to the Company or any transfer agent for the Series B Preferred Stock or Common Stock, or the Holder notifies the Company that such Series B Preferred Stock certificates have been lost, stolen or destroyed and provides an agreement reasonably acceptable to the Company to indemnify the Company from any loss incurred by it in connection therewith. In the case of a conversion pursuant to a Notice of Conversion, if such certificate or certificates are not delivered by the date required under this Section IV(b), the Holder shall be entitled, by providing written notice to the Company at any time on or before its receipt of such certificate or certificates thereafter, to rescind such conversion, in which event the Company shall immediately return the Series B Preferred Stock tendered for conversion.
(c) Intentionally omitted.
(d) (i) The Conversion Price for each share of Series B Preferred Stock in effect on any Conversion Date shall be the lesser of (a) one dollar and seventy five cents ($1.75) (the "Fixed Conversion Price") or (b) eighty percent (80%) of the lowest closing bid price for the Common Stock in the ten (10) business days preceding the date of conversion, but in no event less than fifty percent (50%) of the Fixed Conversion Price (the "Floating Conversion Price"). For purposes of determining the closing bid price on any day, reference shall be to the closing bid price for a share of Common Stock on such date on the NASD OTC Bulletin Board, as reported on Bloomberg, L.P. (or similar organization or agency succeeding to its functions of reporting prices).
(ii) If the Company, at any time while any Series B Preferred Stock are outstanding, (a) shall pay a stock dividend or otherwise make a distribution or distributions on shares of its Junior Securities (as defined below) payable in shares of its capital stock (whether payable in shares of its Common Stock or of capital stock of any class), (b) subdivide outstanding shares of Common Stock into a larger number of shares, (c) combine outstanding shares of Common Stock into a smaller number of shares, or (d) issue by reclassification of shares of Common Stock any shares of capital stock of the Company, the Fixed Conversion Price designated in Section IV(d)(i) shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock of the Company outstanding before such event and of which the denominator shall be the number of shares of Common Stock outstanding after such event. Any adjustment made pursuant to this Section IV(d)(ii) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification.
(iii) If, at any time while any of the Series B Preferred Stock is outstanding, the Company issues or sells shares of Common Stock, or options, warrants or other rights to subscribe for or purchase shares of Common Stock at a price per share that is less than fifty percent (50%) of the Fixed Conversion Price (the "Floor Conversion Price"), then the Floor Conversion Price shall be multiplied by a fraction, the numerator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such shares, options, warrants or rights plus the number of shares which the aggregate offering price of the total number of shares so offered would purchase at such Floor Conversion Price, and the denominator of which shall be the number of shares of Common Stock (excluding treasury shares, if any) outstanding on the date of issuance of such options, rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase. There will be no adjustment of the Fixed Conversion Price under this subsection IV(d)(iii) if (A) warrants or options are issued to employees or consultants of the Company for services rendered or to be rendered to the Company or if Common Stock is issued upon the exercise of such warrants or options, or (B) other options, warrants or rights to subscribe for or purchase common stock that, in any case, are issued at an exercise or subscription price that is equal to or greater than the Floor Conversion Price.
| 8 |
| Exhibit 3.1 page 9 of 18 |
(iv) If the Company, at any time while Series B Preferred Stock are outstanding, shall distribute to all holders of Common Stock (and not to Holders of Series B Preferred Stock) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security then in each such case the Conversion Price at which each Series B Preferred Stock shall thereafter be convertible shall be determined by multiplying the Fixed Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be the Per Share Market Value of Common Stock determined as of the record date mentioned above, and of which the numerator shall be such Per Share Market Value of the Common Stock on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of Common Stock as determined by the Board of Directors in good faith; provided, however that in the event of a distribution exceeding ten percent (10%) of the net assets of the Company, such fair market value shall be determined by a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Company) (an "Appraiser") selected in good faith by the Holders of a majority of the principal amount of the Series B Preferred Stock then outstanding; and provided, further, that the Company, after receipt of the determination by such Appraiser shall have the right to select an additional Appraiser, in which case the fair market value shall be equal to the average of the determinations by each such Appraiser, In either case the adjustments shall be described in a statement provided to the Holder and all other Holders of Series B Preferred Stock of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.
(v) All calculations under this Article IV shall be made to the nearest 1/1000th of a cent or the nearest l/1000th of a share, as the case may be. Any calculation over .005 shall be rounded up to the next cent or share and any calculation less than .005 shall be rounded down to the previous cent or share.
(vi) In the event the Fixed Conversion Price is not adjusted pursuant to Section IV(d)(ii), (Hi), (iv), or (v), within ten (10) Business Days following the occurrence of an event described therein, and is still not adjusted following thirty (30) days notice from the Holder to the Company requesting that such adjustment be made, then the Holder shall have the right to require the Company to redeem all of the Holder's Series B Preferred Stock at the Stated Value of such Holder's Series B Preferred Stock, and the Company shall pay such amount to the Holder pursuant to the written instructions provided by the Holder.
(vii) Whenever the Fixed Conversion Price is adjusted pursuant to Section IV(d)(ii), (iii), (iv) or (v), the Company shall within two (2) days after the determination of the new Fixed Conversion Price mail and fax to the Holder and to each other Holder of Series B Preferred Stock, a notice setting forth the Fixed Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.
| 9 |
| Exhibit 3.1 page 10 of 18 |
(viii) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another person, the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then each holder of Series B Preferred Stock then outstanding shall have the right thereafter to convert such Series B Preferred Stock only into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange (except in the event the property is cash, then the Holder shall have the right to convert the Series B Preferred Stock and receive cash in the same manner as other stockholders), and the Holder shall be entitled upon such event to receive such amount of securities or property as the shares of the Common Stock into which such Series B Preferred Stock could have been converted immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange would have been entitled. The terms of any such consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the holder the right to receive the securities or property set forth in this Section IV(d)(viii) upon any conversion following such consolidation, merger, sale, transfer or share exchange. This provision shall similarly apply to successive reclassifications, consolidations, mergers, sales, transfers or share exchanges. Notwithstanding the foregoing, in the event of any merger, consolidation or change of control of the Company, then as provided in the Purchase Agreement, the Company shall have the right to demand that the Holder convert all Series B Preferred Stock then held by the Purchaser into Common Stock upon the terms and conditions set forth in this Certificate of Designation. If the Holder does not comply with such demand, the Company may redeem all Series B Preferred Stock held by the Purchaser at their Stated Value.
(ix) If:
(A) the Company shall declare a dividend (or any other distribution) on its Common Stock; or
(B) the Company shall declare a special nonrecurring cash dividend on or a redemption of its Common Stock; or
(C) the Company shall authorize the granting to all holders of the Common Stock rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights; or
(D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock of the Company (other than a subdivision or combination of the outstanding shares of Common Stock), any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property; or
(E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding-up of the affairs of the Company;
| 10 |
| Exhibit 3.1 page 11 of 18 |
then the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of Series B Preferred Stock, and shall cause to be mailed and faxed to the Holders of Series B Preferred Stock at their last addresses as it shall appear upon the Series B Preferred stock register, at least thirty (30) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, transfer, share exchange, dissolution, liquidation or winding-up; provided, however, that the failure to mail such notice or any defect therein or in the mailing thereof shall not affect the validity of the corporate action required to be specified in such notice.
(e) If at any time conditions shall arise by reason of action or inaction taken by the Company which in the opinion of the Board of Directors are not adequately covered by the other provisions hereof and which might materially and adversely affect the rights of the Holders of Series B Preferred Stock (different man or distinguished from the effect generally on rights of holders of any class of the Company's capital stock), the Company shall, at least thirty (30) calendar days prior to the effective date of such action, mail and fax a written notice to each Holder of Series B Preferred Stock briefly describing the action contemplated and the material adverse effects of such action on the rights of such Holders and an Appraiser selected by the Holders of majority of the outstanding Series B Preferred Stock shall give its opinion as to the adjustment, if any (not inconsistent with the standards established in this Article IV), of the Fixed Conversion Price (including, if necessary, any adjustment as to the securities into which Series B Preferred Stock may thereafter be convertible) and any distribution which is or would be required to preserve without diluting the rights of the Holders of Series B Preferred Stock; provided, however, that the Company, after receipt of the determination by such Appraiser, shall have the right to select an additional Appraiser, in which case the adjustment shall be equal to the average of the adjustments recommended by each such Appraiser. The Board of Directors shall make the adjustment recommended forthwith upon the receipt of such opinion or opinions or the taking of any such action contemplated, as the case may be; provided, however, that no such adjustment of the Fixed Conversion Price shall be made which in the opinion of the Appraiser(s) giving the aforesaid opinion or opinions would result in an increase of the Fixed Conversion Price.
(f) The Company covenants that it will at all times reserve and keep available out of its authorized and unissued Common Stock solely for the purpose of issuance upon conversion of Series B Preferred Stock as herein provided, free from preemptive rights or any other actual contingent purchase rights of persons other than the Holders of Series B Preferred Stock, such number of shares of Common Stock as shall be issuable (taking into account the adjustments and restrictions of Section IV(d) and Section IV(e) hereof) upon the conversion of all outstanding shares of Series B Preferred Stock. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly and validly authorized, issued and fully paid and nonassessable.
(g) No fractional shares of Common Stock shall be issuable upon a conversion hereunder and the number of shares to be issued shall be rounded up to the nearest whole share. If a fractional share interest arises upon any conversion hereunder, the Company shall eliminate such fractional share interest by issuing the Holder an additional full share of Common Stock.
(h) The issuance of certificates for shares of Common Stock on conversion of Series B Preferred Stock shall be made without charge to the Holder for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificate, provided that the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.
| 11 |
| Exhibit 3.1 page 12 of 18 |
(i) Series B Preferred Stock converted into Common Stock shall be canceled upon conversion.
(j) Each Notice of Conversion shall be given by facsimile to the Company no later than 4:00 pm New York time. Any such notice shall be deemed given and effective upon the transmission of such facsimile at the facsimile telephone number specified in the Purchase Agreement. In the event that the Company receives the Notice of Conversion after 4:00 p.m. New York time, the Conversion Date shall be deemed to be the next Business Day. In the event that the Company receives the Notice of Conversion after the end of the Business Day, notice will be deemed to have been given the next Business Day.
V. EVENTS OF DEFAULT AND REMEDIES
(a) "Event of Default", wherever used herein, means any one of the following events:
(i) the Company shall fail to observe or perform any material covenant, agreement or warranty contained in this Series B Preferred Stock Certificate of Designation, and such failure shall not have been remedied within ten (10) Business Days after the date on which written notice of such failure shall have been given;
(ii) the occurrence of any material breach or event of default by the Company under the Purchase Agreement or any other Transaction Document (as defined in the Purchase Agreement) and such material breach or event of default shall not have been remedied within the applicable cure period provided for therein, but in any event, not less than ten (10) days after the date on which written notice of such failure shall have been given;
(iii) the Company or any of its subsidiaries shall commence a voluntary case under the United States Bankruptcy Code as now or hereafter in effect or any successor thereto (the "Bankruptcy Code"); or an involuntary case is commenced against the Company under the Bankruptcy Code and the Company fails to pursue dismissal of the case within sixty (60) days after commencement of the case; or the Company commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Company or there is commenced against the Company any such proceeding and the Company fails to pursue dismissal of the case within sixty (60) days after commencement of the case; or the Company suffers any appointment of any custodian or the like for it or any substantial part of its property and the Company fails to pursue dismissal of the custodian within sixty (60) days after the appointment; or the Company makes a general assignment for the benefit of creditors; or any corporate or other action is taken by the Company for the purpose of effecting any of the foregoing;
(iv) trading in the common stock of the Company shall have been suspended, delisted, or otherwise ceased by the Securities and Exchange Commission or the NASD or other exchange or the Nasdaq (whether the National Market or otherwise), and trading is not reinstated within thirty (30) Trading Days, except for (i) any suspension of trading of limited duration solely to permit dissemination of material information regarding the Company, and trading is reinstated promptly after such dissemination and (ii) any general suspension of trading for all companies trading on such exchange or market or OTCBB; or
| 12 |
| Exhibit 3.1 page 13 of 18 |
(v) the Company shall issue a press release, or otherwise make publicly known, that it is not honoring properly executed Notice of Conversions for any reason whatsoever.
(b) If any Event of Default occurs and continues, beyond any cure period, if any, then so long as such Event of Default shall then be continuing any Holder may, by notice to the Company, demand redemption of the shares of Series B Preferred Stock held by such Holder at the Redemption Price (as defined herein), and such Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by such Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. This shall include, but not be limited to the right to temporary, preliminary and permanent injunctive relief without the requirement of posting any bond or undertaking.
(c) Such Holder may thereupon proceed to protect and enforce its rights either by suit in equity, or by action at law, or by other appropriate proceedings whether for the specific performance (to the extent permitted by law) of any covenant or agreement contained in this Series B Preferred Stock Certificate of Designation or in aid of the exercise of any power granted in this Series B Preferred Stock Certificate of Designation, and proceed to enforce the redemption of any of the Series B Preferred Stock held by it, and to enforce any other legal or equitable right of such Holder.
(d) To effectuate the terms and provisions of this Certificate of Designation of Series B Preferred Stock, the Holder may send notice of any default to the Attorney-in-Fact (as defined in the Purchase Agreement) and send a copy of such notice to the Company and its counsel, simultaneously, and request the Attorney-in-Fact, to comply with the terms of this Certificate of Designation of Series B Preferred Stock and the Purchase Agreement and all agreements entered into pursuant to the Purchase Agreement on behalf of the Company.
VI. REDEMPTION
(a) Except as provided in this section VI(a), neither the holder nor the Company may demand that the Series B Preferred Stock be redeemed. Until all of the Series B Preferred Stock has been converted, in the event that the Company engages in a single transaction or a series of related transactions that cause it to (i) consolidate with or merge with or into any other Person, (ii) permit any other Person to consolidate with or merge into it, or (iii) undergo a Change in Control, then at the option of the Company exercisable by giving thirty (30) days written notice to the Holder, the Company may request that the Holder convert all shares of Series B Preferred Stock then held by the Holder into Common Stock upon the terms and conditions set forth in this Certificate of Designation. If the Holder does not comply with such request, the Company may redeem all Series B Preferred Stock held by the Purchaser at their Stated Value (the "Redemption Price"). The Company is not obligated to provide for redemption of the Series B Preferred Stock through a sinking fund.
(b) Shares of Series B Preferred Stock which have been redeemed or converted shall be deemed retired pursuant to the DGCL and shall thereafter resume the status of authorized and unissued shares of Preferred Stock, undesignated as to series, and may be redesignated and reissued as part of any new series of Preferred Stock other than Series B Preferred Stock.
(c) No redemption shall be made and no sum set aside for such redemption at any time that the terms or provisions of any indenture or agreement of the Company, including any agreement relating to indebtedness, specifically prohibits such redemption or setting aside or provides that such redemption or setting aside would constitute a breach or default thereunder (after notice or lapse of time or both), except with the written consent of the lender or other parties to said agreement as the case may be.
| 13 |
| Exhibit 3.1 page 14 of 18 |
(f) If any redemption shall at any time be prohibited by the DGCL, the same shall be deferred until such time as the redemption can occur in full compliance with such statute.
(g) In the event the Company shall redeem shares of Series B Preferred Stock as provided herein, notice of such redemption shall be given by first class mail, postage prepaid, or by confirmed facsimile transmission, not less than thirty (30) business days prior to the date fixed by the Board for redemption to each holder of Series B Preferred Stock at the address that appears on the Company's stock record books; provided, however, that no failure to provide such notice nor any defect therein shall affect the validity of the redemption proceeding except as to the holder to whom the Company has failed to send such notice or whose notice was defective. Each notice shall state (i) the redemption date, (ii) the number of shares of Series B Preferred Stock to be redeemed; (Hi) the Redemption Price; and (iv) the place or places where certificates for shares of Series B Preferred Stock are to be surrendered for payment. When notice has been provided as aforesaid then from and after the redemption date (unless default shall be made by the Company in providing money for the payment of the Redemption Price of the shares called for redemption) said shares shall no longer be deemed to be outstanding and all rights of the holders thereof shall cease (other than the right to receive the Redemption Price or common Stock with respect to converted Series B Preferred Stock). Upon surrender of the certificates for Series B Preferred Stock accompanied by appropriate stock powers, the shares shall be redeemed by the Company at the Redemption Price.
VII. RANK
The Series B Preferred Stock shall, as to redemptions and the distribution of assets upon liquidation, dissolution or winding up of the Company, rank (i) prior to the Company's Common Stock; (ii) prior to any class or series of capital stock of the Company hereafter created that, by its terms, ranks junior to the Series B Preferred Stock ("Junior Securities"); (iii) junior to any class or series of capital stock of the Company hereafter created (with the consent of the holders of a majority of the outstanding Series B Preferred Stock) which by its terms ranks senior to the Series B Preferred Stock ("Senior Securities"); and (iv) pari passu with any other series of preferred stock of the Company hereafter created (with the consent of the holders of a majority of the outstanding Series B Preferred Stock) which by its terms ranks on a parity ("Pari Passu Securities") with the Series B Preferred Stock. The Series B Preferred Stock shall rank Pari Passu with the Company's Series A Preferred Stock upon distribution of assets upon liquidation in the manner provided in Article VIII.
| 14 |
| Exhibit 3.1 page 15 of 18 |
VIII. LIQUIDATION PREFERENCE
If the Company shall commence a voluntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Company shall be entered by a court having jurisdiction in the premises in an involuntary case under the U.S. Federal bankruptcy laws or any other applicable bankruptcy, insolvency or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Company or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of sixty (60) consecutive days and, on account of any such event, the Company shall liquidate, dissolve or wind up, or if the Company shall otherwise liquidate, dissolve or wind up, including, but not limited to, the sale or transfer of all or substantially all of the Company's assets in one transaction or in a series of related transactions (a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Company (other than Senior Securities and Pari Passu Securities) upon liquidation, dissolution or winding up unless prior thereto the Holders of shares of Series A Preferred Stock and –Series B Preferred Stock shall have received the Liquidation Preference (as defined below) with respect to each share. If, upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the Holders of the Series A Preferred Stock, Series B Preferred Stock and Holders of Pari Passu Securities shall be insufficient to permit the payment to such holders of the preferential amounts payable thereon, then the entire assets and funds of the Company legally available for distribution to the Series A Preferred Stock, Series B Preferred Stock and the Pari Passu Securities shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. The purchase or redemption by the Company of stock of any class, in any manner permitted by law, shall not, for the purposes hereof, be regarded as a liquidation, dissolution or winding up of the Company. Neither the consolidation nor merger of the Company with or into any other entity nor the sale or transfer by the Company of substantially all of its assets shall, for the purposes hereof, be deemed to be a liquidation, dissolution or winding up of the Company. The "Liquidation Preference" with respect to a share of Series A Preferred Stock means an amount equal to the Series A Liquidation Value thereof as defined in the Certificate of Designation of the Series A Preferred Stock. The "Liquidation Preference" with respect to a share of Series B Preferred Stock means an amount equal to fifty percent (50%) of the Stated Value thereof, provided, however, that after the holders of the Series A Preferred Stock, the Series B Preferred Stock and Pari Passu Securities have received the Liquidation Preference with respect to their shares, the holders of the Series B Preferred Stock shall receive an additional distribution equal to fifty percent (50%) of the Stated Value of the Series B Preferred Stock before any distribution shall be made to the holders of any other shares of capital stock of the Company. The Liquidation Preference with respect to any Pari Passu Securities shall be as set forth in the Certificate of Designation filed in respect thereof.
IX. VOTING RIGHTS
The Holders of the Series B Preferred Stock have no voting power whatsoever, except as provided by the DGCL. To the extent that under the DGCL the vote of the Holders of the Series B Preferred Stock, voting separately as a class or series, as applicable, is required to authorize a given action of the Company, the affirmative vote or consent of the Holders of at least a majority of the then outstanding shares of the Series B Preferred Stock represented at a duly held meeting at which a quorum is present or by written consent of the Holders of at least a majority of the then outstanding shares of Series B Preferred Stock (except as otherwise may be required under the DGCL) shall constitute the approval of such action by the class. To the extent that under the DGCL Holders of the Series B Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series B Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible (subject to the limitations contained in Article IV) using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated.
X. MISCELLANEOUS
(a) If any shares of Series B Preferred Stock are converted pursuant to Article IV, the shares so converted shall be canceled, shall return to the status of authorized, but unissued preferred stock of no designated series.
| 15 |
| Exhibit 3.1 page 16 of 18 |
(b) Upon receipt by the Company of (i) evidence of the loss, theft, destruction or mutilation of any Preferred Stock certificate(s) and (ii) (y) in the case of loss, theft or destruction, of indemnity (without any bond or other security) reasonably satisfactory to the Company, or (z) in the case of mutilation, upon surrender and cancellation of the Preferred Stock certificate(s), the Company shall execute and deliver new Preferred Stock certificate(s) of like tenor and date. However, the Company shall not be obligated to reissue such lost or stolen Preferred Stock certificate(s) if the Holder contemporaneously requests the Company to convert such Series B Preferred Stock.
(c) Upon submission of a Notice of Conversion by a Holder of Series B Preferred Stock, (i) the shares covered thereby shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted shares of Series B Preferred Stock shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Company to comply with the terms of this Certificate of Designation. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Delivery Period with respect to a conversion of Series B Preferred Stock for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Company within five (5) business days after the expiration of such ten (10) business day period) the Holder shall regain the rights of a Holder of Series B Preferred Stock with respect to such unconverted shares of Series B Preferred Stock and the Company shall, as soon as practicable, return such unconverted shares to the Holder. In all cases, the Holder shall retain all of its rights and remedies for the Company's failure to convert Series B Preferred Stock.
(d) The remedies provided in this Certificate of Designation shall be cumulative and in addition to all other remedies available under this Certificate of Designation, at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit a Holder's right to pursue actual damages for any failure by the Company to comply with the terms of this Certificate of Designation. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders of Series B Preferred Stock and that the remedy at law for any such breach may be inadequate. The Company therefore agrees, in the event of any such breach or threatened breach, that the Holders of Series B Preferred Stock shall be entitled, in addition to all other available remedies, to an injunction restraining any breach, without the necessity of showing economic loss and without any bond or other security being required.
(e) Whenever the Company is obligated to purchase or redeem a Holder's Series B Preferred Stock, and the Redemption Price is not paid to the Holder by the tenth (10th) day after the Redemption Price is due and payable to such Holder, the Company shall thereafter pay interest to such Holder on the unpaid portion of the Redemption Price at the rate of ten percent (10%) per annum, compounded annually, until the Redemption Price is paid in full.
| 16 |
| Exhibit 3.1 page 17 of 18 |
APPENDIX I
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To be Executed by the Registered Holder in order to Convert the Series B Preferred Stock of Incumaker, Inc.)
The undersigned hereby irrevocably elects to convert the Series B Preferred Stock into shares of Common Stock, par value $.001 per share (the "Common Stock"), of Incumaker, Inc. (the "Company") according to the provisions of the Certificate of Designation hereof, as of the date written below. If snares are to be issued in the name of a person other than undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.
| Conversion calculations: | |
| Date to Effect Conversion | |
| Number of Shares to be Converted | |
| Applicable Conversion Price | |
| Number of Shares to be Issued Upon Conversion | |
| Signature | |
| Name | |
| Address | |
| 17 |
| Exhibit 3.1 page 18 of 18 |
IN WITNESS WHEREOF, Company has caused this Certificate of Merger to be executed in its corporate name as of the 5th day of November, 2018.
| INCUMAKER, INC. |
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: President and CEO |
| 18 |
Exhibit 3.2
page 1 of 10
ORGANIZATIONAL MINUTES
OF THE INITIAL BOARD OF DIRECTORS OF
INCUMAKER, INC.
Pursuant to the applicable provisions of the Delaware General Corporation Law, the undersigned, being the Incorporator for Incumaker, Inc. (the "Corporation"), hereby nominates and appoints Thomas Lovelace and Hoyt Lowder (the "Directors") as the initial directors of the Corporation, to serve until the next annual meeting of the Board of Directors of the Corporation, and the Directors hereby accept their appointment as initial directors by their signature to these Organizational Minutes.
Pursuant to the applicable provisions of the Delaware General Corporation Law, the undersigned, being the only members of the Board of Directors of the Corporation, hereby consent to the following actions being taken and the following resolutions being adopted without a meeting for the purpose of organizing the Corporation, and hereby direct that this written consent be delivered to the Corporation for inclusion in the minute book of the Corporation.
RESOLUTIONS ADOPTED BY THESE MINUTES:
| 1. | The Certificate of Incorporation of the Corporation, filed with the Secretary of State of Delaware on or about April 13, 2011, is hereby approved and accepted; and the Secretary of the Corporation is hereby directed to place a copy thereof in the minute book of the Corporation. |
| 2. | The following persons are hereby appointed officers of the Corporation with the title shown: |
| NAME | TITLE | |
| Cynthia S. White | Interim President and CEO | |
| Christine Cheney | Interim Chief Financial Officer and Secretary |
| 3. | The Directors hereby authorize and empower the President of the Corporation to hire and employ such other assistants, agents and employees, for such duties, at such compensation, and on such terms and conditions as the President may deem necessary or desirable. |
| 4. | The Directors hereby approve the bylaws attached hereto. |
| 5. | Unless and until the Directors resolve otherwise, the Corporation's capital stock shall be not be represented by certificates, but shall be represented by such ownership records that the Secretary shall maintain. |
| 6. | The issuance of 1,000 shares of common stock to Scientigo, Inc. in consideration for $10 is hereby approved. |
| Exhibit 3.2 page 2 of 10 |
| 7. | The fiscal year of the Corporation initially shall be the year ending April 30; provided, however, that the Board of Directors may change the fiscal year after reviewing all of the facts and circumstances at any time and from time to time. |
| 8. | The President is hereby authorized and directed to open an account in the name and on behalf of the Corporation with any bank, which shall be a depository for the Corporation's funds. |
| 9. | The President is hereby authorized and directed to pay all reasonable charges incident to or arising out of the organization of the Corporation and to reimburse any person or persons who have incurred any expenses or made any disbursements therefor. |
| 10. | The Directors further authorize and empower the Corporation to pay or reimburse the President of the Corporation and such other officers and employees as the President may designate for all such ordinary and necessary business expenses upon presentation by them, from time to time, of itemized accountings of such expenses. |
| 11. | The Directors further authorize the President to perform any other necessary function as is required to run and maintain the Corporation, |
| 12. | In order to comply with legal requirements imposed on the Corporation, as well as on its Director and officer, the officers of the Corporation are instructed to obtain information and direction from the Internal Revenue Service or from the Corporation's attorneys on withholding, social security, unemployment taxes and related requirements and to take whatever actions may be necessary or appropriate to comply therewith. |
The Directors hereby ratify and approve of all acts taken in the name of the Corporation by an officer, director or incorporator of the Corporation.
The Directors of the Corporation hereby gives their consent to the actions described herein, to be effective as of April 13, 2011, notwithstanding the actual date of signing.
| /s/ Robert J.Mottorn | |
| Robert J.Mottorn, Incorporator | |
| /s/ Thomas Lovelace | |
| Thomas Lovelace, Co-Chairman | |
| /s/ Hoyt Lowder | |
| Hoyt Lowder, Co-Chairman |
| 2 |
| Exhibit 3.2 page 3 of 10 |
BY-LAWS
OF
INCUMAKER, INC.
ARTICLE I
Stockholders' Meetings; Voting
Section 1.1 Annual Meeting. The regular annual meeting of the stockholders for the election of directors and the transaction of whatever other business may properly come before the meeting shall be held at the principal office of the Corporation, at 10 o'clock, a.m., on the first Wednesday of February of each year, or at such other date, time and place as the Board of Directors may designate.
Section 1.2. Special Meetings. Special meetings of stockholders may be called at any time by the Chairman of the Board, the President, the Board of Directors, or as provided in Section 2.2, to be held at such date, time and place either within or without the State of Delaware as may be stated in the notice of the meeting. A special meeting of stockholders shall be called by the Secretary upon the written request, stating the purpose of the meeting, of stockholders who together own of record at least twenty-five percent (25%) of the outstanding shares of stock entitled to vote at such meeting.
Section 1.3. Notice of Meetings. Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, date and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Unless otherwise provided by law, the written notice of any meeting shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote at such meeting. If mailed, such notice shall be deemed to be given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. The Corporation shall, at the written request of any stockholder, cause such notice to such stockholder to be confirmed to such other address and/or by such other means as such stockholder may reasonably request, provided that if such written request is received after the date any such notice is mailed, such request shall be effective for subsequent notices only.
Section 1.4. Adjournments. Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
Section 1.5. Quorum. At each meeting of stockholders, except where otherwise provided by law or the Certificate of Incorporation or these By-Laws, the holders of a majority of the outstanding shares of each class of stock entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum. With respect to any matter on which stockholders vote separately as a class, the holders of a majority of the outstanding shares of such class shall constitute a quorum for a meeting with respect to such matter. Two or more classes or series of stock shall be considered a single class for purposes of determining existence of a quorum for any matter to be acted on if the holders thereof are entitled or required to vote together as a single class at the meeting on such matter. In the absence of a quorum the stockholders so present may, by majority vote, adjourn the meeting from time to time in the manner provided by Section 1.4 of these By-Laws until a quorum shall attend.
| Exhibit 3.2 page 4 of 10 |
Section 1.6. Organization. Meetings of stockholders shall be presided over by the Chairman of the Board, or in his absence by the President, or in his absence by a Vice President, or in the absence of the foregoing persons by a chairman designated by the Board of Directors, or in the absence of such designation by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
Section 1.7. Voting; Proxies. Unless otherwise provided in the Certificate of Incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of stock held by him which has voting power upon the matter in question. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or another duly executed proxy bearing a later date with the Secretary of the Corporation. Voting at meetings of stockholders need not be by written ballot and need not be conducted by inspectors unless the holders of a majority of the outstanding shares of any class of stock entitled to vote thereon present in person or by proxy at such meeting shall so determine. At all meetings of stockholders, all questions shall, unless otherwise provided by law or by the Certificate of Incorporation or these By-Laws, be decided by the vote of the holders of a majority of the outstanding shares of all classes of stock entitled to vote thereon present in person or by proxy at the meeting, voting as a single class.
Section 1.8. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. If no record date is fixed: (1) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (2) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board is necessary, shall be the day on which the first written consent is expressed; and (3) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting.
Section 1.9. List of Stockholders Entitled to Vote. The Secretary shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present.
| 2 |
| Exhibit 3.2 page 5 of 10 |
Section 1.10. Consent of Stockholders in Lien of Meeting. To the extent provided by any statute at the time in force, whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any statute, by the Certificate of Incorporation or by these By-Laws, the meeting and prior notice thereof and vote of stockholders may be dispensed with if the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted shall consent m writing to such corporate action without a meeting by less than unanimous written consent and notice thereof shall be given to those stockholders who have not consent in writing.
ARTICLE II
Board of Directors
Section 2.1. Powers; Number; Qualifications. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the Certificate of Incorporation. The number of Directors which shall constitute the whole Board of Directors shall not be less than one (1) nor more than nine (9). Within such limits, the number of directors may be fixed from time to time by vote of the stockholders or of the Board of Directors, at any regular or special meeting, subject to the provisions of the Certificate of Incorporation.
Section 2.2. Election; Term of Office; Resignation; Removal; Vacancies; Special Elections. Except as otherwise provided in the Certificate of Incorporation or in this Section 2.2, directors shall be elected annually at the annual meeting of the stockholders. Directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Each director (whenever elected) shall hold office for the term specified upon his election and until his successor is elected and qualified or until his earlier resignation or removal as provided in the Certificate of Incorporation. Any director may resign at any time upon written notice to the Board of Directors or to the Chairman of the Board or to the President of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. Any director may be removed with or without cause at any time upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of such director, given at a special meeting of such stockholders called for the purpose, except as may otherwise be provided in the Certificate of Incorporation. If any vacancies shall occur in the Board of Directors, by reason of death, resignation, removal or otherwise, or if the authorized number of directors shall be increased, the directors then in office shall continue to act, and such vacancies may be filled by a majority of the directors then in office, though less than a quorum; provided, however, that whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series shall be filled by a majority of the directors elected by such class or classes or series thereof then in office though less than a quorum or by a sole remaining director so elected. Any such vacancies or newly created directorships may also be filled upon the affirmative vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote for the election of directors, given at a special meeting of the stockholders called for the purpose.
Section 2.3, Regular Meetings. Regular meetings of the Board of Directors may be held at such places within or without the State of Delaware and at such times as the Board may from time to time determine, and if so determined notice thereof need not be given.
Section 2.4. Special Meetings. Special meetings of the Board of Directors may be held at any time or place within or without the State of Delaware whenever called by the Chairman of the Board, by the President or by any two directors. Reasonable notice thereof shall be given by the person or persons calling the meeting.
| 3 |
| Exhibit 3.2 page 6 of 10 |
Section 2.5. Telephonic Meetings Permitted. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any member of the Board of Directors, or any committee designated by the Board, may participate in a meeting of the Board or of such committee, as the case may be, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this by-law shall constitute presence in person at such meeting.
Section 2.6. Quorum; Vote Required for Action. At all meetings of the Board of Directors the presence of a majority of the total number of directors shall constitute a quorum for the transaction of business. The vote of at least a majority of the directors present at any meeting at which a quorum is present shall be necessary to constitute and shall be the act of the Board unless the Certificate of Incorporation or these By-Laws shall otherwise provide. In case at any meeting of the Board a quorum shall not be present, the members of the Board present may adjourn the meeting from time to time until a quorum shall attend.
Section 2.7. Organization. Meetings of the Board of Directors shall be presided over by the Chairman of the Board, or in his absence by the President, or in their absence by a chairman chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his absence the chairman of the meeting may appoint any person to act as secretary of the meeting.
Section 2.8. Action by Directors Without a Meeting. Unless otherwise restricted by the Certificate of Incorporation or these By-Laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board or such committee, as the case may be, consents thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee.
ARTICLE III
Committees
Section 3.1. Committees. The Board of Directors may, by resolution passed by a majority of the total number of directors, designate one or more committees, each committee to consist of one or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution of the Board, and unless otherwise restricted by the Certificate of Incorporation or these By-Laws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Corporation, to the full extent permitted by law.
Section 3.2. Committee Rules. Unless the Board of Directors otherwise provides, each committee designated by the Board may adopt, amend and repeal rules for the conduct of its business. In the absence of a provision by the Board or a provision in the rules of such committee to the contrary, the entire authorized number of members of such committee shall constitute a quorum for the transaction of business, the vote of all such members present at a meeting shall be the act of such committee, and in other respects each committee shall conduct its business pursuant to Article II of these By-Laws.
| 4 |
| Exhibit 3.2 page 7 of 10 |
ARTICLE IV
Officers
Section 4. 1 Chairman of the Board. The Board of Directors may appoint one of its members to be Chairman of the Board to serve at the pleasure of the Board. The duties of the Chairman shall be to preside at all meetings of the Board of Directors or the stockholders and to provide a proposed agenda for all such meetings. The Chairman shall also have and may exercise such further powers and duties as from time to time may be determined by the Board of Directors.
Section 4.2 President. The Board of Directors shall appoint one of its members to be President of the Corporation. In the absence of the Chairman, the President shall preside at all meetings of the Board or the stockholders. The President shall also have and may exercise such further powers and duties as from time to time may be determined by the Board of Directors.
Section 4.3 Chief Executive Officer. The Board of Directors shall appoint a Chief Executive Officer. The Chief Executive Officer shall have and may exercise all the powers and duties pertaining, by law, regulation or practice, to the position of Chief Executive Officer and shall have and may exercise such further powers and duties as from time to time may be determined by the Board of Directors. Unless the Chairman or another executive officer or group shall have been so designated and empowered by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation.
Section 4.4 Vice Presidents. The Board of Directors may appoint one or more Vice Presidents, with or without designation as Executive Vice President, Senior Vice President or other title differentiation as it deems appropriate. Each Vice President shall have and may exercise any and all powers and duties which may be determined by the Board of Directors or the Chief Executive Officer. One Vice President may be designated by the Board of Directors, in the absence of the President, to perform all the duties of the President.
Section 4.5 Secretary. The Board of Directors shall appoint a Secretary, who shall be Secretary of the Board and of the Corporation, and shall keep accurate records of all proceedings of the Board and of the stockholders. The Secretary shall attend to the giving of all notices required by these By-laws to be given, shall be custodian of the corporate seal, and shall have and may exercise any and all other powers and duties pertaining, by law, regulation or practice, to the office of Secretary. The Secretary shall also have and may exercise such other powers and duties as may be determined by the Board of Directors, the Chairman of the Board or the Chief Executive Officer.
Section 4.6 Chief Financial Officer. The Board of Directors shall appoint a Chief Financial Officer who shall have charge of all funds and securities of the Corporation. The Chief Financial Officer shall have and may exercise any and all other powers and duties pertaining, by law, regulation or practice, to the office of Chief Financial Officer or Treasurer. The Chief Financial Officer shall also have and may exercise such other powers and duties as may be determined by the Board of Directors or the Chief Executive Officer.
Section 4.7 Term of Office; Resignation; Removal; Vacancies. Except as otherwise provided in the resolution of the Board of Directors electing any officer, each officer shall hold office until a successor shall have been duly elected and shall have qualified, or until the expiration of such officer's term in office if elected or appointed for a specified period of time, or until his or her earlier death, retirement, termination, resignation or removal. Any officer may resign at any time upon written notice to the Board or to the Chief Executive Officer of the Corporation. Such resignation shall take effect at the time specified therein, and unless otherwise specified therein no acceptance of such resignation shall be necessary to make it effective. The Board may remove any officer with or without cause at any time, provided that such action by the Board shall require the vote of a majority of the whole Board. Any such removal shall be without prejudice to the contractual rights of such officer, if any, with the Corporation, but the election of an officer shall not of itself create contractual rights. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall or may be tilled for the unexpired portion of the term by the Board at any regular or special meeting.
| 5 |
| Exhibit 3.2 page 8 of 10 |
ARTICLE V
Stock
Section 5.1. Certificates. Every holder of stock in the Corporation shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board of Directors, or the President or a Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary, of the Corporation, certifying the number of shares owned by him in the Corporation. If such certificate is manually signed by one officer or manually countersigned by a transfer agent or by a registrar, any other signature on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
Section 5.2. Lost. Stolen or Destroyed Stock Certificates; Issuance of New Certificates. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or his legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
ARTICLE VI
Miscellaneous
Section 6.1. Seal. The Corporation may have a corporate seal which shall have the name of the Corporation inscribed thereon and shall be in such form as may be approved from time to time by the Board of Directors. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.
Section 6.2. Waiver of Notice of Meetings of Stockholders, Directors and Committees. Whenever notice is required to be given by law or under any provision of the Certificate of Incorporation or these By-Laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors, or members of a committee of directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these By-Laws.
Section 6.3. Form of Records. Any records maintained by the Corporation in the regular course of its business, including its stock ledger, books of account and minute books, may be kept on, or be in the form of, punch cards, magnetic tape, photographs, microphotographs or any other information storage device, provided that the records so kept can be converted into clearly legible form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect the same.
| 6 |
| Exhibit 3.2 page 9 of 10 |
Section 6.4. Dividends. Dividends upon the stock of the Corporation, subject to the provisions of the Certificate of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, bonds, in property, or in shares of stock, subject to the provisions of the Certificate of Incorporation.
Section 6.5. Reserves. Before the payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve.
Section 6.6. Checks. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.
Section 6.7. Fiscal Year. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors.
Section 6.8. Offices. The registered office of the Corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The Corporation may also have offices at such other places within or outside the State of Delaware as the Board of Directors may from time to time determine or the business of the Corporation may require.
ARTICLE VII
Amendments
Section 7.1. Amendments. These By-Laws may be altered, amended or repealed at any regular meeting of the stockholders or of the Board of Directors or at any special meeting of the stockholders or of the Board of Directors if notice of such alteration, amendment or repeal be contained in the notice of such special meeting.
ARTICLE VIII
Indemnification
Section 8.1. Indemnification. The Corporation shall indemnify to the fullest extent permitted by law any person made or threatened to be made a party to any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such person, or a person of whom he is the legal representative, is or was a director, officer, employee or agent of the Corporation or any predecessor of the Corporation, or serves or served any other enterprise as a director, officer, employee or agent at the request of the Corporation or any predecessor of the Corporation.
The Corporation shall pay any expenses reasonably incurred by a director or officer in defending a civil or criminal action, suit or proceeding in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation under this Article or otherwise. The Corporation may, by action of its Board of Directors, provide for the payment of such expenses incurred by employees and agents of the Corporation as it deems appropriate.
| 7 |
| Exhibit 3.2 page 10 of 10 |
The rights conferred on any person under this Article shall not he deemed exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested directors or otherwise. All rights to indemnification and to the advancement of expenses under this Article shall be deemed to be provided by a contract between the Corporation and the director, officer, employee or agent who serves in such capacity at any time while these By-Laws and any other relevant provisions of the Delaware General Corporation Law and any other applicable law, if any, are in effect. Any repeal or modification thereof shall not affect any rights or obligations then existing.
For purposes of this Article, references to "the Corporation" shall be deemed to include any subsidiary of the Corporation now or hereafter organized under the laws of the State of Delaware.
| 8 |
Exhibit 10.1
page 1 of 8
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this “Agreement"), is entered into as of November 12, 2018, by and among SkyAuction.com, Inc., a Delaware corporation (the "Guarantor"), and the Michael Hering as Shareholder Representative (as defined in the Merger Agreement, (the "Secured Party”). All capitalized terms not otherwise defined herein shall the meanings ascribed to them in that certain Agreement and Plan of Merger (the “Merger Agreement”), that certain Secured Promissory Note (the “Note”), and that certain Secured Unconditional Guaranty (“Guaranty”), entered into by and between Guarantor, the Secured Party, and Incumaker of even date herewith.
RECITALS
WHEREAS, the Guarantor has guaranteed the Promissory Note owed by Incumaker, Inc., (“Incumaker”) a Delaware corporation, to the Shareholder Representative (as defined in the Merger Agreement), for $2,500,000 which was entered into as partial consideration pursuant to the Merger Agreement, each dated as of even date herewith; and
WHEREAS, this Agreement is being executed and delivered by Guarantor to secure the Guaranty.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the parties hereto hereby agrees as follows:
1. Obligations Secured. This Agreement secures, in part, the prompt payment and performance of all Obligations of Guarantor under the Note and the Guaranty, and all renewals, extensions, modifications, amendments, and/or supplements thereto (collectively, the "Secured Obligations").
2. Grant of Security.
| a. | Collateral. Guarantor hereby grants, pledges, and assigns for the benefit of the Secured Party, and there is hereby created in favor of the Secured Party, a security interest in and to all of Guarantor' s right, title, and interest in, to, and under all of the collateral set forth on Exhibit A hereto (collectively, "Collateral"). |
| b. | Effective Date. This grant of security shall be effective as of the date hereof. |
| c. | Filings to Perfect Security. The Secured Party will (and is hereby authorized to) file with any filing office such financing statements, amendments, addenda, continuations, terminations, assignments and other records (whether or not executed by Guarantor) to perfect and to maintain perfected security interests in the Collateral by the Secured Party, whereby (a) promptly upon the execution of this Agreement, a Financing Statement on Form UCC-1 (the "Financing Statement'') shall be filed with the Delaware Secretary of State on behalf of the Secured Party with respect to the Collateral; The Financing Statement shall designate the Secured Party as a Secured Party and Guarantor as the debtor, shall identify the security interest in the Collateral, and contain any other items required by law. |
| Exhibit 10.1 page 2 of 8 |
The Financing Statement shall contain a description of collateral consistent with the description set forth herein."
3. Transfers and Other Liens. Guarantor shall not, without the prior written consent of the Secured Party, at their sole and absolute discretion
| a. | Sell, transfer, assign, or dispose of (by operation of law or otherwise), any of the Collateral outside of the ordinary course of business; or |
| b. | Permit any of the Collateral to be levied upon under any legal process. |
4. Representations and Warranties. Guarantor hereby represents and warrants to the Secured Party as follows: (a) to Guarantor' s knowledge, Guarantor will be the owner of the Collateral after the consummation of the merger with the Guarantor (or, in the case of after-acquired Collateral, at the time Guarantor acquires rights in the Collateral, will be the owner thereat) and that, except as expressly provided herein, no other person has (or, in the case of after-acquired Collateral, at the time Guarantor acquires rights therein, will have) any right, title, claim or interest (by way of Lien or otherwise) in, against or to the Collateral except as provided under the terms of the Agreement with respect to the Secured Party; (b) to Guarantor's knowledge, except as expressly provided herein, upon the filing of a Financing Statement with the Delaware Secretary of State, the Secured Party (or in the case of after-acquired Collateral, at the time Guarantor acquires rights therein, will have) will have a perfected security interest in the Collateral to the extent that a security interest in the Collateral can be perfected by such filing; (c) all Accounts Receivable (as defined in Exhibit A) are genuine and enforceable against the party obligated to pay the same; (d) Guarantor has full power and authority to enter into the transactions provided for in this Agreement and the Guaranty; (e) this Agreement and the Guaranty, when executed and delivered by Guarantor, will constitute the legal, valid and Exhibit 10.1 page obligations of Guarantor enforceable in accordance with their terms; (t) the execution and delivery by Guarantor of this Agreement and the Guaranty and the performance and consummation of the transactions contemplated hereby and thereby do not and will not violate Guarantor's Certificate of Incorporation or Bylaws or any material judgment, order, writ, decree, statute, rule or regulation applicable to Guarantor (g) there does not exist any default or violation by Guarantor of or under any of the terms, conditions or obligations of (i) any indenture, mortgage, deed of trust, franchise, permit, contract, agreement, or other instrument to which Guarantor is a party or by which Guarantor is bound, or (ii) any law, ordinance, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon Guarantor by any law, the action of any court or any governmental authority or agency; and the execution, delivery and performance of this Agreement will not result in any such default or violation; (h) there is no action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand pending or, to the knowledge of Guarantor, threatened which adversely affects Guarantor' s business or financial condition and there is no basis known to Guarantor for any action, suit, proceeding, hearing, investigation, charge, complaint, claim, or demand which could result in the same; and (i) this Agreement and the Guaranty do not contain any untrue statement of material fact or omit to state a material fact necessary in order to make the statements contained in this Agreement and the Guaranty not misleading.
| Exhibit 10.1 page 3 of 8 |
5. Events of Default. For purposes of this Agreement, the term "Event of Default" shall mean and refer to any of the following:
| a. | Failure of Guarantor to perform or observe any covenant set forth in this Agreement, or to perform or observe any other term, condition, covenant, warranty, agreement or other provision contained in this Agreement, where such failure continues for five (5) days after receipt of written notice from Secured Party specifying such failure; |
| b. | Any representation or warranty made or furnished by Guarantor in writing in connection with this Agreement and the Guaranty or any statement or representation made in any certificate, report or opinion delivered pursuant to this Agreement or in connection with this Agreement is false, incorrect or incomplete in any material respect at the time it is furnished; or |
| c. | Occurrence of any other Event of Default as defined in the Guaranty. |
6. Remedies. Upon the occurrence and during the continuance of an Event of Default (subject to the notice and cure provisions provided for herein, if any), the Secured Party shall have the rights of a secured creditor under the Uniform Commercial Code of the applicable jurisdiction, all rights granted by the Guaranty, this Security Agreement and by law, including the right to require Guarantor to assemble the Collateral and make it available to the Secured Party at a place to be designated by Guarantor. The rights and remedies provided in this Agreement and the Guaranty are cumulative and may be exercised independently or concurrently and are not exclusive of any other right or remedy provided at law or in equity. No failure to exercise or delay by the Secured Party in exercising any right or remedy under this Agreement or the Guaranty shall impair or prohibit the exercise of any such rights or remedies in the future or be deemed to constitute a waiver or limitation of any such right or remedy or acquiescence therein. Every right and remedy granted to the Secured Party under this Agreement and the Guaranty or by law or in equity may be exercised by any Secured Party at any time and from time to time.
7. Further Assurances. Guarantor agrees that, from time to time, at its own expense, it will:
| a. | Protect and defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein and preserve and protect Secured Party's security interest in the Collateral. |
| b. | Promptly execute and deliver to Secured Party all instruments and documents, and take all further action necessary or desirable, as any Secured Party may reasonably request to (i) continue, perfect, or protect any security interest granted or purported to be granted hereby, and (ii) enable a Secured Party to exercise and enforce any of Secured Party's rights and remedies hereunder with respect to any Collateral. |
| c. | Permit a Secured Party's representatives to inspect and make copies of all books and records relating to the Collateral, wherever such books and records are located, and to conduct an audit relating to the Collateral at any reasonable time or times. |
8. Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex, e-mail or facsimile if sent during normal business hours of the recipient, if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent as follows:
| Exhibit 10.1 page 4 of 8 |
| If to the Guarantor, to: | |||
| Incumaker, Inc. | |||
| 327 Dahlonega Road, Suite 1701B | |||
| Cumming, GA 30040 | |||
| Attention: Ketan Thakker | |||
| e-mail: ketan.thakker@ubid.com | |||
| With a copy by e-mail only to (which copy shall not constitute notice): | |||
| Culhane Meadows PLLC | |||
| 1101 Pennsylvania Avenue, N.W., Suite 300 | |||
| Washington, D.C. 20004 | |||
| Attn: Ernest Stern, Esq. | |||
| e-mail: estern@CulhaneMeadows.com | |||
| If to the Secured Party: | |||
| Michael Hering | |||
| 547 Highland Avenue | |||
| Westfield, NJ 07090 | |||
| With a copy by e-mail only to (which copy shall not constitute notice): | |||
| Nick Day Law | |||
| 95 River Street, Suite 202 | |||
| Hoboken, New Jersey 07030 | |||
| Attn: Nick Day, Esq. | |||
| e-mail: nday@nickdaylaw.com | |||
or to such other address or telecopy number as the party to whom notice is to be given may have furnished to the other party in writing in accordance herewith.
9. Shareholder Representative. As specified in the Merger Agreement, the Shareholder Representative shall have the authority to act on behalf of the Sky Shareholders (as defined in the Merger Agreement) and shall hold any such Collateral on behalf of the Sky Shareholders and shall distribute it accordingly as reasonably as practicable.
10. Amendments and Waivers. No modification, amendment or waiver of any provision of, or consent required by, this Agreement, nor any consent to any departure herefrom, shall be effective unless it is in writing and signed by each of the parties hereto. Such modification, amendment, waiver or consent shall be effective only in the specific instance and for the purpose for which given.
11. Exclusivity and Waiver of Rights. No failure to exercise and no delay in exercising on the part of any party, any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other right, power or privilege. The rights and remedies herein provided are cumulative and are not exclusive of any other rights or remedies provided by law.
| Exhibit 10.1 page 5 of 8 |
12. Invalidity. Any term or provision of this Agreement shall be ineffective to the extent it is declared invalid or unenforceable, without rendering invalid or enforceable the remaining terms and provisions of this Agreement.
13. Headings. Headings used in this Agreement are inserted for convenience only and shall not affect the meaning of any term or provision of this Agreement.
14. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original instrument, but all of which collectively shall constitute one and the same agreement.
15. Assignment. This Agreement and the rights and obligations hereunder shall not be assignable or transferable by the any of the parties without the prior written consent of the Secured Party, at their sole and absolute discretion.
16. Survival. Unless otherwise expressly provided herein, all representations warranties, agreements and covenants contained in this Agreement shall survive the execution hereof and shall remain in full force and effect until the payment in full of the Note guaranteed by the Guaranty.
17. Miscellaneous. This Agreement shall inure to the benefit of each of the parties hereto and all their respective successors and permitted assigns. Nothing in this Agreement is intended or shall be construed to give to any other person, firm or corporation any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained.
18. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE (WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAWS PROVISIONS).
19. CONSENT TO JURISDICTION. Any action brought by either party against the other arising out of or related to this agreement shall be commenced only in the state or federal courts of general jurisdiction located in NEW YORK, NY, except that all such disputes between the parties shall be subject to alternative dispute resolution through Exhibit 10.1 page arbitration at the Holder’s sole discretion and election (regardless of which party initiates the legal proceedings).
20. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THISAGREEMENT. EACH OF THE PARTIES HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND EACH OF THE OTHER PARTIES HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 20.
| Exhibit 10.1 page 6 of 8 |
21. Attorneys' Fees. In the event that any suit or action is instituted to enforce any provision in this Agreement, the prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs and expenses of enforcing any right of such prevailing party under or with respect to this Agreement, including without limitation, such reasonable fees and expenses of attorneys and accountants, which shall include, without limitation, all fees, costs and expenses of appeals.
22. Entire Agreement. This Agreement contains the entire agreement among the parties with respect to the transactions contemplated by this Agreement and supersedes all prior agreements or understandings among the parties with respect to the subject matter hereof.
[SIGNATURE PAGE(S) FOLLOW]
| Exhibit 10.1 page 7 of 8 |
IN WITNESS WHEREOF, this Security Agreement has been executed as of the date first set written above.
| SKYAUCTION.COM, Inc. | ||
| By: | /s/ Salvatore Esposito |
|
| Name: Salvatore Esposito | ||
| Title: Chief Operating Officer and Secretary | ||
| SHAREHOLDER REPRESENTATIVE | ||
| By: | /s/ Michael Hering | |
| Name: Michael Hering | ||
| ACCEPTED AND AGREED TO BY: | ||
| INCUMAKER, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: Chief Executive Officer | ||
| Exhibit 10.1 page 8 of 8 |
EXHIBIT A
COLLATERAL
Guarantor hereby grants, pledges, and assigns for the benefit of the Secured Party, and there is hereby created in favor of the Secured Party, a security interest in and to all of Guarantor's right, title, and interest in, to, and under all assets of Guarantor which shall include, but not be limited to:
| · | Cash reserves and collateral held by Guarantor’s banks |
| · | Customer deposits |
| · | Gift certificates |
| · | Inventory |
| · | Accounts receivable |
| · | Customer lists |
| · | Software |
| · | Hardware including laptops |
| · | Desks and furniture |
Exhibit 10.2
page 1 of 5
PROMISSORY NOTE
| $2,500,000 | November 12, 2018 |
THIS PROMISSORY NOTE ( is entered into as of the date set forth above between Incumaker, Inc., a Delaware corporation located at 327 Dahlonega Road, Suite 1701B, Cumming, GA 30040 (“Maker”), and Michael Hering as the Shareholder Representative (as defined in the Merger Agreement) (“Holder”).
WHEREAS, Incumaker, Inc. (the “Maker”) has entered into an Agreement and Plan of Merger (the “Merger Agreement”) of even date herewith with SkyAuction.com, Inc. (“SkyAuction”) under which it has agreed to pay the Total Amount (as defined below) to the Shareholder Representative (as defined in the Merger Agreement), who shall distribute the proceeds to each of the Sky Shareholders (as defined in the Merger Agreement) based on their pro rata ownership of SkyAuction, in addition to shares of the Maker in exchange for all the issued and outstanding shares of common stock of SkyAuction (as further set forth in the Merger Agreement.
NOW, THEREFORE, in consideration of the undertakings and commitments to each other set forth in this Agreement, and other good and valuable consideration, the parties hereto acknowledge and agree as follows:
For value provided by the Holder, the Maker hereby promises to pay to the order of the Holder the principal amount of $2,500,000 together with interest on the unpaid principal amount of 3% computed on the basis of the actual number of days elapsed and a year of 365 days from the date of this Note (“Total Amount”), which shall be paid upon the earlier of (i) payments to Holder of 15% of each capital raise (which shall include convertible note fundraising rounds) (such payments not to exceed $2,500,000 together with the interest on the unpaid principal in total, excluding financing fees, received by the Maker), or (ii) November 12, 2021 (the “Maturity Date”) or (iii) an Event of Default (as defined below) For purposes of clarity, if Maker’s payments to the Holders pursuant to (i) of this section do not in the aggregate equal the Total Amount, the amount remaining owed to the Holders shall be paid to the Holders on or before the Maturity Date. This Note may be prepaid in whole or in part. Notwithstanding any other provision of this Note, the Holder does not intend to charge, and the Maker shall not be required to pay, any fees or charges in excess of the maximum permitted by applicable law; any payments in excess of such maximum shall be refunded to the Maker or credited to reduce the principal hereunder. All payments received by the Holder will be applied first to costs of collection, if any, then to the balance to principal.
Payments of principal will be made by check or electronic payment in immediately available United States funds sent to the Holder at the address or bank account furnished to Maker for that purpose.
| Exhibit 10.2 page 2 of 5 |
1. Initial Payment. The Maker agrees to make the first payment of $500,000 of the principal amount of $2,500,000 on or before 120 days from the date of Closing as that term is defined in the Merger Agreement.
2. Guaranty. SkyAuction.com, Inc., a Delaware corporation, hereby absolutely, unconditionally and irrevocably guarantees to the Holder full payment of the Total Amount of this Note, pursuant to the terms of the Secured Unconditional Guaranty attached hereto as Exhibit A.
3. Expenses of Collection. The Maker agrees to pay the Holder's reasonable costs in collecting and enforcing this Note, including reasonable attorney's fees.
4. Waiver by Holder. No waiver of any obligation of the Maker under this Note shall be effective unless it is in a writing signed by the Holder. A waiver by the Holder of any right or remedy under this Note on any occasion shall not be a bar to exercise of the same right or remedy on any subsequent occasion or of any other right or remedy at any time.
5. Notice. Any notice required or permitted under this Note shall be in writing and shall be deemed to have been given on the date of delivery, if personally delivered to the party to whom notice is to be given, or on the fifth business day after mailing, if mailed to the party to whom notice is to be given, by certified mail, return receipt requested, postage prepaid, or overnight courier service with proof of receipt, and addressed as follows:
a. If to the Maker: at 327 Dahlonega Road, Suite 1701B, Cumming, GA 30040, with a copy to Culhane Meadows PLLC, 1101 Pennsylvania Avenue, N.W., Suite 300, Washington, D.C. 20004, Attn: Ernest M. Stern, Esq.; or
b. If to the Holder: 547 Highland Avenue, Westfield, NJ 07090
6. Default. The Maker shall be in default under this Note upon the occurrence of any of the following events (each, an "Event of Default"):
a. Failure to make any payment required under this Note within five (5) days of the indicated date or on the due date thereof, as the case may be; or
b. Any default or event of default occurs under any document, instrument or agreement between the Maker and Holder or any affiliate, successor or assigns of any such party not cured within thirty (30) days of such default; or
c. The Maker (i) applies for or consents to the appointment of a receiver, trustee or liquidator, (ii) files a voluntary petition in bankruptcy, or admits in writing its inability to pay its debts as they come due, (iii) makes an assignment or arrangement for the benefit of creditors, (iv) files a petition or an answer seeking a reorganization or an arrangement with creditors or seeking to take advantage of any insolvency law, (iv) performs any other act of bankruptcy, or (v) files an answer admitting the material allegations of a petition filed against the Maker in any bankruptcy, reorganization or insolvency proceeding; or
| - 2 - |
| Exhibit 10.2 page 3 of 5 |
d. Entry of an order, judgment or decree by any court of competent jurisdiction adjudicating the Maker a judgment debtor or declaring Maker insolvent or approving a receiver, trustee or liquidator of the Maker or of all or a substantial part of its assets, or otherwise commences with respect to the Maker or any of her assets any proceeding under any bankruptcy, reorganization, arrangement, insolvency, readjustment, receivership or like law or statute, and if such order, judgment, decree or proceeding continues unstayed for any period of thirty (30) consecutive days after the expiration of any stay thereof.
7. Remedies. Upon the happening of any Event of Default, or on the Maturity Date, the entire amount of fees, principal, and any other sums due under this Note (collectively, the "Obligations") shall become due and payable immediately, and the rate of interest on the unpaid principal balance of the Note shall be at the rate of 10% per annum. The Maker acknowledges that in case of default, the Maker will cooperate fully with the Holder to retire the Obligations through financings. All remedies of the Holder provided for herein are cumulative and shall be in addition to all other rights or remedies available at law or in equity. The Holder does not give up its rights upon an Event of Default as a result of any delay in declaring or failing to declare a default or an Event of Default.
8. Waiver by the Maker. The Maker hereby expressly waives presentment, demand and protest, notice of demand, dishonor and nonpayment of this Note, and all other notices or demands of any kind in connection with the delivery, acceptance, performance, default or enforcement hereof, and hereby consents to any delays, extensions of time, renewals, waivers or modifications that may be granted or consented to by the Holder hereof with respect to the time of payment or any other provision hereof.
9. Severability. In the event any one or more of the provisions of this Note shall for any reason be held to be invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event that any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then and in any such event, such provision(s) only shall be deemed null and void and shall not affect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect and in no way shall be affected, prejudiced, or disturbed thereby.
10. Governing Law. This Note shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without giving effect to the conflict of laws principles thereof.
SIGNATURES ON NEXT PAGE
| - 3 - |
| Exhibit 10.2 page 4 of 5 |
| INCUMAKER, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: President and CEO | ||
| - 4 - |
| Exhibit 10.2 page 5 of 5 |
Exhibit A
FORM OF SECURED UNCONDITIONAL GUARANTY
| - 5 - |
Exhibit 10.3
page 1 of 10
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
INCUMAKER, INC.
Warrant Shares: 5,000,000
Date of Issuance: November 12, 2018 (“Issuance Date”)
This COMMON STOCK PURCHASE WARRANT (this “Warrant”) certifies that, for value received (in connection with the merger of Incumaker, Inc., a Delaware corporation (the “Company”), and SkyAuction.com, Inc. (the “Merger”), Michael Hering (the “Holder”), President and CEO of SkyAuction.com, Inc., as recognition of the efforts he made to the consummation of the Merger, is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof for the Exercise Period (defined below), to purchase from the Company up to 5,000,000 shares of Common Stock (as defined below) (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. This Warrant is issued by the Company as of the date hereof in connection with that certain Agreement and Plan of Merger agreement dated November 12, 2018, by and among the Company, SA.com Acquisition Corp. and the Holder (the “Merger Agreement”).
Capitalized terms used in this Warrant shall have the meanings set forth in the Merger Agreement unless otherwise defined in the body of this Warrant or in Section 12 below. For purposes of this Warrant, the term “Exercise Price” shall mean $0.05 on a pre-split basis for the Warrant Shares, subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the three-year anniversary thereof. All references to shares of the Company’s Common Stock and Warrant Shares are on a pre-split basis unless otherwise stated in this Warrant.
| Exhibit 10.3 page 2 of 10 |
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the third Trading Day (the “Warrant Share Delivery Date”) following the date on which the Company shall have received the Exercise Notice, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
If the Company fails to cause its transfer agent to transmit to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion, and such failure shall be deemed an event of default under the Note.
The Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:
X = Y (A-B)
A
| Where X = | the number of Shares to be issued to Holder. |
| Y = | the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). |
| A = | the Market Price (at the date of such calculation). |
| B = | Exercise Price (as adjusted to the date of such calculation). |
(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.
| Exhibit 10.3 page 3 of 10 |
2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:
(i) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and
(ii) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).
(iii) For the avoidance of doubt, no adjustment shall occur when shares of outstanding Common Stock are merged proportionally across all stockholders to form a smaller number of outstanding shares of Common Stock.
(b) Anti-Dilution Adjustments to Exercise Price. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities entitling any person or entity to acquire shares of Common Stock (upon conversion, exercise or otherwise) (including but not limited to under the Note), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 2(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 2(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.
| Exhibit 10.3 page 4 of 10 |
3. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
4. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
5. REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
| Exhibit 10.3 page 5 of 10 |
(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.
6. TRANSFER.
(a) Notice of Transfer. The Holder agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer and the identity of the transferee. Promptly upon receiving such written notice, the Company shall present copies thereof to the Company’s counsel. If the proposed transfer may be effected without registration or qualification (under any federal or state securities laws) and the Company approves the transfer, such approval not to be unreasonably withheld, the Company, as promptly as practicable, shall notify the Holder thereof, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute the Assignment of Warrant attached hereto as Exhibit B and such other documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.
(b) If the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 6 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Holder will limit its activities in respect to such transfer or disposition as are permitted by law.
(c) Any transferee of all or a portion of this Warrant shall succeed to the rights and benefits of the initial Holder of this Warrant.
7. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Merger Agreement. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
8. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.
| Exhibit 10.3 page 6 of 10 |
9. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts or federal courts located in Georgia. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
10. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
11. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “Nasdaq” means www.Nasdaq.com.
(b) “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Nasdaq, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Nasdaq, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Nasdaq, or (iii) if no last trade price is reported for such security by Nasdaq, the average of the bid and ask prices of any market makers for such security as reported by the OTC Markets. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(c) “Common Stock” means the Company’s common stock, and any other class of securities into which such securities may hereafter be reclassified or changed.
(d) “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
(e) “Dilutive Issuance” is any issuance of Common Stock or Common Stock Equivalents described in Section 2(b) above; provided, however, that a Dilutive Issuance shall not include any Exempt Issuance.
| Exhibit 10.3 page 7 of 10 |
(f) “Exempt Issuance” means the issuance of (i) shares of Common Stock or options to employees, officers, or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (ii) securities issued pursuant to acquisitions approved by a majority of the disinterested directors of the Company, and (iii) shares of Common Stock issued pursuant to any real property leasing arrangement.
(g) “Principal Market” means the primary national securities exchange on which the Common Stock is then traded.
(h) “Market Price” means the highest traded price of the Common Stock during the ninety Trading Days prior to the date of the respective Exercise Notice.
(i) “Trading Day” means (i) any day on which the Common Stock is listed or quoted and traded on its Principal Market, (ii) if the Common Stock is not then listed or quoted and traded on any national securities exchange, then a day on which trading occurs on any over-the-counter markets, or (iii) if trading does not occur on the over-the-counter markets, any Business Day.
* * * * * * *
| Exhibit 10.3 page 8 of 10 |
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.
| INCUMAKER, INC. | ||
| /s/ Ketan Thakker | ||
| Name: | Ketan Thakker | |
| Title: | Chief Executive Officer | |
| Exhibit 10.3 page 9 of 10 |
EXHIBIT A
EXERCISE NOTICE
(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)
The Undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Incumaker, Inc., a Delaware corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
| 1. | Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): |
| ¨ | a cash exercise with respect to _________________ Warrant Shares; or |
| ¨ | by cashless exercise pursuant to the Warrant. |
| 2. | Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant. |
| 3. | Delivery of Warrant Shares. The Company shall deliver to the holder __________________ Warrant Shares in accordance with the terms of the Warrant. |
| Date: |
| (Print Name of Registered Holder) | ||
| By: | ||
| Name: | ||
| Title: | ||
| Exhibit 10.3 page 10 of 10 |
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
For Value Received, the undersigned hereby sells, assigns, and transfers unto ____________________ the right to purchase _______________ shares of common stock of Incumaker, Inc., to which the within Common Stock Purchase Warrant relates and appoints ____________________, as attorney-in-fact, to transfer said right on the books of Incumaker, Inc. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
| Dated: |
| (Signature) * | |
| (Name) | |
| (Address) | |
| (Social Security or Tax Identification No.) |
* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.
Exhibit 10.4
page 1 of 4
UNCONDITIONAL SECURED GUARANTY
THIS UNCONDITIONAL SECURED GUARANTY ("Guaranty") is made and entered into effective as of November 12, 2018, by SkyAuction.com, Inc., a Delaware corporation with an address of 241 North Avenue West, Westfield, New Jersey 07090 ("Guarantor") in favor of Michael Hering (“Hering”) as Shareholder Representative (as defined in the Merger Agreement) (“Payee").
Recitals
WHEREAS, Incumaker, Inc. a Delaware corporation (“Payor”) issued to Payee a Promissory Note of even date herewith in the original principal amount of Two Million Five Hundred Thousand and no/100 Dollars ($2,500,000) (the “Note”); and
WHEREAS, the Note was issued pursuant to a Merger Agreement (“Merger Agreement”), wherein Payor acquired Guarantor via a merger in which a subsidiary of Payor merged with and into Guarantor (the “Merger”), with the Note payable to Hering, as Shareholder Representative of the Sky Shareholders (as defined in the Merger Agreement) that existed immediately prior to the Merger; and
WHEREAS, in order to induce Payee to grant Payor the Loan on the terms set forth in the Note, Guarantor has agreed to make this Guaranty.
agreement
NOW, THEREFORE, in consideration of the foregoing, Guarantor hereby agrees as follows:
1. Guaranty. Guarantor hereby absolutely and unconditionally guarantees the punctual payment when due, whether at agreed upon payment dates, stated maturity, by acceleration or otherwise, of the aggregate unpaid principal amount of the Note, and all other amounts due Payee under the Note, and any and all extensions, renewals or modifications of the Note. In addition, Guarantor shall pay any and all reasonable fees, costs and expenses incurred by Payee (including attorneys' fees incurred by Payee, at any time prior or subsequent to default, whether litigation is involved or not, and if involved, whether at the trial or appellate levels or in pre or post-judgment or bankruptcy proceedings), in enforcing or realizing upon the obligations of Guarantor hereunder. Such amounts are hereinafter referred to collectively as the "Obligations." The Obligations and the Note shall be hereinafter collectively referred to as the "Loan Terms."
2. Guaranty Absolute. Guarantor guarantees that the Obligations will be paid strictly in accordance with the Loan Terms, regardless of any law, regulation, order or judgment now or hereafter in effect in any jurisdiction affecting any of the Loan Terms or the rights of Payor with respect thereto. The liability of Guarantor under this Guaranty shall continue and be absolute and unconditional irrespective of:
(a) any lack of validity or enforceability of any of the Loan Terms;
| Exhibit 10.4 page 2 of 4 |
(b) any change in the time, manner or place of payment of, or in any other term, including the applicable rate of interest, of the Obligations, all or any of the Loan Terms, or any other renewal, extension, amendment, modification or waiver of or any consent to departure from any of the Loan Terms;
(c) any release, amendment, waiver, modification, extension or renewal of or consent to departure from or forbearance or any other action or inaction under or in respect of this Guaranty or any other guaranty of the Obligations; or
(d) any exchange, release, forbearance or surrender of or any other action or inaction with respect to any collateral at any time and from time to time now or hereafter securing the Obligations or the liability to Payee of Payor, Guarantor or any other person or entity in respect of the Obligations or any failure to perfect or continue as perfected any security interest or other lien with respect to any such collateral, or any loss or destruction of any such collateral, or any matter impairing the value of such collateral as security for the Obligations, the liability to Payee of Guarantor, or any other person or entity, in respect of all or any of the Obligations or Loan Terms.
3. Waiver; No Duties. Guarantor hereby waive promptness, diligence, notice of acceptance and any other notice of any nature whatsoever with respect to any of the Loan Terms. Payee shall not be obligated to exhaust any right or take any action against Payor, or any other person or entity, or any collateral for the Obligations, prior to the enforcement of its rights hereunder. Payee shall not be required to obtain the consent of Guarantor with respect to any matter.
4. Events of Default. Default in the due and punctual observance or performance of any of the terms, covenants, or agreements contained in this Guaranty and the happening of any of the Event of Default set forth in the Note shall constitute an Event of Default under this Guaranty.
5. Notices. All notices, requests and other communications pursuant to this Guaranty, shall be sent by registered or certified first class mail, postage prepaid, addressed as set forth hereinabove or to any such other address as any party hereto shall designate in a written notice to the other party hereto. Any notice addressed and mailed shall be deemed to have been given upon mailing by certified or registered mail, return receipt requested to the respective parties as set forth above, or by electronic mail so long as the electronic mail receipt is confirmed by the recipient directly by an authorized representative of such party.
| 2 |
| Exhibit 10.4 page 3 of 4 |
6. No Waiver; Cumulative Remedies. Payee may, at any time and from time to time, waive or not insist on strict compliance with any one or more of the provisions contained in any document relating to this Guaranty, but any such waiver or non-insistence shall be deemed to be made pursuant to the terms of said document and not in modification thereof. Any waiver or non-insistence in any instance or under any particular circumstance shall not be considered a waiver or non-insistence of such provision in any other instance or any other circumstance, or as creating a requirement that Payee must, as a result of a previous waiver or non-insistence, thereafter give notice to Payor, Guarantor, or any other person or entity that it does not intend to give a further waiver or not insist upon strict performance of a previously waived or not insisted upon provision before Payee can exercise any right or remedies under any document or before any events of default or default can occur, whether occasioned by the provision previously waived or not insisted upon or otherwise, or as establishing a course of dealing for interpreting the expressions and other conduct between Payee and Payor, Guarantor or any other person or entity. The remedies provided herein and in the other documents executed contemporaneously herewith and referred to herein shall be cumulative, may be exercised from time to time, singularly or concurrently or in any combination, without Payee being obligated to exercise any such right in any other circumstance, and are not exclusive of any remedies provided by law.
7. Continuing Guaranty; Transfer. This Guaranty is a continuing guaranty and shall:
(a) remain in full force and effect until the Obligations have been paid in full and written notice of discharge has been sent by Payee to Guarantor stating that Guarantor shall no longer be liable hereunder (which shall be delivered within three (3) business days of final payment of the Note);
(b) be binding upon Guarantor and Guarantor’ successors and assigns; provided, however, Guarantor may not assign any rights and obligations hereunder without the written consent of Payee; and
(c) inure to the benefit of and be enforceable by Payee and its successors, transferees, participants, and assigns; provided, however, that Payee may not assign or otherwise transfer the Loans, Obligations and/or any of Payee's rights and benefits under the Loan Terms to any other person or entity except in connection with a pledge or hypothecation of the foregoing to secure obligations of the Payee to a third party or by operation of law
8. Secured Guaranty. The Obligations of Guarantor under this Secured Unconditional Guaranty shall be secured by the Collateral, as defined in that certain Security Agreement (“Security Agreement”) entered into of even date herewith by and between Guarantor and the Shareholder Representative.
9. Reinstatement. This Guaranty shall continue to be effective, or be reinstated automatically, as the case may be, if at any time payment, in whole or in part, of any of the obligations guaranteed hereby is rescinded or otherwise must be restored or returned by Payee (whether as a preference, fraudulent conveyance or otherwise) upon or in connection with the insolvency, bankruptcy, dissolution, liquidation or reorganization of Payor, Guarantor or any other person, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Payor, Guarantor or any other person or for a substantial part of Payor’s, Guarantor’ or any of such other person’s property as the case may be, or otherwise, all as though such payment had not been made. Guarantor further agree that in the event any such payment is rescinded or must be restored or returned, all costs and expenses (including, without limitation, legal fees and expenses) incurred by or on behalf of Payee in defending or enforcing such continuance or reinstatement, as the case may be, shall constitute costs of enforcement, the payment of which is guaranteed by Guarantor pursuant to Section 1 above.
| 3 |
| Exhibit 10.4 page 4 of 4 |
10. Governing Law. This Guaranty shall be governed by, and construed in accordance with, the laws of the State of New Jersey without regard to principles of conflict of laws.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty to be executed by a duly authorized officer and delivered on the date and in the year first above written.
| SkyAuction.com, Inc. | |
| /s/ Salvatore Esposito | |
| Name: Salvatore Esposito | |
| Title: Chief Operating Officer and Secretary | |
| ACKNOWLEDGED, ACCEPTED AND AGREED TO BY: | |
| Incumaker, Inc. | |
/s/ Ketan Thakker |
|
| Name: Ketan Thakker | |
| Title: President and CEO |
| 4 |
Exhibit 10.5
page 1 of 24
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of November 7, 2018, by and between INCUMAKER, INC., a Delaware corporation, with headquarters located at 327 Dahlonega Road, Suite 1701B, Cumming, GA 30040 (the “Company”), and FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company, with its address at 1040 First Avenue, Suite 190, New York, NY 10022 (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the “1933 Act”) and Rule 506(b) promulgated by the United States Securities and Exchange Commission (the “SEC”) under the 1933 Act;
B. Buyer desires to purchase from the Company, and the Company desires to issue and sell to the Buyer, upon the terms and conditions set forth in this Agreement, a Senior Convertible Promissory Note of the Company, in the aggregate principal amount of up to $220,000.00 (as the principal amount thereof may be increased pursuant to the terms thereof, and together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, in the form attached hereto as Exhibit A, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note, such Note to serve as bridge financing to acquire SkyAuction.com, Inc. and to allow the Company to raise additional financing of up to $6,000,000 (which shall not involve any Variable Rate Transaction (as defined herein)) for further acquisitions;
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of the Note as is set forth immediately below its name on the signature pages hereto;
D. The Company wishes to issue a common stock purchase warrant to purchase 5,250,000 shares of Common Stock (the “Warrant”) as well as 500,000 shares of the Company’s common stock (the “Commitment Shares”) to the Buyer as additional consideration for the purchase of the Note.
NOW THEREFORE, in consideration of the foregoing and of the agreements and covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Buyer hereby agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer, and the Buyer agrees to purchase from the Company, the Note and Warrant, as further provided herein.
b. Form of Payment. On the Closing Date: (i) the Buyer shall pay the purchase price of $200,000.00 (the “Purchase Price”) for the Note to be issued and sold to it at the Closing (as defined below), by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note, and (ii) the Company shall deliver such duly executed Note and Warrant on behalf of the Company, to the Buyer, against delivery of such Purchase Price. If the Buyer decides to pay, in the Buyer’s sole discretion, additional amounts (additional tranches) under the Note, then such additional amounts may be paid in accordance with the Company’s written wiring instructions.
c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 4:00 PM, Eastern Time on the date first written above, or such other mutually agreed upon time.
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| Exhibit 10.5 page 2 of 24 |
d. Closing. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties (including via exchange of electronic signatures).
1A. Warrant. On or before the Closing Date, the Company shall issue the Warrant to the Buyer pursuant to the terms of contained therein and Commitment Shares to the Buyer.
2. Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company as of the Closing Date that:
a. Investment Purpose. As of the Closing Date, the Buyer is purchasing the Note, the Warrant, and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note and such additional shares of Common Stock, if any, as are issuable on account of interest on the Note pursuant to this Agreement and/or upon exercise of the Warrant, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note and the Warrant, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, afforded the opportunity to ask questions of the Company regarding its business and affairs. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information regarding the Company or otherwise and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below.
e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or resale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel (which may be the Legal Counsel Opinion (as defined below)) that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged in connection with a bona fide margin account or other lending arrangement secured by the Securities, and such pledge of Securities shall not be deemed to be a transfer, sale or assignment of the Securities hereunder, and the Buyer in effecting such pledge of Securities shall be not required to provide the Company with any notice thereof or otherwise make any delivery to the Company pursuant to this Agreement or otherwise.
| 2 |
| Exhibit 10.5 page 3 of 24 |
g. Legends. The Buyer understands that until such time as the Note, Warrant, and, upon conversion of the Note and/or exercise of the Warrant in accordance with its respective terms, the Conversion Shares, have been registered under the 1933 Act or may be sold pursuant to Rule 144, Rule 144A under the 1933 Act or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Securities may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE/EXERCISABLE] HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue a certificate for the applicable shares of Common Stock without such legend to the holder of any Security upon which it is stamped or (as requested by such holder) issue the applicable shares of Common Stock to such holder by electronic delivery by crediting the account of such holder’s broker with The Depository Trust Company (“DTC”), if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Buyer provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) hereof) to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144, Rule 144A or Regulation S, at the Deadline (as defined in the Note), it will be considered an Event of Default pursuant to Section 3.2 of the Note.
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| Exhibit 10.5 page 4 of 24 |
h. Authorization; Enforcement. This Agreement has been duly and validly authorized by the Buyer and has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally and except as may be limited by the exercise of judicial discretion in applying principles of equity.
i. Residency. The Buyer is a resident of the jurisdiction set forth immediately below the Buyer’s name on the signature pages hereto.
3. Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules attached hereto and incorporated herein and the SEC Documents (as that term is defined below), the Company represents and warrants to the Buyer as of the Closing Date that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a), if attached hereto, sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note, and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Warrant, the Note, and the Conversion Shares by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note, Warrant, as well as the issuance and reservation for issuance of the Conversion Shares issuable upon conversion of the Note and/or exercise of the Warrant) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, its shareholders, or its debt holders is required, (iii) this Agreement and the Note (together with any other instruments executed in connection herewith or therewith) have been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement, the Note and the other instruments documents executed in connection herewith or therewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms.
c. Capitalization; Governing Documents. As of November 7, 2018, the authorized capital stock of the Company consists of: 750,000,000 authorized shares of Common Stock, of which 43,271,555 shares were issued and outstanding, and 10,000,000 authorized shares of preferred stock, of which 0 were issued and outstanding. All of such outstanding shares of capital stock of the Company and the Conversion Shares, are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement, other than as publicly announced prior to such date and reflected in the SEC filings of the Company (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of any of the Securities. The Company has furnished to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto.
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| Exhibit 10.5 page 5 of 24 |
d. Issuance of Conversion Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
e. Issuance of Warrant. The issuance of the Warrant is duly authorized and will be validly issued and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
f. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect of the Conversion Shares to the Common Stock upon the conversion of the Note. The Company further acknowledges that its obligation to issue, upon conversion of the Note, the Conversion Shares, in accordance with this Agreement, and the Note are absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
g. Ranking; No Conflicts. The Note shall be a senior debt obligation of the Company, with priority in payment and performance over all existing and future indebtedness of the Company. The execution, delivery and performance of this Agreement and the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, note, evidence of indebtedness, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities is subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect), or (iv) trigger any anti-dilution and/or ratchet provision contained in any other contract in which the Company is a party thereto or any security issued by the Company. Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement and the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and, upon conversion of the Note and/or exercise of the Warrant, issue Conversion Shares. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. If the Company is listed on the Over-the-Counter Bulletin Board, the OTCQB Market, any principal market operated by OTC Markets Group, Inc. or any successor to such markets (collectively, the “OTCBB”), the Company is not in violation of the listing requirements of the OTCBB and does not reasonably anticipate that the Common Stock will be delisted by the OTCBB in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
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| Exhibit 10.5 page 6 of 24 |
h. SEC Documents; Financial Statements. The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a 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. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to August 31, 2018, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company is subject to the reporting requirements of the 1934 Act.
i. Absence of Certain Changes. Since August 31, 2018, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
j. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. The SEC Documents contain a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
k. Intellectual Property. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
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| Exhibit 10.5 page 7 of 24 |
l. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
m. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
n. Transactions with Affiliates. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options described in the SEC Documents, none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
o. Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
p. Acknowledgment Regarding Buyer’s Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchaser with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’s purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
q. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
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| Exhibit 10.5 page 8 of 24 |
r. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.
s. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since August 31, 2018, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
t. Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term ”Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
u. Title to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(u), if attached hereto, or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.
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| Exhibit 10.5 page 9 of 24 |
v. Insurance. The Company is in the process of reviewing its insurance coverage. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its insurance coverage.
w. Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
y. Solvency. The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company’s financial statements for its most recent fiscal year end and interim financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.
z. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
aa. No Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
bb. No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering hereunder, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d)(1)(i) to (viii) under the 1933 Act (a “Disqualification Event”), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.
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| Exhibit 10.5 page 10 of 24 |
cc. Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
dd. Breach of Representations and Warranties by the Company. The Company agrees that if the Company breaches any of the representations or warranties set forth in this Section 3 and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note.
4. ADDITIONAL COVENANTS, AGREEMENTS AND ACKNOWLEDGEMENTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company shall use the proceeds for the Company’s acquisition of SkyAuction.com, Inc., a Delaware corporation, and for working capital but not for the repayment of any indebtedness owed to officers, directors or employees of the Company or their affiliates or in violation or contravention of any applicable law, rule or regulation.
d. Right of Participation in Subsequent Offerings.
i. From the date first written above until the date which is eighteen (18) months after the date first written above, the Company will not, (i) directly or indirectly, offer, sell, grant any option to purchase, or otherwise dispose of (or announce any offer, sale, grant or any option to purchase or other disposition of) any of its or its Subsidiaries' debt, equity or equity equivalent securities, including without limitation any debt, preferred shares or other instrument or security that is, at any time during its life and under any circumstances, convertible into or exchangeable or exercisable for Common Stock (any such offer, sale, grant, disposition or announcement being referred to as a "Subsequent Placement") or (ii) enter into any definitive agreement with regard to the foregoing, in each case unless the Company shall have first complied with this Section 4(d) (except with respect to a registered offering of the Company’s common stock conducted by a nationally recognized and registered broker-dealer in the capacity of an underwriter which has been engaged by the Company).
ii. The Company shall deliver to the Buyer an irrevocable written notice (the "Offer Notice") of any proposed or intended issuance or sale or exchange (the "Offer") of the securities being offered (the "Offered Securities") in a Subsequent Placement, which Offer Notice shall (w) identify and describe the Offered Securities, (x) describe the price and other terms upon which they are to be issued, sold or exchanged, and the number or amount of the Offered Securities to be issued, sold or exchanged, (y) identify the persons or entities (if known) to which or with which the Offered Securities are to be offered, issued, sold or exchanged and (z) offer to issue and sell to or exchange with the Buyer at least $200,000.00 of the Offered Securities (the “Subscription Amount”).
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| Exhibit 10.5 page 11 of 24 |
iii. To accept an Offer, in whole or in part, the Buyer must deliver a written notice to the Company prior to the end of the fifth (5th) business day after the Buyer’s receipt of the Offer Notice (the “Offer Period”), setting forth the portion of the Subscription Amount that the Buyer elects to purchase (the “Notice of Acceptance”). The Company shall have ten (10) business days from the expiration of the Offer Period to complete the Subsequent Placement and in connection therewith to issue and sell the Subscription Amount to the Buyer but only upon terms and conditions (including, without limitation, unit prices and interest rates) that are not more favorable to the Buyer or less favorable to the Company than those set forth in the Offer Notice. Following such ten (10) business day period, the Company shall publicly announce either (A) the consummation of the Subsequent Placement or (B) the termination of the Subsequent Placement.
iv. Notwithstanding anything to the contrary contained herein, if the Company desires to modify or amend the terms and conditions of the Offer prior to the expiration of the Offer Period, the Company shall deliver to the Buyer a new Offer Notice and the Offer Period shall expire on the tenth (10th) business day after the Buyer's receipt of such new Offer Notice.
v. If by the fifteenth (15th) business day following delivery of the Offer Notice no public disclosure regarding a transaction with respect to the Offered Securities has been made, and no notice regarding the abandonment of such transaction has been received by the Buyer, such transaction shall be deemed to have been abandoned and the Buyer shall not be deemed to be in possession of any material, non-public information with respect to the Company.
As used in this Agreement, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.
e. Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Buyer in order to enforce any right or remedy under this Agreement, the Note and any document, agreement or instrument contemplated thereby. Notwithstanding any provision to the contrary contained in this Agreement, the Note and any document, agreement or instrument contemplated thereby, it is expressly agreed and provided that the total liability of the Company under this Agreement, the Note or any document, agreement or instrument contemplated thereby for payments which under applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under applicable law in the nature of interest that the Company may be obligated to pay under this Agreement, the Note and any document, agreement or instrument contemplated thereby exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Agreement, the Note and any document, agreement or instrument contemplated thereby from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Buyer with respect to indebtedness evidenced by this Agreement, the Note and any document, agreement or instrument contemplated thereby, such excess shall be applied by the Buyer to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Buyer’s election.
f. Restriction on Activities. Commencing as of the date first above written, and until the earlier of payment of the Note in full or full conversion of the Note, the Company shall not, directly or indirectly, without the Buyer’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business; or (c) solicit any offers for, respond to any unsolicited offers for, or conduct any negotiations with any other person or entity in respect of any Variable Rate Transaction (as defined herein), whether a transaction similar to the one contemplated hereby or any other investment.
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| Exhibit 10.5 page 12 of 24 |
g. Listing. The Company will, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCBB or any equivalent replacement exchange or electronic quotation system (including but not limited to the Pink Sheets electronic quotation system) and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the OTCBB and any other exchanges or electronic quotation systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems.
h. Corporate Existence. The Company will, so long as the Buyer beneficially owns any of the Securities, maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading or quotation on the OTCBB, any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE MKT.
i. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
j. Breach of Covenants. The Company acknowledges and agrees that if the Company breaches any of the covenants set forth in this Section 4, in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note.
k. Compliance with 1934 Act; Public Information Failures. Beginning on the date which is six (6) months after the date of this Agreement and continuing for so long as the Buyer beneficially owns the Note, Warrant, or any Conversion Shares, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act. During the period that the Buyer beneficially owns the Note, if the Company shall (i) fail for any reason to satisfy the requirements of Rule 144(c)(1), including, without limitation, the failure to satisfy the current public information requirements under Rule 144(c) or (ii) if the Company has ever been an issuer described in Rule 144(i)(1)(i) or becomes such an issuer in the future, and the Company shall fail to satisfy any condition set forth in Rule 144(i)(2) (each, a “Public Information Failure”) then, as partial relief for the damages to the Buyer by reason of any such delay in or reduction of its ability to sell the Securities (which remedy shall not be exclusive of any other remedies available pursuant to this Agreement, the Note, or at law or in equity), the Company shall pay to the Buyer an amount in cash equal to three percent (3%) of the Purchase Price on each of the day of a Public Information Failure and on every thirtieth day (pro rated for periods totaling less than thirty days) thereafter until the date such Public Information Failure is cured. The payments to which a holder shall be entitled pursuant to this Section 4(k) are referred to herein as “Public Information Failure Payments.” Public Information Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Public Information Failure Payments are incurred and (iii) the third business day after the event or failure giving rise to the Public Information Failure Payments is cured. In the event the Company fails to make Public Information Failure Payments in a timely manner, such Public Information Failure Payments shall bear interest at the rate of 8% per month (prorated for partial months) until paid in full.
l. Acknowledgement Regarding Buyer’s Trading Activity. The Company acknowledges and agrees that (i) the Buyer has not been asked to agree, nor has the Buyer agreed, to desist from purchasing or selling, long, the securities of the Company, or “derivative” securities based on securities issued by the Company or to hold the Securities for any specified term; (ii) the Buyer shall not be deemed to have any affiliation with or control over any arm’s length counter-party in any “derivative” transaction. The Company further understands and acknowledges that the Buyer may engage in hedging and/or trading activities at various times during the period that the Securities are outstanding, including, without limitation, during the periods that the value of the Conversion Shares are being determined and (b) such hedging and/or trading activities, if any, can reduce the value of the existing stockholders’ equity interest in the Company both at and after the time the hedging and/or trading activities are being conducted. The Company acknowledges that such aforementioned hedging and/or trading activities do not constitute a breach of this Agreement or any of the documents executed in connection herewith.
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| Exhibit 10.5 page 13 of 24 |
m. Disclosure of Transactions and Other Material Information. By 9:00 a.m., New York time, following the date this Agreement has been fully executed, the Company shall file a Current Report on Form 8-K describing the terms of the transactions contemplated by this Agreement in the form required by the 1934 Act and attaching this Agreement, the form of Note (the “8-K Filing”). From and after the filing of the 8-K Filing with the SEC, the Buyer shall not be in possession of any material, nonpublic information received from the Company, any of its Subsidiaries or any of their respective officers, directors, employees or agents that is not disclosed in the 8-K Filing. In addition, effective upon the filing of the 8-K Filing, the Company acknowledges and agrees that any and all confidentiality or similar obligations under any agreement, whether written or oral, between the Company, any of its Subsidiaries or any of their respective officers, directors, affiliates, employees or agents, on the one hand, and the Buyer or any of its affiliates, on the other hand, shall terminate.
n. Legal Counsel Opinions. Upon the request of the Buyer from to time to time, the Company shall be responsible (at its cost) for promptly supplying to the Company’s transfer agent and the Buyer a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the resale of the Conversion Shares by the Buyer or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied and provided the Conversion Shares are not then registered under the 1933 Act for resale pursuant to an effective registration statement). Should the Company’s legal counsel fail for any reason to issue the Legal Counsel Opinion, the Buyer may (at the Company’s cost) secure another legal counsel to issue the Legal Counsel Opinion, and the Company will instruct its transfer agent to accept such opinion. The Company hereby agrees that it may never take the position that it is a “shell company” in connection with its obligations under this Agreement or otherwise.
o. Piggyback Registration Rights. The Company hereby grants to the Buyer the registration rights set forth on Exhibit B hereto.
p. Most Favored Nation. While the Note or any principal amount, interest or fees or expenses due thereunder remain outstanding and unpaid, the Company shall not enter into any public or private offering of its securities (including securities convertible into shares of Common Stock) with any individual or entity (an “Other Investor”) that has the effect of establishing rights or otherwise benefiting such Other Investor in a manner more favorable in any material respect to such Other Investor than the rights and benefits established in favor of the Buyer by this Agreement or the Note unless, in any such case, the Buyer has been provided with such rights and benefits pursuant to a definitive written agreement or agreements between the Company and the Buyer.
q. Subsequent Variable Rate Transactions. From the date hereof until such time as the Buyer no longer holds the Note or any of the Conversion Shares, the Company shall be prohibited from effecting or entering into an agreement involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. Any Purchaser shall be entitled to obtain injunctive relief against the Company to preclude any such issuance, which remedy shall be in addition to any right to collect damages.
r. Brokerage Account Restrictions. If the Common Stock issued upon conversion of the Note cannot be delivered to a brokerage account of the Buyer as a result of restrictions imposed by such brokerage firm, then the Company agrees to take any such action required, including but not limited to a reverse stock split, to remove any such restrictions on depositing the Common Stock into such brokerage account or to satisfy any requirement for deposit of the Common Stock into such brokerage account.
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| Exhibit 10.5 page 14 of 24 |
5. Transfer Agent Instructions. The Company shall issue irrevocable instructions to the Company’s transfer agent to issue certificates, registered in the name of the Buyer or its nominee, upon conversion of the Note and/or exercise of the Warrant, the Conversion Shares, in such amounts as specified from time to time by the Buyer to the Company in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Company proposes to replace its transfer agent, the Company shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to this Agreement (including but not limited to the provision to irrevocably reserved shares of Common Stock in the Reserved Amount (as defined in the Note)) signed by the successor transfer agent to the Company and the Company. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5 will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Securities to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Securities issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement and (iv) it will provide any required corporate resolutions and issuance approvals to its transfer agent within 6 hours of each conversion of the Note. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Securities, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. Conditions to the Company’s Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date, of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and delivered the same to the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date, as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
| 14 |
| Exhibit 10.5 page 15 of 24 |
7. Conditions to The Buyer’s Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note, on the Closing Date, is subject to the satisfaction, at or before the Closing Date, of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to the Buyer the duly executed Note in such denominations as the Buyer shall request and in accordance with Section 1(b) above.
c. The Company shall have delivered to the Buyer the Warrant.
d. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
e. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of Closing Date, as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date.
f. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
g. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
h. Trading in the Common Stock on the OTCBB shall not have been suspended by the SEC, FINRA or the OTCBB.
i. The Company shall have delivered to the Buyer (i) a certificate evidencing the formation and good standing of the Company and each of its Subsidiaries in such entity’s jurisdiction of formation issued by the Secretary of State (or comparable office) of such jurisdiction, as of a date within ten (10) days of the Closing Date and (ii) resolutions adopted by the Company’s Board of Directors at a duly called meeting or by unanimous written consent authorizing this Agreement and all other documents, instruments and transactions contemplated hereby.
j. The Company, SA Acquisition Corp. (a Delaware corporation), and SkyAuction.com, Inc. (a Delaware corporation) shall have collectively executed that certain merger agreement between those parties (the “Merger Agreement”), and the Company shall have publicly disclosed the closing of the merger contemplated by the Merger Agreement.
| 15 |
| Exhibit 10.5 page 16 of 24 |
8. Governing Law; Miscellaneous.
a. Governing Law; Venue. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts of New York or in the federal courts located in the state and county of New York. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTIONS CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
b. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. A facsimile or .pdf signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile or .pdf signature. Delivery of a counterpart signature hereto by facsimile or email/.pdf transmission shall be deemed validly delivery thereof.
c. Construction; Headings. This Agreement shall be deemed to be jointly drafted by the Company and the Buyer and shall not be construed against any person as the drafter hereof. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement, the Note, or any other agreement or instrument delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Agreement, the Note, or any other agreement, certificate, instrument or document contemplated hereby or thereby.
e. Entire Agreement; Amendments. This Agreement, the Note, and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement or any agreement or instrument contemplated hereby may be waived or amended other than by an instrument in writing signed by the Buyer.
f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
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| Exhibit 10.5 page 17 of 24 |
If to the Company, to:
INCUMAKER, INC.
327 Dahlonega Road, Suite 1701B
Cumming, GA 30040
Attention: Ketan Thakker
e-mail: ketan.thakker@ubid.com
With a copy by e-mail only to (which copy shall not constitute notice):
CULHANE MEADOWS PLLC
1101 Pennsylvania Avenue, Suite 300
Washington, D.C. 20004
Attn: Ernest Stern, Esq.
e-mail: estern@Culhanemeadows.com
If to the Buyer:
FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC
1040 First Avenue, Suite 190
New York, NY 10022
Attn: Eli Fireman
e-mail: eli@firstfirecapital.com
With a copy by e-mail only to (which copy shall not constitute notice):
LEGAL & COMPLIANCE, LLC
330 Clematis Street, Suite 217
West Palm Beach, FL 33401
Attn: Chad Friend, Esq., LL.M.
e-mail: CFriend@LegalandCompliance.com
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), the Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, OTCBB or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, OTCBB (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
| 17 |
| Exhibit 10.5 page 18 of 24 |
k. Expense Reimbursement; Further Assurances. At the Closing to occur as of the Closing Date, the Company shall pay on behalf of the Buyer or reimburse the Buyer for its legal fees and expenses incurred in connection with this Agreement, pursuant to the disbursement authorization signed by the Company of even date. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
m. Indemnification. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement or the Note, the Company shall defend, protect, indemnify and hold harmless the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of the Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law.
n. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement or the Note will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement or the Note, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement or the Note and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
o. Payment Set Aside. To the extent that the Company makes a payment or payments to the Buyer hereunder or pursuant to the Note, or the Buyer enforces or exercises its rights hereunder or thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person or entity under any law (including, without limitation, any bankruptcy law, foreign, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.
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| Exhibit 10.5 page 19 of 24 |
p. Failure or Indulgence Not Waiver. No failure or delay on the part of the Buyer in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Buyer existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
q. Recitals. The Recitals to this Agreement are incorporated into and shall constitute a part of this Agreement.
[Signature Page Follows]
| 19 |
| Exhibit 10.5 page 20 of 24 |
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
INCUMAKER, INC.
| By: | /s/ KETAN THAKKER | |
| Name: KETAN THAKKER | ||
| Title: CHIEF EXECUTIVE OFFICER |
FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC
By: FirstFire Capital Management LLC, its manager
| By: | /s/ ELI FIREMAN | |
| ELI FIREMAN |
SUBSCRIPTION AMOUNT:
| Principal Amount of Note: $220,000.00 |
| Actual Amount of Purchase Price of Note: $200,000.00 |
| 20 |
| Exhibit 10.5 page 21 of 24 |
EXHIBIT A
FORM OF NOTE
[attached hereto]
| 21 |
| Exhibit 10.5 page 22 of 24 |
EXHIBIT B
REGISTRATION RIGHTS
All of the Conversion Shares, Commitment Shares, and shares into which the Warrant is exercisable into will be deemed “Registrable Securities” subject to the provisions of this Exhibit B. All capitalized terms used but not defined in this Exhibit B shall have the meanings ascribed to such terms in the Securities Purchase Agreement to which this Exhibit is attached.
1. Piggy-Back Registration.
1.1 Piggy-Back Rights. If at any time on or after the date of the Closing the Company proposes to file any Registration Statement under the 1933 Act (a “Registration Statement”) with respect to any offering of equity securities, or securities or other obligations exercisable or exchangeable for, or convertible into, equity securities, by the Company for its own account or for shareholders of the Company for their account (or by the Company and by shareholders of the Company), other than a Registration Statement (i) filed in connection with any employee stock option or other benefit plan on Form S-8, (ii) for a dividend reinvestment plan or (iii) in connection with a merger or acquisition, then the Company shall (x) give written notice of such proposed filing to the holders of Registrable Securities appearing on the books and records of the Company as such a holder as soon as practicable but in no event less than ten (10) days before the anticipated filing date of the Registration Statement, which notice shall describe the amount and type of securities to be included in such Registration Statement, the intended method(s) of distribution, and the name of the proposed managing underwriter or underwriters, if any, of the offering, and (y) offer to the holders of Registrable Securities in such notice the opportunity to register the sale of such number of Registrable Securities as such holders may request in writing within three (3) days following receipt of such notice (a “Piggy-Back Registration”). The Company shall cause such Registrable Securities to be included in such registration and shall cause the managing underwriter or underwriters of a proposed underwritten offering to permit the Registrable Securities requested to be included in a Piggy-Back Registration on the same terms and conditions as any similar securities of the Company and to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All holders of Registrable Securities proposing to distribute their securities through a Piggy-Back Registration that involves an underwriter or underwriters shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such Piggy-Back Registration.
1.2 Withdrawal. Any holder of Registrable Securities may elect to withdraw such holder’s request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement. The Company (whether on its own determination or as the result of a withdrawal by persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of such Registration Statement. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the holders of Registrable Securities in connection with such Piggy-Back Registration as provided in Section 1.5 below.
1.3 The Company shall notify the holders of Registrable Securities at any time when a prospectus relating to such holder’s Registrable Securities is required to be delivered under the 1933 Act, upon discovery that, or upon the happening of any event as a result of which, the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. At the request of such holder, the Company shall also prepare, file and furnish to such holder a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of the Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. The holders of Registrable Securities shall not to offer or sell any Registrable Securities covered by the Registration Statement after receipt of such notification until the receipt of such supplement or amendment.
1.4 The Company may request a holder of Registrable Securities to furnish the Company such information with respect to such holder and such holder’s proposed distribution of the Registrable Securities pursuant to the Registration Statement as the Company may from time to time reasonably request in writing or as shall be required by law or by the SEC in connection therewith, and such holders shall furnish the Company with such information.
| 22 |
| Exhibit 10.5 page 23 of 24 |
1.5 All fees and expenses incident to the performance of or compliance with this Exhibit B by the Company shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses of the Company’s counsel and independent registered public accountants) (A) with respect to filings made with the SEC, (B) with respect to filings required to be made with any trading market on which the Common Stock is then listed for trading, (C) in compliance with applicable state securities or Blue Sky laws reasonably agreed to by the Company in writing (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities) and (D) with respect to any filing that may be required to be made by any broker through which a holder of Registrable Securities intends to make sales of Registrable Securities with the FINRA, (ii) printing expenses, (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company, (v) 1933 Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other persons or entities retained by the Company in connection with the consummation of the transactions contemplated by this Exhibit B and (vii) reasonable fees and disbursements of a single special counsel for the holders of Registrable Securities (selected by holders of the majority of the Registrable Securities requesting such registration). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. In no event shall the Company be responsible for any broker or similar commissions of any holder of Registrable Securities.
1.6 The Company and its successors and assigns shall indemnify and hold harmless the Buyer, each holder of Registrable Securities, the officers, directors, members, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each of them, each individual or entity who controls the Buyer or any such holder of Registrable Securities (within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act) and the officers, directors, members, stockholders, partners, agents and employees (and any other individuals or entities with a functionally equivalent role of a person holding such titles, notwithstanding a lack of such title or any other title) of each such controlling individual or entity (each, an “Indemnified Party”), to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable attorneys’ fees) and expenses (collectively, “Losses”), as incurred, arising out of or relating to (1) any untrue or alleged untrue statement of a material fact contained in a Registration Statement, any related prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any such prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading or (2) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act or any state securities law, or any rule or regulation thereunder, in connection with the performance of its obligations under this Exhibit B, except to the extent, but only to the extent, that (i) such untrue statements or omissions are based upon information regarding the Buyer or such holder of Registrable Securities furnished to the Company by such party for use therein. The Company shall notify the Buyer and each holder of Registrable Securities promptly of the institution, threat or assertion of any proceeding arising from or in connection with the transactions contemplated by this Exhibit B of which the Company is aware.
1.7 If the indemnification under Section 1.6 is unavailable to an Indemnified Party or insufficient to hold an Indemnified Party harmless for any Losses, then the Company shall contribute to the amount paid or payable by such Indemnified Party, in such proportion as is appropriate to reflect the relative fault of the Company and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of the Company and Indemnified Party shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, the Company or the Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include any reasonable attorneys’ or other fees or expenses incurred by such party in connection with any proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in Section 1.6 was available to such party in accordance with its terms. It is agreed that it would not be just and equitable if contribution pursuant to this Section 1.7 were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 1.7, neither the Buyer nor any holder of Registrable Securities shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such party from the sale of all of their Registrable Securities pursuant to such Registration Statement or related prospectus exceeds the amount of any damages that such party has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission.
[End of Exhibit B]
| 23 |
| Exhibit 10.5 page 24 of 24 |
COMPANY DISCLOSURE SCHEDULES
Schedule 3(c) – 500,000 warrants issued to Street Capital convertible at $0.07 with an exercise termination date of November 11, 2018
Schedule 3(j) - On December 17, 2017, a lawsuit that had been dismissed by the plaintiff on July 21, 2017, was refiled against the Company pursuant to Georgia's renewal statute (O.C.G.A. 9-2-61), titled Oelshlager v. Cryomist II, Cryomist III and Incumaker, Inc. (Fulton County Georgia State Court). The lawsuit alleges that Incumaker is liable for the conduct of its subsidiary on the theory that it is the parent of these separate corporations and that the Cryomist Companies were merely the alter ego of Incumaker. The Company plans to vigorously defend itself against this lawsuit.
On May 11, 2018, a lawsuit was filed by Louis Thomson claiming that the Company had failed to reimburse him rent money he paid as the Guarantor under the lease for the Cryomist III premises, located in Buford, Georgia. The Company and Mr. Thomson had entered into a joint venture whereby the Company would purchase from Mr. Thomson all of his shares and interest in Cryomist III. The joint venture included terms whereby the Company would assume the five-year lease pursuant to a Lease Assignment dated February 13, 2014. In addition, Mr. Thomson was to remain as the guarantor of the lease. Cryomist III ceased operations only three months after the execution of the joint venture with several years remaining on the lease. Mr. Thomson negotiated and paid a large settlement to the landlord of the lease for the remaining rent without ever consulting the Company as the principal under the lease. The Company has denied that it is liable for the reimbursement of such rent payments since Mr. Thomson entered into a settlement for the payment of such rent without the Company’s knowledge. The Company has also filed counterclaims against Mr. Thomson for breach of contract and set-off for monies Mr. Thomson owes the Company but refuses to pay. The Company plans to vigorously defend itself against the claims in this lawsuit and to diligently pursue its counterclaims.
Schedule3(m) – The Company has not filed any state or federal tax returns since 2012 but those returns are being completed by the Company’s accountants and are expected to be filed within the next 30 days. The Company does not owe any taxes and the tax filings are for informational purposes only.
Schedule 3(q) – The Company has not provided any registration rights for the convertible note holders of $1,060,000 in principal amount of convertible.
| 24 |
Exhibit 10.6
page 1 of 23
THIS INSTRUMENT CONTAINS AN AFFIDAVIT OF CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A WAIVER OF IMPORTANT RIGHTS BORROWER MAY HAVE AND ALLOWS THE HOLDER TO OBTAIN A JUDGMENT AGAINST BORROWER WITHOUT ANY FURTHER NOTICE.
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: $220,000.00 | Issue Date: November 7, 2018 |
| Actual Amount of Purchase Price: $200,000.00 |
SENIOR CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, INCUMAKER, INC., a Delaware corporation (hereinafter called the “Borrower” or the “Company”), hereby promises to pay to the order of FIRSTFIRE GLOBAL OPPORTUNITIES FUND LLC, a Delaware limited liability company, or registered assigns (the “Holder”), in the form of lawful money of the United States of America, the principal sum of $220,000.00, with an actual purchase price of $200,000.00 (the “Consideration”) hereof plus a prorated original issue discount in the amount of $20,000.00 (the “OID”) (subject to adjustment herein) (the “Principal Amount”) and to pay interest on the unpaid Principal Amount hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum (the first twelve (12) months of which shall be guaranteed) from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise, as further provided herein. The maturity date shall be twelve (12) months from the effective date of the payment of the Consideration (the “Maturity Date”), and is the date upon which the principal sum of each respective tranche, the applicable portion of the OID, as well as any accrued and unpaid interest and other fees relating to that respective tranche, shall be due and payable.
It is further acknowledged and agreed that the Principal Amount owed by Borrower under this Note shall be increased by the amount of all expenses incurred by the Holder relating to the conversion of this Note into shares of Common Stock. All such expenses shall be deemed added to the Principal Amount hereunder to the extent such expenses are paid by the Holder.
This Note may not be prepaid or repaid in whole or in part except as otherwise explicitly set forth herein.
This Note shall be a senior obligation of the Company, with priority over all future Indebtedness (as defined below) of the Company as provided for herein.
Interest shall commence accruing on the date that the Note is fully funded and shall be computed on the basis of a 365-day year and the actual number of days elapsed. Any Principal Amount or interest on this Note which is not paid when due shall bear interest at the rate of the lesser of (i) fifteen percent (15%) per annum and (ii) the maximum amount permitted by law from the due date thereof until the same is paid (“Default Interest”).
| 1 |
| Exhibit 10.6 page 2 of 23 |
All payments due hereunder (to the extent not converted into shares of common stock, $0.001 par value per share, of the Borrower (the “Common Stock”)) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.
Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement, dated as of the Issue Date, pursuant to which this Note was originally issued (the “Purchase Agreement”). As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. As used herein, the term “Trading Day” means any day that shares of Common Stock are listed for trading or quotation on the OTCBB (as defined in the Purchase Agreement), any tier of the NASDAQ Stock Market, the New York Stock Exchange or the NYSE American.
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
All references to shares of the Company’s Common Stock are on a pre-split basis unless otherwise stated in this Note.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right, at any time on or after the 180th calendar day after the Issue Date, to convert all or any portion of the then outstanding and unpaid Principal Amount and interest (including any Default Interest) into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified, at the Conversion Price (as defined below) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of this Note or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of Conversion Shares issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the then outstanding shares of Common Stock. For purposes of the proviso set forth in the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, however, that the limitations on conversion may be waived (up to 9.99%) by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of Conversion Shares to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 4:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the Principal Amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such Principal Amount at the Interest Rate to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2).
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| Exhibit 10.6 page 3 of 23 |
1.2 Conversion Price.
(a) Calculation of Conversion Price. The per share conversion price into which Principal Amount and interest (including any Default Interest) under this Note shall be convertible into shares of Common Stock hereunder (the “Conversion Price”) shall be equal to the lesser of (i) $0.05 on a pre-split basis (the “Fixed Conversion Price”) or (ii) 70% multiplied by the average of the three (3) lowest volume weighted average prices of the Common Stock during the twenty-one (21) consecutive Trading Day period immediately preceding the Trading Day that the Company receives a Notice of Conversion (the “Alternate Conversion Price”); and provided, further, however, and notwithstanding the above calculation of the Alternate Conversion Price or any other calculation of Conversion Price pursuant to this Section 1.2, if the volume weighted average price of the Common Stock is less than the Conversion Price on the date following the Conversion Date (the “Free Trading Share Receipt Date”) on which the Holder actually receives from the Company or its transfer agent Conversion Shares issuable pursuant to this Section 1 which are immediately upon receipt unrestricted and freely tradable by the Holder either by way of (A) registration under the 1933 Act or (B) pursuant to Rule 144 under the 1933 Act (or a successor rule) (“Rule 144”), Rule 144A under the 1933 Act (or a successor rule) (“Rule 144A”) or Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), then the Conversion Price shall be deemed to have been retroactively adjusted, as of the Conversion Date, to a price equal to 70% multiplied by the volume weighted average price of the Common Stock on the Free Trading Shares Receipt Date (the “Free Trading Shares Receipt Date Conversion Price”), and the Company shall, on the Trading Day following the Free Trading Share Receipt Date, issue to the Holder additional shares of unrestricted, freely tradable Common Stock equal to the difference between (Y) the number of Conversion Shares receivable upon conversion of the applicable Conversion Amount at the Conversion Price and (Z) the number of Conversion Shares receivable upon conversion of the applicable Conversion Amount at the Free Trading Shares Receipt Date Conversion Price (subject to the beneficial ownership limitations contained in Section 1.1, such that the additional shares shall be issued in tranches if required to comply with such beneficial ownership limitations); and provided, further, however, and notwithstanding the above calculation of the Conversion Price, if, prior to the repayment or conversion of this Note, in the event the Borrower consummates a registered or unregistered primary offering of its securities for capital raising purposes (a “Primary Offering”), the Holder shall have the right, in its discretion, to (x) demand repayment in full of an amount equal to any outstanding Principal Amount and interest (including Default Interest) under this Note as of the closing date of the Primary Offering or (y) convert any outstanding Principal Amount and interest (including any Default Interest) under this Note into Common Stock at the closing of such Primary Offering at a Conversion Price equal to the lower of (i) the Conversion Price and (ii) a 20% discount to the offering price to investors in the Primary Offering. The Borrower shall provide the Holder no less than ten (10) calendar days’ notice of the anticipated closing of a Primary Offering and an opportunity to exercise its conversion rights in connection therewith.
(b) Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to be acquired by, consolidate or merge with any other corporation or entity (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Common Stock (or any other takeover scheme) (any such transaction referred to in clause (i) or (ii) being referred to herein as a “Change in Control” and the date of the announcement referred to in clause (i) or (ii) is being referred to herein as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price and (y) a 25% discount to the Acquisition Price (as defined below). From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed Change in Control for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed Change in Control which caused this Section 1.2(b) to become operative. For purposes hereof, “Acquisition Price” shall mean a price per share of Common Stock derived by dividing (x) the total consideration (in cash, equity, earn-out or similar payments or otherwise) paid or to be paid to the Borrower or its shareholders in the Change in Control transaction by (y) the number of authorized shares of Common Stock outstanding as of the business day prior to the Announcement Date.
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| Exhibit 10.6 page 4 of 23 |
1.3 Authorized and Reserved Shares. The Borrower covenants that at all times until the Note is satisfied in full, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of a number of Conversion Shares equal to the greater of: (a) 25,000,000 shares of Common Stock or (b) the sum of (i) the number of Conversion Shares issuable upon the full conversion of this Note (assuming no payment of Principal Amount or interest) as of any issue date (taking into consideration any adjustments to the Conversion Price pursuant to Section 2 hereof or otherwise) multiplied by (ii) three (3) (the “Reserved Amount”). In the event that the Borrower shall be unable to reserve the entirety of the Reserved Amount (the “Reserve Amount Failure”), the Borrower shall promptly take all actions necessary to increase its authorized share capital to accommodate the Reserved Amount (the “Authorized Share Increase”), including without limitation, all board of directors actions and approvals and promptly (but no less than 60 days following the calling and holding a special meeting of its shareholders no more than 60 days following the Reserve Amount Failure to seek approval of the Authorized Share Increase via the solicitation of proxies. Notwithstanding the foregoing, in no event shall the Reserved Amount be lower than the initial Reserved Amount, regardless of any prior conversions. The Borrower represents that upon issuance, the Conversion Shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of Conversion Shares into which this Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of this Note. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Conversion Shares or instructions to have the Conversion Shares issued as contemplated by Section 1.4(f) hereof, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates or cause the Company to electronically issue shares of Common Stock to execute and issue the necessary certificates for the Conversion Shares or cause the Conversion Shares to be issued as contemplated by Section 1.4(f) hereof in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under this Note.
1.4 Method of Conversion.
(a) Mechanics of Conversion. This Note may be converted by the Holder in whole or in part, on any Trading Day, at any time on or after the Issue Date, by submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 4:00 p.m., New York, New York time). Any Notice of Conversion submitted after 4:00 p.m., New York, New York time, shall be deemed to have been delivered and received on the next Trading Day.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid Principal Amount is so converted. The Holder and the Borrower shall maintain records showing the Principal Amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid Principal Amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted Principal Amount of this Note represented by this Note may be less than the amount stated on the face hereof.
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| Exhibit 10.6 page 5 of 23 |
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) within one (1) Trading Day after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid Principal Amount and interest (including any Default Interest) under this Note, surrender of this Note). If the Company shall fail for any reason or for no reason to issue to the Holder on or prior to the Deadline a certificate for the number of Conversion Shares or to which the Holder is entitled hereunder and register such Conversion Shares on the Company’s share register or to credit the Holder’s balance account with DTC (as defined below) for such number of Conversion Shares to which the Holder is entitled upon the Holder’s conversion of this Note (a “Conversion Failure”), then, in addition to all other remedies available to the Holder, (i) the Company shall pay in cash to the Holder on each day after the Deadline and during such Conversion Failure an amount equal to 2.0% of the product of (A) the sum of the number of Conversion Shares not issued to the Holder on or prior to the Deadline and to which the Holder is entitled and (B) the closing sale price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such Conversion Shares to the Holder without violating this Section 1.4(d); and (ii) the Holder, upon written notice to the Company, may void its Notice of Conversion with respect to, and retain or have returned, as the case may be, any portion of this Note that has not been converted pursuant to such Notice of Conversion; provided that the voiding of an Notice of Conversion shall not affect the Company’s obligations to make any payments which have accrued prior to the date of such notice. In addition to the foregoing, if on or prior to the Deadline the Company shall fail to issue and deliver a certificate to the Holder and register such Conversion Shares on the Company’s share register or credit the Holder’s balance account with DTC for the number of Conversion Shares to which the Holder is entitled upon the Holder’s exercise hereunder or pursuant to the Company’s obligation pursuant to clause (ii) below, and if on or after such Trading Day the Holder purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of shares of Common Stock issuable upon such exercise that the Holder anticipated receiving from the Company, then the Company shall, within two (2) Trading Days after the Holder’s request and in the Holder’s discretion, either (i) pay cash to the Holder in an amount equal to the Holder’s total purchase price (including brokerage commissions and other reasonable and customary out-of-pocket expenses, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at which point the Company’s obligation to deliver such certificate (and to issue such Conversion Shares) or credit such Holder’s balance account with DTC for such Conversion Shares shall terminate, or (ii) promptly honor its obligation to deliver to the Holder a certificate or certificates representing such Conversion Shares or credit such Holder’s balance account with DTC and pay cash to the Holder in an amount equal to the excess (if any) of the Buy-In Price over the product of (A) such number of shares of Common Stock, times (B) the closing sales price of the Common Stock on the date of exercise. Nothing shall limit the Holder’s right to pursue any other remedies available to it hereunder, at law or in equity, including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing the Conversion Shares (or to electronically deliver such Conversion Shares) upon the conversion of this Note as required pursuant to the terms hereof.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Conversion Shares issuable upon such conversion, the outstanding Principal Amount and the amount of accrued and unpaid interest (including any Default Interest) under this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for the Conversion Shares (or cause the electronic delivery of the Conversion Shares as contemplated by Section 1.4(f) hereof) shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.
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| Exhibit 10.6 page 6 of 23 |
(f) Delivery of Conversion Shares by Electronic Transfer. In lieu of delivering physical certificates representing the Conversion Shares issuable upon conversion hereof, provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs, upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Conversion Shares issuable upon conversion hereof to the Holder by crediting the account of Holder’s Prime Broker with DTC through its Deposit Withdrawal Agent Commission system.
1.5 Concerning the Shares. The Conversion Shares issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the 1933 Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be the Legal Counsel Opinion (as defined in the Purchase Agreement)) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144, Rule 144A or Regulation S or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the Conversion Shares have been registered under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for the Conversion Shares that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH MAY BE THE LEGAL COUNSEL OPINION (AS DEFINED IN THE PURCHASE AGREEMENT)), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144, RULE 144A OR REGULATION S UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Company shall issue to the Holder a certificate for the applicable Conversion Shares without such legend upon which it is stamped or (as requested by the Holder) issue the applicable Conversion Shares by electronic delivery by crediting the account of such holder’s broker with DTC, if, unless otherwise required by applicable state securities laws: (a) such Conversion Shares are registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144, Rule 144A or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) the Company or the Holder provides the Legal Counsel Opinion (as contemplated by and in accordance with Section 4(m) of the Purchase Agreement) to the effect that a public sale or transfer of such Conversion Shares may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Company shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. The Holder agrees to sell all Conversion Shares, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Holder with respect to the transfer of Conversion Shares pursuant to an exemption from registration, such as Rule 144, Rule 144A or Regulation S, at the Deadline, notwithstanding that the conditions of Rule 144, Rule 144A or Regulation S, as applicable, have been met, it will be considered an Event of Default under this Note.
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| Exhibit 10.6 page 7 of 23 |
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (defined in Section 3.24) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of this Note, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not effectuate any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, at least thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
(d) Purchase Rights. If, at any time when all or any portion of this Note is issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
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| Exhibit 10.6 page 8 of 23 |
(e) Dilutive Issuance. If the Borrower, at any time while this Note or any amounts due hereunder are outstanding, issues, sells or grants any option to purchase, or sells or grants any right to reprice, or otherwise disposes of, or issues, any Common Stock or other securities convertible into, exercisable for, or otherwise entitle any person or entity the right to acquire, shares of Common Stock (including, without limitation, upon conversion of this Note, and any convertible notes or warrants outstanding as of or following the Issue Date), in each or any case at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (it being agreed that if the holder of the Common Stock or other securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced, at the option of the Holder, to a price equal the Base Conversion Price. If the Company enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, the Company shall be deemed to have issued Common Stock or Common Stock Equivalents at the average possible price per share at which such securities could be issued in connection with such Variable Rate Transaction. Such adjustment shall be made whenever such Common Stock or other securities are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 1.6(e) in respect of an Exempt Issuance. In the event of an issuance of securities involving multiple tranches or closings, any adjustment pursuant to this Section 1.6(e) shall be calculated as if all such securities were issued at the initial closing.
An “Exempt Issuance” shall mean the issuance of (a) shares of Common Stock or other securities to officers or directors of the Company pursuant to any stock or option or similar equity incentive plan duly adopted for such purpose, by a majority of the non-employee members of the Company’s Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose in a manner which is consistent with the Company’s prior business practices; (b) securities issued pursuant to a merger, consolidation, acquisition or similar business combination approved by a majority of the disinterested directors of the Company, provided that any such issuance shall only be to a Person (or to the equity holders of a Person) which is, itself or through its subsidiaries, an operating company or an owner of an asset in a business synergistic with the business of the Company and shall provide to the Company additional benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities; (c) securities issued pursuant to any equipment loan or leasing arrangement, real property leasing arrangement or debt financing from a bank or similar financial institution approved by a majority of the disinterested directors of the Company; or (d) securities issued with respect to which the Holder waives its rights in writing under this Section 1.6(e).
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.7 [Intentionally Omitted].
| 8 |
| Exhibit 10.6 page 9 of 23 |
1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the Conversion Shares covered thereby (other than the Conversion Shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies for the Borrower’s failure to convert this Note.
1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time prior to or as of (but not following) the earlier of the (i) the first Conversion Date hereunder and (ii) the Maturity Date, the Borrower shall have the right, exercisable on not less than one (1) Trading Days prior written notice to the Holder of the Note, to prepay the outstanding Principal Amount and interest (including any Default Interest) then due under this Note, in whole or in part, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than one (1) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the amounts designated below to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note at any time within the period that the Borrower has such right, the Borrower shall make payment to the Holder of an amount in cash equal to the sum of: (w) 115% multiplied by the Principal Amount then outstanding plus (x) accrued and unpaid interest on the Principal Amount to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x).
1.10 Repayment from Proceeds. While any portion of the outstanding Principal Amount and interest (including Default Interest) under this Note are due and owing, if the Company receives cash proceeds from any source or series of related or unrelated sources, including but not limited to, from payments from customers, the issuance of equity or debt, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant to an equity line of credit of the Borrower or the sale of assets, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply all or any portion of such proceeds to repay all or any portion of the outstanding Principal Amount and interest (including any Default Interest) then due under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. In the event that such proceeds are received by the Holder prior to the Maturity Date, the required prepayment shall be subject to the terms of Section 1.9 herein.
ARTICLE II. RANKING AND CERTAIN COVENANTS
2.1 Ranking and Security. The obligations of the Borrower under this Note shall rank senior with respect to any and all Indebtedness incurred as of or following the Issue Date.
2.2 Other Indebtedness. So long as the Borrower shall have any obligation under this Note, the Borrower shall not (directly or indirectly through any Subsidiary or affiliate) incur or suffer to exist or guarantee any Indebtedness that is senior to or pari passu with (in priority of payment and performance) the Borrower’s obligations hereunder. As used in this Section 2.2, the term “Borrower” means the Borrower and any Subsidiary of the Borrower. As used herein, the term “Indebtedness” means (a) all indebtedness of the Borrower for borrowed money or for the deferred purchase price of property or services, including any type of letters of credit, but not including deferred purchase price obligations in place as of the Issue Date and as disclosed in the SEC Documents or obligations to trade creditors incurred in the ordinary course of business, (b) all obligations of the Borrower evidenced by notes, bonds, debentures or other similar instruments, (c) purchase money indebtedness hereafter incurred by the Borrower to finance the purchase of fixed or capital assets, including all capital lease obligations of the Borrower which do not exceed the purchase price of the assets funded, (d) all guarantee obligations of the Borrower in respect of obligations of the kind referred to in clauses (a) through (c) above that the Borrower would not be permitted to incur or enter into, and (e) all obligations of the kind referred to in clauses (a) through (d) above that the Borrower is not permitted to incur or enter into that are secured and/or unsecured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured and/or unsecured by) any lien or encumbrance on property (including accounts and contract rights) owned by the Borrower, whether or not the Borrower has assumed or become liable for the payment of such obligation.
| 9 |
| Exhibit 10.6 page 10 of 23 |
2.3 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
2.4 Restriction on Stock Repurchases and Debt Repayments. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares, or repay any pari passu or subordinated indebtedness of Borrower.
2.5 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
2.6 Advances and Loans; Affiliate Transactions. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit, make advances to or enter into any transaction with any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the Issue Date and which the Borrower has informed Holder in writing prior to the Issue Date, (b) in regard to transactions with unaffiliated third parties, made in the ordinary course of business or (c) in regard to transactions with unaffiliated third parties, not in excess of $100,000. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, repay any affiliate (as defined in Rule 144) of the Borrower in connection with any indebtedness or accrued amounts owed to any such party.
2.7 Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(l0) of the Securities Act (a “3(a)(l0) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(l0) Transaction while this note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than Twenty Five Thousand Dollars ($25,000), will be assessed and will become immediately due and payable to the Holder at its election in the form of a cash payment or added to the balance of this Note (under Holder's and Borrower's expectation that this amount will tack back to the Issue Date).
2.8 Preservation of Business and Existence, etc. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, change the nature of its business or sell, divest, or change the structure of any material assets other than in the ordinary course of business. In addition, so long as the Borrower shall have any obligation under this Note, the Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary. Furthermore, so long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, solicit any offers for, respond to any unsolicited offers for, or conduct any negotiations with, any other person or entity with respect to any Variable Rate Transaction or investment.
| 10 |
| Exhibit 10.6 page 11 of 23 |
2.9 Noncircumvention. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.
2.10 Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note, and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note.
ARTICLE III. EVENTS OF DEFAULT
It shall be considered an event of default if any of the following events listed in this Article III (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the Principal Amount hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, or fails to fully comply with Section 1.10 of this Note or fails to timely pay an Amortization Payment (as defined in this Note).
3.2 Conversion and the Shares. The Borrower (i) fails to issue Conversion Shares to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, (ii) fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iii) reserve the Reserved Amount at all times, or (iii) the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for the Conversion Shares issuable to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for two (2) Trading Days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an Event of Default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.
3.3 Breach of Agreements and Covenants. The Borrower breaches any material agreement, covenant or other material term or condition contained in the Purchase Agreement, this Note, the Warrant described in the Purchase Agreement, the Irrevocable Transfer Agent Instructions or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made in the Purchase Agreement, this Note, the Warrant described in the Purchase Agreement, the Irrevocable Transfer Agent Instructions or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith or therewith shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
| 11 |
| Exhibit 10.6 page 12 of 23 |
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the Over the Counter Bulletin Board, the OTCQB Market, any level of the OTC Markets, or any level of the Nasdaq Stock Market or the New York Stock Exchange (including the NYSE American).
3.9 Failure to Comply with the 1934 Act. At any time after the date which is six (6) months after the Issue Date, the Borrower shall fail to comply with the reporting requirements of the 1934 Act and/or the Borrower shall cease to be subject to the reporting requirements of the 1934 Act. It shall be an Event of Default under this Section 3.9 if the Borrower shall file any Notification of Late Filing on Form 12b-25 with the SEC.
3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
3.13 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without five (5) calendar days prior written notice to the Holder.
3.15 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.16 DTC “Chill”. The DTC places a “chill” (i.e. a restriction placed by DTC on one or more of DTC’s services, such as limiting a DTC participant’s ability to make a deposit or withdrawal of the security at DTC) on any of the Borrower’s securities.
| 12 |
| Exhibit 10.6 page 13 of 23 |
3.17 Illegality. Any court of competent jurisdiction issues an order declaring this Note, the Purchase Agreement or any provision hereunder or thereunder to be illegal.
3.18. DWAC Eligibility. In addition to the Event of Default in Section 3.16, the Common Stock is otherwise not eligible for trading through the DTC’s Fast Automated Securities Transfer or Deposit/Withdrawal at Custodian programs.
3.19 Cross-Default. The declaration of an event of default by any lender or other extender of credit to the Company under any notes, loans, agreements or other instruments of the Company evidencing any Indebtedness of the Company (including those filed as exhibits to or described in the Company’s filings with the SEC), after the passage of all applicable notice and cure or grace periods.
3.20 Variable Rate Transactions; Dilutive Issuances. The Borrower (i) issues shares of Common Stock (or convertible securities or Purchase Rights) pursuant to an equity line of credit of the Company or otherwise in connection with a Variable Rate Transaction (whether now existing or entered into in the future), (ii) adjusts downward the “floor price” at which shares of Common Stock (or convertible securities or Purchase Rights) may be issued under an equity line of credit or otherwise in connection with a Variable Rate Transaction (whether now existing or entered into in the future), or (iii) a Dilutive Issuance is triggered as provided in this Note.
3.21 Bid Price. The Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement marketplace or exchange).
3.22 Unavailability of Rule 144. If, at any time on or after the date which is fourteen (14) months after the Issue Date, the Holder is unable to (i) obtain a standard “144 legal opinion letter” from an attorney reasonably acceptable to the Holder, the Holder’s brokerage firm (and respective clearing firm), and the Borrower’s transfer agent in order to facilitate the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant to Rule 144, and/or (ii) thereupon deposit such shares into the Holder’s brokerage account.
3.23 Failure to Register. The Borrower fails to (1) file a registration statement covering the Holder’s resale of all of the Common Stock underlying the Note (the “Registration Statement”), all of the Common Stock underlying the Warrant (as defined in the Purchase Agreement) (the “Warrant”), and the Commitment Shares (as defined in the Purchase Agreement) (the “Commitment Shares”) within ninety (90) calendar days following the Issue Date (with the understanding that the minimum amount of shares of the Borrower’s common stock to be registered in the Registration Statement with respect to the Holder shall be equal to or greater than the Reserved Amount), (ii) cause the Registration Statement to become effective one hundred eighty (180) calendar days following the Issue Date, (iii) cause the Registration Statement to remain effective until the Note is satisfied in full and the Warrant is exercised in full, (iv) comply with the registration rights agreement between the Borrower and Holder entered into in connection with the issuance of the Note and Warrant, or (v) immediately amend the Registration Statement or file a new Registration Statement (and cause such Registration Statement to become immediately effective) if there are no longer sufficient shares registered under the initial Registration Statement for the Holder’s resale of all of the Common Stock underlying the Note, all of the Common Stock underlying the Warrant, and the Commitment Shares. The Holder acknowledges that the Borrower will be filing to register shares of existing shareholders of the Borrower following the Issue Date.
3.24 Rights and Remedies Upon an Event of Default. Upon the occurrence and during the continuation of any Event of Default specified in this Article III, this Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount (the “Default Amount”) equal to the Principal Amount then outstanding plus accrued interest (including any Default Interest) through the date of full repayment multiplied by 125%. Holder may, in its sole discretion, determine to accept payment part in Common Stock and part in cash. For purposes of payments in Common Stock, the conversion formula set forth in Section 1.2 shall apply. Upon an uncured Event of Default, all amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived by the Borrower, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity, including, without limitation, those set forth in Section 3.25 below.
| 13 |
| Exhibit 10.6 page 14 of 23 |
3.25 Holder’s Right to Confession of Judgment. Upon the occurrence and during the continuation of any Event of Default, and in addition to any other right or remedy of the Holder hereunder, under the Purchase Agreement or otherwise at law or in equity, the Borrower hereby irrevocably authorizes and empowers Holder or its legal counsel, each as the Borrower’s attorney-in-fact, to appear ex parte and without notice to the Borrower to confess judgment against the Borrower for the unpaid amount of this Note as evidenced by the Affidavit of Confession of Judgment signed by the Borrower as of the Issue Date and to be completed by the Holder or its counsel pursuant to the foregoing power of attorney (which power is coupled with an interest), a copy of which is attached as Exhibit B hereto (the “Affidavit”). The Affidavit shall set forth the amount then due hereunder, plus attorney’s fees and cost of suit, and to release all errors, and waive all rights of appeal. The Borrower waives the right to contest Holder’s rights under this Section 3.25, including without limitation the right to any stay of execution and the benefit of all exemption laws now or hereafter in effect. No single exercise of the foregoing right and power to confess judgment will be deemed to exhaust such power, whether or not any such exercise shall be held by any court to be invalid, voidable, or void, and such power shall continue undiminished and may be exercised from time to time as the Holder may elect until all amounts owing on this Note have been paid in full.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies of the Holder existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by e-mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
INCUMAKER, INC.
327 Dahlonega Road, Suite 1701B
Cumming, GA 30040
Attention: Ketan Thakker
e-mail: ketan.thakker@ubid.com
With a copy by e-mail only to (which copy shall not constitute notice):
CULHANE MEADOWS PLLC
1101 Pennsylvania Avenue, N.W., Suite 300
Washington, D.C. 20004
Attn: Ernest Stern, Esq.
e-mail: estern@CulhaneMeadows.com
| 14 |
| Exhibit 10.6 page 15 of 23 |
If to the Holder:
FIRSTFIRE GLOBAL OPPORTUNITIES FUND LLC
1040 First Avenue, Suite 190
New York, NY 10022
Attention: Eli Fireman
e-mail: eli@firstfirecapital.com
With a copy by e-mail only to (which copy shall not constitute notice):
LEGAL & COMPLIANCE, LLC
330 Clematis Street, Suite 217
West Palm Beach, FL 33401
Attn: Chad Friend, Esq., LL.M.
e-mail: CFriend@LegalandCompliance.com
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Neither the Borrower nor the Holder shall assign this Note or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Holder may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Holder or to any of its “affiliates”, as that term is defined under the 1934 Act, without the consent of the Borrower. Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys’ fees.
4.6 Governing Law; Venue; Attorney’s Fees. This Note shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts or federal courts located in the state and county of New York. The Borrower hereby irrevocably waives any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTIONS CONTEMPLATED HEREBY. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Note or any other agreement, certificate, instrument or document contemplated hereby or thereby by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law. The prevailing party in any action or dispute brought in connection with this the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby shall be entitled to recover from the other party its reasonable attorney’s fees and costs.
| 15 |
| Exhibit 10.6 page 16 of 23 |
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding Principal Amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. The Company and the Holder shall be bound by the applicable terms of the Purchase Agreement and the documents entered into in connection herewith and therewith.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any Change in Control or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
4.11 Construction; Headings. This Note shall be deemed to be jointly drafted by the Company and all the Holder and shall not be construed against any person as the drafter hereof. The headings of this Note are for convenience of reference and shall not form part of, or affect the interpretation of, this Note.
4.12 Usury. To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter in force, in connection with any action or proceeding that may be brought by the Holder in order to enforce any right or remedy under this Note. Notwithstanding any provision to the contrary contained in this Note, it is expressly agreed and provided that the total liability of the Company under this Note for payments which under the applicable law are in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other sums which under the applicable law in the nature of interest that the Company may be obligated to pay under this Note exceed such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by applicable law and applicable to this Note is increased or decreased by statute or any official governmental action subsequent to the Issue Date, the new maximum contract rate of interest allowed by law will be the Maximum Rate applicable to this Note from the effective date thereof forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company to the Holder with respect to indebtedness evidenced by this the Note, such excess shall be applied by the Holder to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the Holder’s election.
| 16 |
| Exhibit 10.6 page 17 of 23 |
4.13 Severability. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law (including any judicial ruling), then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note.
4.14 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security, or amendment to a security that was originally issued before the Issue Date, with any term that the Holder reasonably believes is more favorable to the holder of such security or with a term in favor of the holder of such security that the Holder reasonably believes was not similarly provided to the Holder in this Note, then (i) the Borrower shall notify the Holder of such additional or more favorable term within one (1) business day of the issuance and/or amendment (as applicable) of the respective security, and (ii) such term, at Holder’s option, shall become a part of the transaction documents with the Holder (regardless of whether the Borrower complied with the notification provision of this Section 4.14). The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, and original issue discounts. If Holder elects to have the term become a part of the transaction documents with the Holder, then the Borrower shall immediately deliver acknowledgment of such adjustment in form and substance reasonably satisfactory to the Holder (the “Acknowledgment”) within one (1) business days of Borrower’s receipt of request from Holder (the “Adjustment Deadline”), provided that Borrower’s failure to timely provide the Acknowledgement shall not affect the automatic amendments contemplated hereby. If the Acknowledgement is not delivered by the Adjustment Deadline, then $1,000.00 per day shall be added to the balance of the Note for each day beyond the Adjustment Deadline that the Borrower fails to deliver such Acknowledgement. In addition, the Holder shall have the right, at any time until the Note is satisfied in its entirety, and upon written notice to the Borrower, to purchase an additional convertible promissory note from the Borrower, with the exact same terms and conditions as provided in this Note in an amount up to $750,000.00 (with the understanding that the Borrower shall execute the form of this Note and all related transaction documents with updated dates within three (3) business days after the Holder exercises such right).
[signature page follows]
| 17 |
| Exhibit 10.6 page 18 of 23 |
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer on November 7, 2018.
INCUMAKER, INC.
| By: | /s/ Ketan Thakker | |
| Name: Ketan Thakker | ||
| Title: Chief Executive Officer |
| 18 |
| Exhibit 10.6 page 19 of 23 |
EXHIBIT A — NOTICE OF CONVERSION
The undersigned hereby elects to convert $______________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of INCUMAKER, INC., a Delaware corporation (the “Borrower”), according to the conditions of the Senior Convertible Promissory Note of the Borrower dated as of November 7, 2018 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
| ¨ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”). |
| Name of DTC Prime Broker: | |
| Account Number: |
| ¨ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
|
FIRSTFIRE GLOBAL OPPORTUNITIES FUND LLC 1040 First Avenue, Suite 190 New York, NY 10022 Attn: Eli Fireman e-mail: eli@firstfirecapital.com |
| Date of Conversion: | ||
| Applicable Conversion Price: | $ | |
| Costs Incurred by the Undersigned to Convert the Note into Shares of Common Stock: |
$ _________________ | |
| Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Note: |
| |
| Amount of Principal Balance Due remaining Under the Note after this conversion: |
|
| By: | |||
| Name: | |||
| Title: | |||
| Date: |
| Exhibit 10.6 page 20 of 23 |
EXHIBIT B
Affidavit of Confession of Judgment
| SUPREME COURT OF THE STATE OF NEW YORK | ||
| COUNTY OF NEW YORK | ||
| ———————————————————————————— X | ||
| FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, | ||
| Index No. | ||
| Plaintiff, | ||
| AFFIDAVIT OF CONFESSION OF | ||
| - against - | JUDGMENT | |
| INCUMAKER, INC., and KETAN THAKKER, | ||
| Defendants. | ||
| ———————————————————————————— X | ||
| STATE OF NEW YORK ) | ||
| ) ss.: | ||
| COUNTY OF NEW YORK ) | ||
Ketan Thakker (“Affiliate”), being duly sworn, hereby deposes and says:
1. I am the Chief Executive Officer of defendant INCUMAKER, INC. (the “Company”) (together with Affiliate, an individual, the “Borrower”). As such, I am fully familiar with all the facts and circumstances recited herein on personal knowledge. Borrower has its principal place of business at 327 Dahlonega Road, Suite 1701B, Cumming, GA 30040. On behalf of the Borrower, I hereby confess judgment in favor of FirstFire Global Opportunities Fund, LLC (“FirstFire”), residing at 1040 First Avenue, Suite 190, New York, New York, 10022, in the amount of the Default Amount (as defined in the senior convertible promissory note in the original principal amount of $220,000.00 between the parties, dated November 7, 2018 (the “Note”)), less any payments made on or after the date of this affidavit of confession of judgment, plus interest a default interest rate of fifteen percent (15%) percent per annum on said amount. In no event shall interest payable hereunder exceed the maximum permissible under applicable law.
| Exhibit 10.6 page 21 of 23 |
2. I hereby authorize the Supreme Court of the State of New York to enter judgment against Borrower in the amount of in the amount of the Default Amount plus a default interest rate of fifteen percent (15%) per annum on said amount from the date of any default, plus the costs and attorneys’ fees that are set forth below, less any payments made on or after the date of this affidavit of confession of judgment, upon Borrower’s failure for any reason to timely make any payment to FirstFire called for by the Note, due to Borrower’s breach of Section 3.1 of the Note (failure to pay Principal or Interest) or due to Borrower’s breach of its obligations that it owes to FirstFire pursuant to Sections 3.2-3.23 of the Note.
3. In order to secure these obligations, Borrower agreed to simultaneously deliver with the execution of the Note this Affidavit of Confession of Judgment.
4. The sums confessed pursuant to this affidavit of confession of judgment are justly due and owing to FirstFire under the following circumstances: Borrower entered into the Note pursuant to which Borrower promised to pay to the order of FirstFire the Default Amount plus interest as provided for therein. The amounts confessed by this affidavit represent a convertible note investment by FirstFire in Borrower and arise out of Borrower’s breach of its obligations under the Note.
5. Borrower agrees to pay any and all costs and expenses incurred by FirstFire in enforcing the terms of this affidavit of confession of judgment, including reasonable attorneys’ fees and expenses at the rate of $475.00 per hour that FirstFire incurs or is billed for in connection with enforcing the terms of the affidavit of confession of judgment, entering any Judgment, collecting upon said Judgment, and defending or prosecuting any appeals.
| Exhibit 10.6 page 22 of 23 |
| INCUMAKER, INC. | ||
| By: | /s/ | |
| Name: | Ketan Thakker | |
| Title: | Chief Executive Officer | |
| Exhibit 10.6 page 23 of 23 |
STATE OF _____________ )
ss.:
COUNTY OF ___________ )
ACKNOWLEDGMENT
On _________, 2018, before me personally came ________________________________________, to me known, who, by me duly sworn, did depose and say that deponent is an officer of INCUMAKER, INC., the corporation described in, and which executed the foregoing affidavit of confession of judgment, that deponent knows the seal of the corporation, that the seal affixed to the affidavit of confession of judgment is the corporation’s seal, that it was affixed by order of the board of directors of the corporation and that deponent signed deponent’s name by like order.
_____________________________
Notary Public
SEAL:
[Signature Page to Affidavit of Confession of Judgment]
Exhibit 10.7
page 1 of 12
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this “Agreement”), dated as of November 7, 2018, by and between INCUMAKER, INC., a Delaware corporation (the “Company”), and FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC, a Delaware limited liability company (together with it permitted assigns, the “Buyer”). Capitalized terms used herein and not otherwise defined herein shall have the respective meanings set forth in the Securities Purchase Agreement by and between the parties hereto, dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”). All references to shares of the Company’s Common Stock are on a pre-split basis unless otherwise stated in this Agreement.
WHEREAS:
The Company has agreed, upon the terms and subject to the conditions of the Purchase Agreement, to sell to the Buyer that certain senior convertible promissory note in the principal amount of $220,000.00 (the “Note”) as provided therein, common stock purchase warrant for the purchase of up to 5,250,000 shares of Common Stock (the “Warrant”) as provided therein, and (iii) 500,000 shares of the Company’s common stock (the “Commitment Shares”), and to induce the Buyer to enter into the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the “Securities Act”), and applicable state securities laws.
NOW, THEREFORE, in consideration of the promises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Buyer hereby agree as follows:
| 1. | DEFINITIONS |
As used in this Agreement, the following terms shall have the following meanings:
a. “Investor” means the Buyer, any transferee or assignee thereof to whom a Buyer assigns its rights under this Agreement in accordance with Section 9 and who agrees to become bound by the provisions of this Agreement, and any transferee or assignee thereof to whom a transferee or assignee assigns its rights under this Agreement in accordance with Section 9 and who agrees to become bound by the provisions of this Agreement.
b. “Person” means any individual or entity including but not limited to any corporation, a limited liability company, an association, a partnership, an organization, a business, an individual, a governmental or political subdivision thereof or a governmental agency.
c. “Register,” “registered,” and “registration” refer to a registration effected by preparing and filing one or more registration statements of the Company in compliance with the Securities Act and/or pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis (“Rule 415”), and the declaration or ordering of effectiveness of such registration statement(s) by the United States Securities and Exchange Commission (the “SEC”).
d. “Registrable Securities” means three (3) times all of the shares of Common Stock into which the Warrant is exercisable into, three (3) times all of the shares of Common Stock into which the Note is convertible into, and the Commitment Shares, which have been, or which may, from time to time be issued, including without limitation all of the shares of common stock which have been issued or will be issued to the Investor under the Purchase Agreement (without regard to any limitation or restriction on purchases), shares of common stock issued to the Investor as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitation on purchases under the Purchase Agreement.
e. “Registration Statement” means one or more registration statements of the Company covering only the sale of the Registrable Securities.
| Exhibit 10.7 page 2 of 12 |
| 2. | REGISTRATION. |
a. Mandatory Registration. The Company shall, within ninety (90) calendar days from the date hereof, file with the SEC an initial Registration Statement covering the maximum number of Registrable Securities as shall be permitted to be included thereon in accordance with the applicable SEC rules, regulations and interpretations so as to permit the resale of such Registrable Securities by the Investor, including, but not limited to Rule 415 under the Securities Act at the then prevailing market prices (and not fixed prices). The Investor and its counsel shall have a reasonable opportunity to review and comment upon such Registration Statement and any amendment or supplement to such Registration Statement and any related prospectus prior to its filing with the SEC, and the Company shall give due consideration to all reasonable comments. The Investor shall furnish all information reasonably requested by the Company for inclusion therein. The Company shall have the Registration Statement and any amendment declared effective by the SEC at the earliest possible date (in any event within one hundred eighty (180) calendar days from the date hereof). The Company shall keep the Registration Statement effective, including but not limited to pursuant to Rule 415 promulgated under the Securities Act and available for the resale by the Investor of all of the Registrable Securities covered thereby at all times until the earlier of (i) the date as of which the Investor may sell all of the Registrable Securities without restriction pursuant to Rule 144 promulgated under the Securities and (ii) the date on which the Investor shall have sold all the Registrable Securities covered thereby (the "Registration Period"). The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.
b. Rule 424 Prospectus. The Company shall, as required by applicable securities regulations, from time to time file with the SEC, pursuant to Rule 424 promulgated under the Securities Act, the prospectus and prospectus supplements, if any, to be used in connection with sales of the Registrable Securities under the Registration Statement. The Investor and its counsel shall have a reasonable opportunity to review and comment upon such prospectus prior to its filing with the SEC, and the Company shall give due consideration to all such comments. The Investor shall use its reasonable best efforts to comment upon such prospectus within one (1) Business Day from the date the Investor receives the final pre-filing version of such prospectus.
c. Sufficient Number of Shares Registered. In the event the number of shares available under the Registration Statement is insufficient to cover all of the Registrable Securities, the Company shall amend the Registration Statement or file a new Registration Statement (a “New Registration Statement”), so as to cover all of such Registrable Securities (subject to the limitations set forth in Rule 415 under the Securities Act and Section 2(a)) as soon as practicable, but in any event not later than ten (10) Business Days after the necessity therefor arises, subject to any limits that may be imposed by the SEC pursuant to Rule 415 under the Securities Act (with the understanding that this process shall be repeated until the Note is satisfied in full). The Company shall use it reasonable best efforts to cause such amendment and/or New Registration Statement to become effective as soon as practicable following the filing thereof. In the event that any of the Registrable Securities are not included in the Registration Statement, or have not been included in any New Registration Statement and the Company files any other registration statement under the Securities Act (other than on Form S-4, Form S-8, or with respect to other employee related plans or rights offerings) (“Other Registration Statement”) then the Company shall include such remaining Registrable Securities in such Other Registration Statement.
d. Offering. If the staff of the SEC (the “Staff”) or the SEC seeks to characterize any offering pursuant to a Registration Statement filed pursuant to this Agreement as constituting an offering of securities that does not permit such Registration Statement to become effective and be used for resales by the Investor under Rule 415 at then-prevailing market prices (and not fixed prices), or if after the filing of the initial Registration Statement with the SEC pursuant to Section 2(a), the Company is otherwise required by the Staff or the SEC to reduce the number of Registrable Securities included in such initial Registration Statement, then the Company shall reduce the number of Registrable Securities to be included in such initial Registration Statement (with the prior consent, which shall not be unreasonably withheld, of the Investor and its legal counsel as to the specific Registrable Securities to be removed therefrom) until such time as the Staff and the SEC shall so permit such Registration Statement to become effective and be used as aforesaid. In the event of any reduction in Registrable Securities pursuant to this paragraph, the Company shall file one or more New Registration Statements in accordance with Section 2(c) until such time as all Registrable Securities have been included in Registration Statements that have been declared effective and the prospectus contained therein is available for use by the Investor. Notwithstanding any provision herein or in the Purchase Agreement to the contrary, the Company’s obligations to register Registrable Securities (and any related conditions to the Investor’s obligations) shall be qualified as necessary to comport with any requirement of the SEC or the Staff as addressed in this Section 2(d).
| Exhibit 10.7 page 3 of 12 |
| 3. | RELATED OBLIGATIONS. |
With respect to the Registration Statement and whenever any Registrable Securities are to be registered pursuant to Section 2 including on any New Registration Statement, the Company shall use its reasonable best efforts to effect the registration of the Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, the Company shall have the following obligations:
a. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to any registration statement and the prospectus used in connection with such registration statement, which prospectus is to be filed pursuant to Rule 424 promulgated under the Securities Act, as may be necessary to keep the Registration Statement or any New Registration Statement effective at all times during the Registration Period, and, during such period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement or any New Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such registration statement.
b. The Company shall permit the Investor to review and comment upon the Registration Statement or any New Registration Statement and all amendments and supplements thereto at least two (2) Business Days prior to their filing with the SEC, and not file any document in a form to which Investor reasonably objects. The Investor shall use its reasonable best efforts to comment upon the Registration Statement or any New Registration Statement and any amendments or supplements thereto within two (2) Business Days from the date the Investor receives the final version thereof. The Company shall furnish to the Investor, without charge any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to the Registration Statement or any New Registration Statement.
c. Upon request of the Investor, the Company shall furnish to the Investor, (i) promptly after the same is prepared and filed with the SEC, at least one copy of such registration statement and any amendment(s) thereto, including financial statements and schedules, all documents incorporated therein by reference and all exhibits, (ii) upon the effectiveness of any registration statement, a copy of the prospectus included in such registration statement and all amendments and supplements thereto (or such other number of copies as the Investor may reasonably request) and (iii) such other documents, including copies of any preliminary or final prospectus, as the Investor may reasonably request from time to time in order to facilitate the disposition of the Registrable Securities owned by the Investor. For the avoidance of doubt, any filing available to the Investor via the SEC’s live EDGAR system shall be deemed “furnished to the Investor” hereunder.
d. The Company shall use reasonable best efforts to (i) register and qualify the Registrable Securities covered by a registration statement under such other securities or "blue sky" laws of such jurisdictions in the United States as the Investor reasonably requests, (ii) prepare and file in those jurisdictions, such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (x) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (y) subject itself to general taxation in any such jurisdiction, or (z) file a general consent to service of process in any such jurisdiction. The Company shall promptly notify the Investor who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "blue sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threatening of any proceeding for such purpose.
| Exhibit 10.7 page 4 of 12 |
e. As promptly as practicable after becoming aware of such event or facts, the Company shall notify the Investor in writing of the happening of any event or existence of such facts as a result of which the prospectus included in any registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare a supplement or amendment to such registration statement to correct such untrue statement or omission, and deliver a copy of such supplement or amendment to the Investor (or such other number of copies as the Investor may reasonably request). The Company shall also promptly notify the Investor in writing (i) when a prospectus or any prospectus supplement or post-effective amendment has been filed, and when a registration statement or any post-effective amendment has become effective (notification of such effectiveness shall be delivered to the Investor by email or facsimile on the same day of such effectiveness and by overnight mail), (ii) of any request by the SEC for amendments or supplements to any registration statement or related prospectus or related information, and (iii) of the Company's reasonable determination that a post-effective amendment to a registration statement would be appropriate.
f. The Company shall use its reasonable best efforts to prevent the issuance of any stop order or other suspension of effectiveness of any registration statement, or the suspension of the qualification of any Registrable Securities for sale in any jurisdiction and, if such an order or suspension is issued, to obtain the withdrawal of such order or suspension at the earliest possible moment and to notify the Investor of the issuance of such order and the resolution thereof or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
g. The Company shall (i) cause all the Registrable Securities to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (ii) secure designation and quotation of all the Registrable Securities on the Principal Market. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section.
g. The Company shall cooperate with the Investor to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to any registration statement and enable such certificates to be in such denominations or amounts as the Investor may reasonably request and registered in such names as the Investor may request.
h. The Company shall at all times provide a transfer agent and registrar with respect to its Common Stock.
i. If reasonably requested by the Investor, the Company shall (i) immediately incorporate in a prospectus supplement or post-effective amendment such information as the Investor believes should be included therein relating to the sale and distribution of Registrable Securities, including, without limitation, information with respect to the number of Registrable Securities being sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities; (ii) make all required filings of such prospectus supplement or post-effective amendment as soon as practicable upon notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; and (iii) supplement or make amendments to any registration statement.
j. The Company shall use its reasonable best efforts to cause the Registrable Securities covered by any registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
k. Within one (1) Business Day after any registration statement which includes the Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Investor) confirmation that such registration statement has been declared effective by the SEC in the form attached hereto as Exhibit A. Thereafter, if requested by the Buyer at any time, the Company shall require its counsel to deliver to the Buyer a written confirmation whether or not the effectiveness of such registration statement has lapsed at any time for any reason (including, without limitation, the issuance of a stop order) and whether or not the registration statement is current and available to the Buyer for sale of all of the Registrable Securities.
| Exhibit 10.7 page 5 of 12 |
l. The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Investor of Registrable Securities pursuant to any registration statement.
| 4. | OBLIGATIONS OF THE INVESTOR. |
a. The Company shall notify the Investor in writing of the information the Company reasonably requires from the Investor in connection with any registration statement hereunder. The Investor shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request.
b. The Investor agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any registration statement hereunder.
c. The Investor agrees that, upon receipt of any notice from the Company of the happening of any event or existence of facts of the kind described in Section 3(f) or the first sentence of 3(e), the Investor will immediately discontinue disposition of Registrable Securities pursuant to any registration statement(s) covering such Registrable Securities until the Investor's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(f) or the first sentence of 3(e). Notwithstanding anything to the contrary, the Company shall cause its transfer agent to promptly deliver shares of Common Stock without any restrictive legend in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which an Investor has entered into a contract for sale prior to the Investor's receipt of a notice from the Company of the happening of any event of the kind described in Section 3(f) or the first sentence of Section 3(e) and for which the Investor has not yet settled.
| 5. | EXPENSES OF REGISTRATION. |
All reasonable expenses, other than sales or brokerage commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, and fees and disbursements of counsel for the Company, shall be paid by the Company.
| Exhibit 10.7 page 6 of 12 |
| 6. | INDEMNIFICATION. |
a. To the fullest extent permitted by law, the Company will, and hereby does, indemnify, hold harmless and defend the Investor, each Person, if any, who controls the Investor, the members, the directors, officers, partners, employees, agents, representatives of the Investor and each Person, if any, who controls the Investor within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (each, an “Indemnified Person”), against any losses, claims, damages, liabilities, judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto (“Indemnified Damages”), to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact in the Registration Statement, any New Registration Statement or any post-effective amendment thereto or in any filing made in connection with the qualification of the offering under the securities or other “blue sky” laws of any jurisdiction in which Registrable Securities are offered (“Blue Sky Filing”), or the omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any other law, including, without limitation, any state securities law, or any rule or regulation thereunder relating to the offer or sale of the Registrable Securities pursuant to the Registration Statement or any New Registration Statement or (iv) any material violation by the Company of this Agreement (the matters in the foregoing clauses (i) through (iv) being, collectively, “Violations”). The Company shall reimburse each Indemnified Person promptly as such expenses are incurred and are due and payable, for any reasonable legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (i) shall not apply to a Claim by an Indemnified Person arising out of or based upon a Violation which occurs in reliance upon and in conformity with information about the Investor furnished in writing to the Company by such Indemnified Person expressly for use in connection with the preparation of the Registration Statement, any New Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); (ii) with respect to any superseded prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the superseded prospectus was corrected in the revised prospectus, as then amended or supplemented, if such revised prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e), and the Indemnified Person was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to a violation and such Indemnified Person, notwithstanding such advice, used it; (iii) shall not be available to the extent such Claim is based on a failure of the Investor to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3(c) or Section 3(e); and (iv) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Investor pursuant to Section 9.
b. Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action or proceeding (including any governmental action or proceeding) involving a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person or the Indemnified Party, as the case may be; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and any other party represented by such counsel in such proceeding. The Indemnified Party or Indemnified Person shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the Indemnified Party or Indemnified Person which relates to such action or claim. The indemnifying party shall keep the Indemnified Party or Indemnified Person fully apprised at all times as to the status of the defense or any settlement negotiations with respect thereto. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effectuated without its written consent, provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the consent of the Indemnified Party or Indemnified Person, consent to entry of any judgment or enter into any settlement or other compromise which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party or Indemnified Person of a release from all liability in respect to such claim or litigation. Following indemnification as provided for hereunder, the indemnifying party shall be subrogated to all rights of the Indemnified Party or Indemnified Person with respect to all third parties, firms or corporations relating to the matter for which indemnification has been made. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action.
| Exhibit 10.7 page 7 of 12 |
c. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as and when bills are received or Indemnified Damages are incurred.
d. The indemnity agreements contained herein shall be in addition to (i) any cause of action or similar right of the Indemnified Party or Indemnified Person against the indemnifying party or others, and (ii) any liabilities the indemnifying party may be subject to pursuant to the law.
| 7. | CONTRIBUTION. |
To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Section 6 to the fullest extent permitted by law; provided, however, that: (i) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation; and (ii) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities.
| 8. | REPORTS AND DISCLOSURE UNDER THE SECURITIES ACTS. |
With a view to making available to the Investor the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Investor to sell securities of the Company to the public without registration (“Rule 144”), the Company agrees, at the Company’s sole expense, to:
a. make and keep public information available, as those terms are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act so long as the Company remains subject to such requirements and the filing of such reports and other documents is required for the applicable provisions of Rule 144;
c. furnish to the Investor so long as the Investor owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting and or disclosure provisions of Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Investor to sell such securities pursuant to Rule 144 without registration; and
d. take such additional action as is requested by the Investor to enable the Investor to sell the Registrable Securities pursuant to Rule 144, including, without limitation, delivering all such legal opinions, consents, certificates, resolutions and instructions to the Company’s Transfer Agent as may be requested from time to time by the Investor and otherwise fully cooperate with Investor and Investor’s broker to effect such sale of securities pursuant to Rule 144.
The Company agrees that damages may be an inadequate remedy for any breach of the terms and provisions of this Section 8 and that Investor shall, whether or not it is pursuing any remedies at law, be entitled to equitable relief in the form of a preliminary or permanent injunctions, without having to post any bond or other security, upon any breach or threatened breach of any such terms or provisions.
| 9. | ASSIGNMENT OF REGISTRATION RIGHTS. |
Neither party to this Agreement shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other party.
| Exhibit 10.7 page 8 of 12 |
| 10. | AMENDMENT OF REGISTRATION RIGHTS. |
No provision of this Agreement may be amended or waived by the parties from and after the date that is one Business Day immediately preceding the initial filing of the Registration Statement with the SEC. Subject to the immediately preceding sentence, no provision of this Agreement may be (i) amended other than by a written instrument signed by both parties hereto or (ii) waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof.
| 11. | MISCELLANEOUS. |
a. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to own of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
b. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (i) upon receipt, when delivered personally; (ii) upon receipt, when sent by facsimile or email; or (iii) one (1) Business Day after deposit with a nationally recognized overnight delivery service, in each case properly addressed to the party to receive the same. The addresses for such communications shall be:
If to the Company, to:
INCUMAKER, INC.
327 Dahlonega Road, Suite 1701B
Cumming, GA 30040
Attention: Ketan Thakker
e-mail: ketan.thakker@ubid.com
With a copy by e-mail only to (which copy shall not constitute notice):
CULHANE MEADOWS PLLC
1101 Pennsylvania Avenue, N.W., Suite 300
Washington, D.C. 20004
Attn: Ernest Stern, Esq.
e-mail: estern@CulhaneMeadows.com
If to the Investor:
FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC
1040 First Avenue, Suite 190
New York, NY 10022
Attn: Eli Fireman
e-mail: eli@firstfirecapital.com
With a copy by e-mail only to (which copy shall not constitute notice):
LEGAL & COMPLIANCE, LLC
330 Clematis Street, Suite 217
West Palm Beach, FL 33401
Attn: Chad Friend, Esq., LL.M.
e-mail: CFriend@LegalandCompliance.com
or at such other address and/or facsimile number and/or to the attention of such other person as the recipient party has specified by written notice given to each other party three (3) Business Days prior to the effectiveness of such change. Written confirmation of receipt (A) given by the recipient of such notice, consent, waiver or other communication, (B) mechanically or electronically generated by the sender's facsimile machine or email account containing the time, date, recipient facsimile number or email address, as applicable, and an image of the first page of such transmission or (C) provided by a nationally recognized overnight delivery service, shall be rebuttable evidence of personal service, receipt by facsimile or receipt from a nationally recognized overnight delivery service in accordance with clause (i), (ii) or (iii) above, respectively.
| Exhibit 10.7 page 9 of 12 |
c. The corporate laws of the State of Delaware shall govern all issues concerning this Agreement. All other questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Delaware or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Delaware. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting the New York, New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
d. This Agreement and the Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof and thereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein and therein. This Agreement and the Purchase Agreement supersede all prior agreements and understandings among the parties hereto with respect to the subject matter hereof and thereof.
e. Subject to the requirements of Section 9, this Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties hereto.
f. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.
g. This Agreement may be executed in identical counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission or by e-mail in a “.pdf” format data file of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
h. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
i. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent and no rules of strict construction will be applied against any party.
j. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.
* * * * * *
| Exhibit 10.7 page 10 of 12 |
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of day and year first above written.
THE COMPANY:
INCUMAKER, INC.
| By: | /s/ KETAN THAKKER | |
| Name: KETAN THAKKER | ||
| Title: CHIEF EXECUTIVE OFFICER |
INVESTOR:
FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC
By: FirstFire Capital Management LLC, its manager
| By: | /s/ ELI FIREMAN | |
| ELI FIREMAN |
| Exhibit 10.7 page 11 of 12 |
EXHIBIT A TO REGISTRATION RIGHTS AGREEMENT
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
______, 2018
Island Stock Transfer
15500 Roosevelt Boulevard, Suite 301
Clearwater, FL 33760
Re: [__________]
Ladies and Gentlemen:
We are counsel to INCUMAKER, INC., a Delaware corporation (the “Company”), and have represented the Company in connection with that certain securities purchase agreement, dated as of November 7, 2018 (the “Purchase Agreement”), entered into by and between the Company and FirstFire Global Opportunities Fund, LLC (the “Buyer”). In connection with the transactions contemplated by the Purchase Agreement, the Company has registered with the U.S. Securities & Exchange Commission the following shares of Common Stock:
| (1) | __________ shares of Common Stock to be issued to the Buyer upon Buyer’s conversion(s) under the Note in accordance with the terms of the Note. |
| (2) | __________ shares of Common Stock to be issued to the Buyer upon Buyer’s exercise(s) under the Warrant in accordance with the terms of the Warrant. |
| (3) | __________ shares of Common Stock issued to the Buyer as a commitment fee. |
Pursuant to the Purchase Agreement, the Company also has entered into a registration rights agreement, of even date with the Purchase Agreement with the Buyer (the “Registration Rights Agreement”) pursuant to which the Company agreed, among other things, to register the shares of the Company’s common stock for the benefit of Buyer (as defined in the Registration Rights Agreement) under the Securities Act of 1933, as amended (the “Securities Act”). In connection with the Company's obligations under the Purchase Agreement and the Registration Rights Agreement, on [_____], 2018, the Company filed a Registration Statement (File No. 333-[_________]) (the “Registration Statement”) with the Securities and Exchange Commission (the “SEC”) relating to the resale of the Conversion Shares.
In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the Securities Act at [_____] [A.M./P.M.] on [__________], 2018 and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Conversion Shares are available for resale under the Securities Act pursuant to the Registration Statement and may be issued without any restrictive legend.
| Very truly yours, | |||
| [Company Counsel] | |||
| By: | |||
cc: FirstFire Global Opportunities Fund, LLC
| Exhibit 10.7 page 12 of 12 |
EXHIBIT B TO REGISTRATION RIGHTS AGREEMENT
FORM OF CONVERTIBLE NOTE
Exhibit 10.8
page 1 of 11
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
INCUMAKER, INC.
Warrant Shares: 5,250,000
Date of Issuance: November 7, 2018 (“Issuance Date”)
This COMMON STOCK PURCHASE WARRANT (the “Warrant”) certifies that, for value received (in connection with the funding of $200,000.00 for the first tranche of $220,000.00 of that certain $220,000.00 senior convertible promissory note issued to the Holder (as defined below) by the Company (as defined below) of even date) (the “Note”), FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (including any permitted and registered assigns, the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof, to purchase from Incumaker, Inc., a Delaware corporation (the “Company”), up to 5,250,000 shares of Common Stock (as defined below) (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. This Warrant is issued by the Company as of the date hereof in connection with that certain securities purchase agreement dated November 7, 2018, by and among the Company and the Holder (the “Purchase Agreement”).
Capitalized terms used in this Warrant shall have the meanings set forth in the Purchase Agreement unless otherwise defined in the body of this Warrant or in Section 12 below. For purposes of this Warrant, the term “Exercise Price” shall mean $0.05 on a pre-split basis for the Warrant Shares, subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the three-year anniversary thereof. All references to shares of the Company’s Common Stock and Warrant Shares are on a pre-split basis unless otherwise stated in this Warrant.
| Exhibit 10.8 page 2 of 11 |
| 1. | EXERCISE OF WARRANT. |
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the third Trading Day (the “Warrant Share Delivery Date”) following the date on which the Company shall have received the Exercise Notice, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
If the Company fails to cause its transfer agent to transmit to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion, and such failure shall be deemed an event of default under the Note.
If (i) the Market Price of one share of Common Stock is greater than the Exercise Price and (ii) there is no effective non-stale registration statement of the Company covering the Holder’s immediate resale of the Warrant Shares without any limitations, the Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:
X = Y (A-B)
A
Where X = the number of Shares to be issued to Holder.
| Y = | the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). |
| A = | the Market Price (at the date of such calculation). |
| B = | Exercise Price (as adjusted to the date of such calculation). |
(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.
| 2 |
| Exhibit 10.8 page 3 of 11 |
(c) Holder’s Exercise Limitations. The Company shall not effect any exercise of this Warrant, and a Holder shall not have the right to exercise any portion of this Warrant, to the extent that after giving effect to issuance of Warrant Shares upon exercise as set forth on the applicable Notice of Exercise, the Holder (together with the Holder’s Affiliates, and any other persons acting as a group together with the Holder or any of the Holder’s Affiliates), would beneficially own in excess of the Beneficial Ownership Limitation, as defined below. For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon exercise of this Warrant with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which would be issuable upon (i) exercise of the remaining, non-exercised portion of this Warrant beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or non-converted portion of any other securities of the Company (including without limitation any other Common Stock Equivalents) subject to a limitation on conversion or exercise analogous to the limitation contained herein beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this paragraph (d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act, it being acknowledged by the Holder that the Company is not representing to the Holder that such calculation is in compliance with Section 13(d) of the Exchange Act and the Holder is solely responsible for any schedules required to be filed in accordance therewith. To the extent that the limitation contained in this paragraph applies, the determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any affiliates) and of which portion of this Warrant is exercisable shall be in the sole discretion of the Holder, and the submission of a Notice of Exercise shall be deemed to be the Holder’s determination of whether this Warrant is exercisable (in relation to other securities owned by the Holder together with any Affiliates) and of which portion of this Warrant is exercisable, in each case subject to the Beneficial Ownership Limitation, and the Company shall have no obligation to verify or confirm the accuracy of such determination.
For purposes of this paragraph, in determining the number of outstanding shares of Common Stock, a Holder may rely on the number of outstanding shares of Common Stock as reflected in (A) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (B) a more recent public announcement by the Company or (C) a more recent written notice by the Company or its transfer agent setting forth the number of shares of Common Stock outstanding. Upon the request of a Holder, the Company shall within two Trading Days confirm to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Warrant, by the Holder or its affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon exercise of this Warrant. Upon no fewer than 61 days’ prior notice to the Company, a Holder may increase or decrease the Beneficial Ownership Limitation provisions of this paragraph, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon exercise of this Warrant held by the Holder and the provisions of this paragraph shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company and shall only apply to such Holder and no other Holder. The limitations contained in this paragraph shall apply to a successor Holder of this Warrant.
2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:
| 3 |
| Exhibit 10.8 page 4 of 11 |
(i) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and
(ii) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).
(iii) For the avoidance of doubt, no adjustment shall occur when shares of outstanding Common Stock are merged proportionally across all stockholders to form a smaller number of outstanding shares of Common Stock.
(b) Anti-Dilution Adjustments to Exercise Price. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities entitling any person or entity to acquire shares of Common Stock (upon conversion, exercise or otherwise) (including but not limited to under the Note), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 2(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 2(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.
| 4 |
| Exhibit 10.8 page 5 of 11 |
3. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
4. NON-CIRCUMVENTION. The Company covenants and agrees that it will not, by amendment of its certificate of incorporation, bylaws or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, and will at all times in good faith carry out all the provisions of this Warrant and take all action as may be required to protect the rights of the Holder. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon the exercise of this Warrant above the Exercise Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the exercise of this Warrant, and (iii) shall, for so long as this Warrant is outstanding, have authorized and reserved, free from preemptive rights, three (3) times the number of shares of Common Stock into which the Warrants are then exercisable into to provide for the exercise of the rights represented by this Warrant (without regard to any limitations on exercise).
5. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
| 5 |
| Exhibit 10.8 page 6 of 11 |
6. REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.
7. TRANSFER.
(a) Notice of Transfer. The Holder agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer and the identity of the transferee. Promptly upon receiving such written notice, the Company shall present copies thereof to the Company’s counsel. If the proposed transfer may be effected without registration or qualification (under any federal or state securities laws) and the Company approves the transfer, such approval not to be unreasonably withheld, the Company, as promptly as practicable, shall notify the Holder thereof, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute the Assignment of Warrant attached hereto as Exhibit B and such other documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.
(b) If the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 7 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Holder will limit its activities in respect to such transfer or disposition as are permitted by law.
(c) Any transferee of all or a portion of this Warrant shall succeed to the rights and benefits of the initial Holder of this Warrant.
8. NOTICES. Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Purchase Agreement. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
| 6 |
| Exhibit 10.8 page 7 of 11 |
9. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.
10. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts or federal courts located in New York. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
11. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
12. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “Nasdaq” means www.Nasdaq.com.
(b) “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Nasdaq, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Nasdaq, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Nasdaq, or (iii) if no last trade price is reported for such security by Nasdaq, the average of the bid and ask prices of any market makers for such security as reported by the OTC Markets. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(c) “Common Stock” means the Company’s common stock, and any other class of securities into which such securities may hereafter be reclassified or changed.
| 7 |
| Exhibit 10.8 page 8 of 11 |
(d) “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
(e) “Dilutive Issuance” is any issuance of Common Stock or Common Stock Equivalents described in Section 2(b) above; provided, however, that a Dilutive Issuance shall not include any Exempt Issuance.
(f) “Exempt Issuance” means the issuance of (i) shares of Common Stock or options to employees, officers, or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (ii) securities issued pursuant to acquisitions approved by a majority of the disinterested directors of the Company, and (iii) shares of Common Stock issued pursuant to any real property leasing arrangement.
(g) “Principal Market” means the primary national securities exchange on which the Common Stock is then traded.
(h) “Market Price” means the highest traded price of the Common Stock during the ninety Trading Days prior to the date of the respective Exercise Notice.
(i) “Trading Day” means (i) any day on which the Common Stock is listed or quoted and traded on its Principal Market, (ii) if the Common Stock is not then listed or quoted and traded on any national securities exchange, then a day on which trading occurs on any over-the-counter markets, or (iii) if trading does not occur on the over-the-counter markets, any Business Day.
* * * * * * *
| 8 |
| Exhibit 10.8 page 9 of 11 |
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.
| INCUMAKER, INC. | |
| /s/ Ketan Thakker | |
| Name: Ketan Thakker | |
| Title: Chief Executive Officer |
| Exhibit 10.8 page 10 of 11 |
EXHIBIT A
EXERCISE NOTICE
(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)
The Undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Incumaker, Inc., a Delaware corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
| 1. | Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): |
| ¨ | a cash exercise with respect to _________________ Warrant Shares; or |
| ¨ | by cashless exercise pursuant to the Warrant. |
| 2. | Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant. |
| 3. | Delivery of Warrant Shares. The Company shall deliver to the holder __________________ Warrant Shares in accordance with the terms of the Warrant. |
| Date: | ||||
| (Print Name of Registered Holder) | ||||
| By: | ||||
| Name: | ||||
| Title: | ||||
| Exhibit 10.8 page 11 of 11 |
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
For Value Received, the undersigned hereby sells, assigns, and transfers unto ____________________ the right to purchase _______________ shares of common stock of Incumaker, Inc., to which the within Common Stock Purchase Warrant relates and appoints ____________________, as attorney-in-fact, to transfer said right on the books of Incumaker, Inc. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
| Dated: | |||
| (Signature) * | |||
| (Name) | |||
| (Address) | |||
| (Social Security or Tax Identification No.) |
* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.
Exhibit 10.9
page 1 of 2
AMENDMENT #1 TO THE SECURITIES PURCHASE AGREEMENT, SENIOR CONVERTIBLE PROMISSORY NOTE, AND COMMON STOCK PURCHASE WARRANT DATED NOVEMBER 7, 2018
THIS AMENDMENT #1 (the “Amendment”) TO THE SECURITIES PURCHASE AGREEMENT, SENIOR CONVERTIBLE PROMISSORY NOTE, AND COMMON STOCK PURCHASE WARRANT dated November 7, 2018, is made effective as of November 13, 2018, by and between Incumaker, Inc., a Delaware corporation (the “Company”), and FirstFire Global Opportunities Fund, LLC, a Delaware limited liability company (the “Holder”) (collectively the “Parties”).
BACKGROUND
A. The Company and Holder are the parties to that certain securities purchase agreement (the “SPA”), senior convertible promissory note in the principal amount of $220,000.00 (the “Note”), and common stock purchase warrant for the purchase of 5,250,000 shares of the Company’s common stock (the “Warrant”), all dated November 7, 2018; and
B. The Parties desire to amend the SPA, Note, and Warrant, as set forth expressly below.
NOW THEREFORE, in consideration of the execution and delivery of the Amendment and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:
1. All references in the SPA, Note, and Warrant to “November 7, 2018” shall be replaced with “November 13, 2018”.
2. This Amendment shall be deemed part of, but shall take precedence over and supersede any provisions to the contrary contained in the SPA, Note, and Warrant. Except as specifically modified hereby, all of the provisions of the SPA, Note, and Warrant which are not in conflict with the terms of this Amendment, shall remain in full force and effect.
[Signature page to follow]
Exhibit 10.9
page 2 of 2
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.
INCUMAKER, INC.
| By: | /s/ KETAN THAKKER | |
| Name: KETAN THAKKER | ||
| Title: CHIEF EXECUTIVE OFFICER |
FIRSTFIRE GLOBAL OPPORTUNITIES FUND, LLC
By: FirstFire Capital Management LLC, its manager
| By: | /s/ ELI FIREMAN | |
| ELI FIREMAN |
Exhibit 10.10
NEITHER THIS SECURITY NOR THE SECURITIES AS TO WHICH THIS SECURITY MAY BE EXERCISED HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
COMMON STOCK PURCHASE WARRANT
UBID HOLDINGS, INC.
5,000,000 Warrant Shares:
Date of Issuance: March __, 2019 (“Issuance Date”)
This COMMON STOCK PURCHASE WARRANT (this “Warrant”) certifies that, for value received, ER Opportunity Fund, LP (the “Holder”), is entitled, upon the terms and subject to the limitations on exercise and the conditions hereinafter set forth, at any time on or after the date of issuance hereof for the Exercise Period (defined below), to purchase from uBid Holdings, Inc. (the “Company”) 5,000,000 shares of Common Stock (as defined below) (the “Warrant Shares”) (whereby such number may be adjusted from time to time pursuant to the terms and conditions of this Warrant) at the Exercise Price per share then in effect. This Warrant is issued in connection with the conversion of $132,000 in principal and accrued but unpaid interest of six convertible notes issued by the Company which are held by the Holder.
For purposes of this Warrant, the term “Exercise Price” shall mean $0.05 for the Warrant Shares, subject to adjustment as provided herein (including but not limited to cashless exercise), and the term “Exercise Period” shall mean the period commencing on the Issuance Date and ending on 5:00 p.m. eastern standard time on the three-year anniversary thereof.
1. EXERCISE OF WARRANT.
(a) Mechanics of Exercise. Subject to the terms and conditions hereof, the rights represented by this Warrant may be exercised in whole or in part at any time or times during the Exercise Period by delivery of a written notice, in the form attached hereto as Exhibit A (the “Exercise Notice”), of the Holder’s election to exercise this Warrant. The Holder shall not be required to deliver the original Warrant in order to effect an exercise hereunder. Partial exercises of this Warrant resulting in purchases of a portion of the total number of Warrant Shares available hereunder shall have the effect of lowering the outstanding number of Warrant Shares purchasable hereunder in an amount equal to the applicable number of Warrant Shares purchased. On or before the third Trading Day (the “Warrant Share Delivery Date”) following the date on which the Company shall have received the Exercise Notice, and upon receipt by the Company of payment to the Company of an amount equal to the applicable Exercise Price multiplied by the number of Warrant Shares as to which all or a portion of this Warrant is being exercised (the “Aggregate Exercise Price” and together with the Exercise Notice, the “Exercise Delivery Documents”) in cash or by wire transfer of immediately available funds (or by cashless exercise, in which case there shall be no Aggregate Exercise Price provided), the Company shall (or direct its transfer agent to) issue and dispatch by overnight courier to the address as specified in the Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee, for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon delivery of the Exercise Delivery Documents, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date of delivery of the certificates evidencing such Warrant Shares. If this Warrant is submitted in connection with any exercise and the number of Warrant Shares represented by this Warrant submitted for exercise is greater than the number of Warrant Shares being acquired upon an exercise, then the Company shall as soon as practicable and in no event later than three Business Days after any exercise and at its own expense, issue a new Warrant (in accordance with Section 6) representing the right to purchase the number of Warrant Shares purchasable immediately prior to such exercise under this Warrant, less the number of Warrant Shares with respect to which this Warrant is exercised.
If the Company fails to cause its transfer agent to transmit to the Holder the respective shares of Common Stock by the respective Warrant Share Delivery Date, then the Holder will have the right to rescind such exercise in Holder’s sole discretion, and such failure shall be deemed an event of default under the Note.
The Holder may elect to receive Warrant Shares pursuant to a cashless exercise, in lieu of a cash exercise, equal to the value of this Warrant determined in the manner described below (or of any portion thereof remaining unexercised) by surrender of this Warrant and a Notice of Exercise, in which event the Company shall issue to Holder a number of Common Stock computed using the following formula:
X = Y (A-B)
A
| Where X = | the number of Shares to be issued to Holder. |
| Y = | the number of Warrant Shares that the Holder elects to purchase under this Warrant (at the date of such calculation). |
| A = | the Market Price (at the date of such calculation). |
| B = | Exercise Price (as adjusted to the date of such calculation). |
(b) No Fractional Shares. No fractional shares shall be issued upon the exercise of this Warrant as a consequence of any adjustment pursuant hereto. All Warrant Shares (including fractions) issuable upon exercise of this Warrant may be aggregated for purposes of determining whether the exercise would result in the issuance of any fractional share. If, after aggregation, the exercise would result in the issuance of a fractional share, the Company shall, in lieu of issuance of any fractional share, pay the Holder otherwise entitled to such fraction a sum in cash equal to the product resulting from multiplying the then-current fair market value of a Warrant Share by such fraction.
2. ADJUSTMENTS. The Exercise Price and the number of Warrant Shares shall be adjusted from time to time as follows:
(a) Distribution of Assets. If the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including without limitation any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Warrant, then, in each such case:
(i) any Exercise Price in effect immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution shall be reduced, effective as of the close of business on such record date, to a price determined by multiplying such Exercise Price by a fraction (i) the numerator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date minus the value of the Distribution (as determined in good faith by the Company’s Board of Directors) applicable to one share of Common Stock, and (ii) the denominator of which shall be the Closing Sale Price of the shares of Common Stock on the Trading Day immediately preceding such record date; and
(ii) the number of Warrant Shares shall be increased to a number of shares equal to the number of shares of Common Stock obtainable immediately prior to the close of business on the record date fixed for the determination of holders of shares of Common Stock entitled to receive the Distribution multiplied by the reciprocal of the fraction set forth in the immediately preceding clause (i); provided, however, that in the event that the Distribution is of shares of common stock of a company (other than the Company) whose common stock is traded on a national securities exchange or a national automated quotation system (“Other Shares of Common Stock”), then the Holder may elect to receive a warrant to purchase Other Shares of Common Stock in lieu of an increase in the number of Warrant Shares, the terms of which shall be identical to those of this Warrant, except that such warrant shall be exercisable into the number of shares of Other Shares of Common Stock that would have been payable to the Holder pursuant to the Distribution had the Holder exercised this Warrant immediately prior to such record date and with an aggregate exercise price equal to the product of the amount by which the exercise price of this Warrant was decreased with respect to the Distribution pursuant to the terms of the immediately preceding clause (i) and the number of Warrant Shares calculated in accordance with the first part of this clause (ii).
(iii) For the avoidance of doubt, no adjustment shall occur when shares of outstanding Common Stock are merged proportionally across all stockholders to form a smaller number of outstanding shares of Common Stock.
(b) Anti-Dilution Adjustments to Exercise Price. If the Company or any Subsidiary thereof, as applicable, at any time while this Warrant is outstanding, shall sell or grant any option to purchase, or sell or grant any right to reprice, or otherwise dispose of or issue (or announce any offer, sale, grant or any option to purchase or other disposition) any Common Stock or securities entitling any person or entity to acquire shares of Common Stock (upon conversion, exercise or otherwise) (including but not limited to under the Note), at an effective price per share less than the then Exercise Price (such lower price, the “Base Share Price” and such issuances collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share which is less than the Exercise Price, such issuance shall be deemed to have occurred for less than the Exercise Price on such date of the Dilutive Issuance), then the Exercise Price shall be reduced at the option of the Holder and only reduced to equal the Base Share Price, and the number of Warrant Shares issuable hereunder shall be increased such that the aggregate Exercise Price payable hereunder, after taking into account the decrease in the Exercise Price, shall be equal to the aggregate Exercise Price prior to such adjustment. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 2(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice the “Dilutive Issuance Notice”). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 2(b), upon the occurrence of any Dilutive Issuance, after the date of such Dilutive Issuance the Holder is entitled to receive a number of Warrant Shares based upon the Base Share Price regardless of whether the Holder accurately refers to the Base Share Price in the Notice of Exercise.
3. FUNDAMENTAL TRANSACTIONS. If, at any time while this Warrant is outstanding, (i) the Company effects any merger of the Company with or into another entity and the Company is not the surviving entity (such surviving entity, the “Successor Entity”), (ii) the Company effects any sale of all or substantially all of its assets in one or a series of related transactions, (iii) any tender offer or exchange offer (whether by the Company or by another individual or entity, and approved by the Company) is completed pursuant to which holders of Common Stock are permitted to tender or exchange their shares of Common Stock for other securities, cash or property and the holders of at least 50% of the Common Stock accept such offer, or (iv) the Company effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property (other than as a result of a subdivision or combination of shares of Common Stock) (in any such case, a “Fundamental Transaction”), then, upon any subsequent exercise of this Warrant, the Holder shall have the right to receive the number of shares of Common Stock of the Successor Entity or of the Company and any additional consideration (the “Alternate Consideration”) receivable upon or as a result of such reorganization, reclassification, merger, consolidation or disposition of assets by a holder of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such event (disregarding any limitation on exercise contained herein solely for the purpose of such determination). For purposes of any such exercise, the determination of the Exercise Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Exercise Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any exercise of this Warrant following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any Successor Entity in such Fundamental Transaction shall issue to the Holder a new warrant consistent with the foregoing provisions and evidencing the Holder’s right to exercise such warrant into Alternate Consideration.
4. WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Except as otherwise specifically provided herein, this Warrant, in and of itself, shall not entitle the Holder to any voting rights or other rights as a stockholder of the Company. In addition, nothing contained in this Warrant shall be construed as imposing any liabilities on the Holder to purchase any securities (upon exercise of this Warrant or otherwise) or as a stockholder of the Company, whether such liabilities are asserted by the Company or by creditors of the Company.
5. REISSUANCE.
(a) Lost, Stolen or Mutilated Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Company will, on such terms as to indemnity or otherwise as it may reasonably impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as this Warrant so lost, stolen, mutilated or destroyed.
(b) Issuance of New Warrants. Whenever the Company is required to issue a new Warrant pursuant to the terms of this Warrant, such new Warrant shall be of like tenor with this Warrant, and shall have an issuance date, as indicated on the face of such new Warrant which is the same as the Issuance Date.
6. TRANSFER.
(a) Notice of Transfer. The Holder agrees to give written notice to the Company before transferring this Warrant or transferring any Warrant Shares of such Holder’s intention to do so, describing briefly the manner of any proposed transfer and the identity of the transferee. Promptly upon receiving such written notice, the Company shall present copies thereof to the Company’s counsel. If the proposed transfer may be effected without registration or qualification (under any federal or state securities laws) and the Company approves the transfer, such approval not to be unreasonably withheld, the Company, as promptly as practicable, shall notify the Holder thereof, whereupon the Holder shall be entitled to transfer this Warrant or to dispose of Warrant Shares received upon the previous exercise of this Warrant, all in accordance with the terms of the notice delivered by the Holder to the Company; provided, however, that an appropriate legend may be endorsed on this Warrant or the certificates for such Warrant Shares respecting restrictions upon transfer thereof necessary or advisable in the opinion of counsel and satisfactory to the Company to prevent further transfers which would be in violation of Section 5 of the Securities Act and applicable state securities laws; and provided further that the prospective transferee or purchaser shall execute the Assignment of Warrant attached hereto as Exhibit B and such other documents and make such representations, warranties, and agreements as may be required solely to comply with the exemptions relied upon by the Company for the transfer or disposition of the Warrant or Warrant Shares.
(b) If the proposed transfer or disposition of this Warrant or such Warrant Shares described in the written notice given pursuant to this Section 6 may not be effected without registration or qualification of this Warrant or such Warrant Shares, the Holder will limit its activities in respect to such transfer or disposition as are permitted by law.
(c) Any transferee of all or a portion of this Warrant shall succeed to the rights and benefits of the initial Holder of this Warrant.
7. NOTICES. All notices under this Agreement must be in writing and addressed as set follows:
If to uBid:
566 West Adams Street
Suite 260
Chicago, IL, 60661
Attn: Ketan Thakker, President
Email: ketan.thakker@ubid.com
With a copy to:
Culhane Meadows PLLC
1101 Connecticut Avenue, N.W.
Suite 300
Washington, D.C. 20004
Attn: Ernest M. Stern, Esq.
Email: estern@culhanemeadows.com
If to ER Opportunity Fund:
912 Holcomb Bridge Road
Suite 101
Roswell, GA 30076
Attn: Matt Myers, Managing Partner
Email: investments@eroppfund.com
Any notice or other communication in connection with this Agreement shall be deemed to have been given (i) if personally delivered to a party, when so delivered, (ii) (A) if by certified mail, three business days after mailing or (B) if by Federal Express or other recognized next day carrier timely posted for next business day delivery, the next business day following such timely posting, to the address of such party set forth in the preamble to this Agreement (or to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 7.05), or (iii) if by electronic means, it shall be deemed received upon receipt to be confirmed by the recipient. Either party may change the address or email to which notices or other communications hereunder are to be delivered by giving the other party notice in the manner set forth.
Whenever notice is required to be given under this Warrant, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions contained in the Merger Agreement. The Company shall provide the Holder with prompt written notice (i) immediately upon any adjustment of the Exercise Price, setting forth in reasonable detail, the calculation of such adjustment and (ii) at least 20 days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the shares of Common Stock, (B) with respect to any grants, issuances or sales of any stock or other securities directly or indirectly convertible into or exercisable or exchangeable for shares of Common Stock or other property, pro rata to the holders of shares of Common Stock or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.
8. AMENDMENT AND WAIVER. The terms of this Warrant may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holder.
9. GOVERNING LAW. This Warrant shall be governed by and construed in accordance with the laws of the State of Delaware without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Warrant shall be brought only in the state courts or federal courts located in Georgia. The parties to this Warrant hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT ENTERED INTO IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Warrant or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
10. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute acceptance of and agreement to all of the terms and conditions contained herein.
11. CERTAIN DEFINITIONS. For purposes of this Warrant, the following terms shall have the following meanings:
(a) “Nasdaq” means www.Nasdaq.com.
(b) “Closing Sale Price” means, for any security as of any date, (i) the last closing trade price for such security on the Principal Market, as reported by Nasdaq, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing trade price, then the last trade price of such security prior to 4:00 p.m., New York time, as reported by Nasdaq, or (ii) if the foregoing does not apply, the last trade price of such security in the over-the-counter market for such security as reported by Nasdaq, or (iii) if no last trade price is reported for such security by Nasdaq, the average of the bid and ask prices of any market makers for such security as reported by the OTC Markets. If the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations to be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during the applicable calculation period.
(c) “Common Stock” means the Company’s common stock, and any other class of securities into which such securities may hereafter be reclassified or changed.
(d) “Common Stock Equivalents” means any securities of the Company that would entitle the holder thereof to acquire at any time Common Stock, including without limitation any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.
(e) “Dilutive Issuance” is any issuance of Common Stock or Common Stock Equivalents described in Section 2(b) above; provided, however, that a Dilutive Issuance shall not include any Exempt Issuance.
(f) “Exempt Issuance” means the issuance of (i) shares of Common Stock or options to employees, officers, or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (ii) securities issued pursuant to acquisitions approved by a majority of the disinterested directors of the Company, and (iii) shares of Common Stock issued pursuant to any real property leasing arrangement.
(g) “Principal Market” means the primary national securities exchange on which the Common Stock is then traded.
(h) “Market Price” means the highest traded price of the Common Stock during the ninety Trading Days prior to the date of the respective Exercise Notice.
(i) “Trading Day” means (i) any day on which the Common Stock is listed or quoted and traded on its Principal Market, (ii) if the Common Stock is not then listed or quoted and traded on any national securities exchange, then a day on which trading occurs on any over-the-counter markets, or (iii) if trading does not occur on the over-the-counter markets, any Business Day.
* * * * * * *
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the Issuance Date set forth above.
| UBID HOLDINGS, INC. | |
| /s/ Ketan Thakker | |
| Name: Ketan Thakker | |
| Title: Chief Executive Officer |
EXHIBIT A
EXERCISE NOTICE
(To be executed by the registered holder to exercise this Common Stock Purchase Warrant)
The Undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of uBid Holdings, Inc., a Delaware corporation (the “Company”), evidenced by the attached copy of the Common Stock Purchase Warrant (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.
| 1. | Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as (check one): |
| ¨ | a cash exercise with respect to _________________ Warrant Shares; or |
¨ by cashless exercise pursuant to the Warrant.
| 2. | Payment of Exercise Price. If cash exercise is selected above, the holder shall pay the applicable Aggregate Exercise Price in the sum of $___________________ to the Company in accordance with the terms of the Warrant. |
| 3. | Delivery of Warrant Shares. The Company shall deliver to the holder __________________ Warrant Shares in accordance with the terms of the Warrant. |
| Date: |
| (Print Name of Registered Holder) | ||
| By: | ||
| Name: | ||
| Title: | ||
EXHIBIT B
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
For Value Received, the undersigned hereby sells, assigns, and transfers unto ____________________ the right to purchase _______________ shares of common stock of UBid Holdings, Inc., to which the within Common Stock Purchase Warrant relates and appoints ____________________, as attorney-in-fact, to transfer said right on the books of UBid Holdings, Inc. with full power of substitution and re-substitution in the premises. By accepting such transfer, the transferee has agreed to be bound in all respects by the terms and conditions of the within Warrant.
| Dated: |
| (Signature) * | |
| (Name) | |
| (Address) | |
| (Social Security or Tax Identification No.) |
* The signature on this Assignment of Warrant must correspond to the name as written upon the face of the Common Stock Purchase Warrant in every particular without alteration or enlargement or any change whatsoever. When signing on behalf of a corporation, partnership, trust or other entity, please indicate your position(s) and title(s) with such entity.
Exhibit 10.11
1. SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of April 26, 2019, by and between UBID HOLDINGS, INC., a Delaware corporation, with headquarters located at 566 West Adams Street, Suite 260, Chicago, IL 60661 (the “Company”), and AUCTUS FUND, LLC, a Delaware limited liability company, with its address at 545 Boylston Street, 2nd Floor, Boston, MA 02116 (the “Buyer”).
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933 Act”);
B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement the 8% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of US$277,500.00 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the “Note”), convertible into shares of common stock, $0.001 par value per share, of the Company (the “Common Stock”), upon the terms and subject to the limitations and conditions set forth in such Note.
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and
NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:
1. PURCHASE AND SALE OF NOTE.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer’s name on the signature pages hereto. In connection with the issuance of the Note, the Company shall issue a common stock purchase warrant to Buyer to purchase 7,000,000 shares of the Company’s common stock (the “Warrant”) as a commitment fee upon the terms and subject to the limitations and conditions set forth in such Warrant.
b. Form of Payment. On the Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be issued and sold to it at the Closing (as defined below) (the “Purchase Price”) by wire transfer of immediately available funds to the Company, in accordance with the Company’s written wiring instructions, against delivery of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer’s name on the signature pages hereto, and (ii) the Company shall deliver such duly executed Note and Warrant on behalf of the Company, to the Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 7 and Section 8 below, the date and time of the issuance and sale of the Note pursuant to this Agreement (the “Closing Date”) shall be 12:00 noon, Eastern Standard Time on or about April 26, 2019, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the “Closing”) shall occur on the Closing Date at such location as may be agreed to by the parties.
2. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and warrants to the Company that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (including, without limitation, such additional shares of Common Stock, if any, as are issuable (i) on account of interest on the Note (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note or (iii) in payment of the Standard Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to this Agreement, such shares of Common Stock being collectively referred to herein as the “Conversion Shares” and, collectively with the Note, the “Securities”) for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an “accredited investor” as that term is defined in Rule 501(a) of Regulation D (an “Accredited Investor”).
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer’s compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
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d. Information. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remains outstanding will continue to be, afforded the opportunity to ask questions of the Company. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer’s right to rely on the Company’s representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company's representations and warranties made herein.
e. Governmental Review. The Buyer understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or re-sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration, which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered to the Company, at the cost of the Company, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, within three (3) business days of delivery of the opinion to the Company, the Company shall pay to the Buyer liquidated damages of five percent (5%) of the outstanding amount of the Note per day plus accrued and unpaid interest on the Note, prorated for partial months, in cash or shares at the option of the Buyer (“Standard Liquidated Damages Amount”). If the Buyer elects to be pay the Standard Liquidated Damages Amount in shares of Common Stock, such shares shall be issued at the Conversion Price (as defined in the Note) at the time of payment.
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g. Legends. The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
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The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth in the preamble.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
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b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without limitation, the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon conversion or exercise thereof) have been duly authorized by the Company’s Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the authorized capital stock of the Company consists of: (i) 750,000,000 shares of Common Stock, of which approximately 439,766,529 shares are issued and outstanding; and (ii) 10,000,000 shares of preferred stock, of which 0 are issued and outstanding. Except as disclosed in the SEC Documents, no shares are reserved for issuance pursuant to the Company’s stock option plans, no shares are reserved for issuance pursuant to securities (other than the Note and any other convertible promissory note issued to the Buyer) exercisable for, or convertible into or exchangeable for shares of Common Stock and 28,750,000 shares are reserved for issuance upon conversion of the Note. All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. Except as disclosed in the SEC Documents, as of the effective date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal, agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti-dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note or the Conversion Shares. The Company has filed in its SEC Documents true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate of Incorporation”), the Company’s By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto. The Company shall provide the Buyer with a written update of this representation signed by the Company’s Chief Executive on behalf of the Company as of the Closing Date.
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d. Issuance of Shares. The issuance of the Note is duly authorized and, upon issuance in accordance with the terms of this Agreement, will be validly issued, fully paid and non-assessable and free from all preemptive or similar rights, taxes, liens, charges and other encumbrances with respect to the issue thereof. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
e. Acknowledgment of Dilution. The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
f. No Conflicts. The execution, delivery and performance of this Agreement and the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible defaults as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Note. All consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the OTC Pink (the “OTC Pink”), the OTCQB or any similar quotation system, and does not reasonably anticipate that the Common Stock will be delisted by the OTC Pink, the OTCQB or any similar quotation system, in the foreseeable future nor are the Company's securities “chilled” by DTC. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
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g. SEC Documents; Financial Statements. The Company has timely filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and OTC Markets as an OTC Pink company that is current in its filings under the OTC Markets’ Alternative Reporting Standards (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the “SEC Documents”). The Company has delivered to the Buyer true and complete copies of the SEC Documents, except for such exhibits and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a 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. None of the statements made in any such SEC Documents is, or has been, required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principles, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Documents, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to December 31, 2018, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company.
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h. Absence of Certain Changes. Since December 31, 2018, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
i. Absence of Litigation. Except as disclosed in the SEC Documents, there is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. Schedule 3(i) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
j. Patents, Copyrights, etc. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how, trade secrets, trademarks, trademark applications, service marks, service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future). Except as disclosed in the SEC Documents, there is no claim or action by any person pertaining to, or proceeding pending, or to the Company’s knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
k. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company’s officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company’s officers has or is expected to have a Material Adverse Effect.
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l. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set aside on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. None of the Company’s tax returns is presently being audited by any taxing authority.
m. Certain Transactions. Except for arm’s length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2(d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company’s reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
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o. Acknowledgment Regarding Buyer’ Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm’s length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledges that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer’ purchase of the Securities. The Company further represents to the Buyer that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company’s securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
q. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemptions, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the “Company Permits”), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since December 31, 2018, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violations of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
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s. Environmental Matters.
(i) There are, to the Company’s knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below), releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company’s knowledge, threatened in connection with any of the foregoing. The term “Environmental Laws” means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation, laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, “Hazardous Materials”) into the environment, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials, as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments, licenses, notices or notice letters, orders, permits, plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except in the normal course of the Company’s or any of its Subsidiaries’ business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
t. Title to Property. Except as disclosed in the SEC Documents the Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exceptions as would not have a Material Adverse Effect.
u. Internal Accounting Controls. Except as disclosed in the SEC Documents the Company and each of its Subsidiaries maintain a system of internal accounting controls sufficient, in the judgment of the Company’s board of directors, to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
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v. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
w. Solvency. The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on its existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and, after giving effect to the transactions contemplated by this Agreement, does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year. For the avoidance of doubt any disclosure of the Borrower’s ability to continue as a “going concern” shall not, by itself, be a violation of this Section 3(w).
x. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Company is not controlled by an Investment Company.
y. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage, errors and omissions coverage, and commercial general liability coverage.
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z. Bad Actor. No officer or director of the Company would be disqualified under Rule 506(d) of the Securities Act as amended on the basis of being a “bad actor” as that term is established in the September 19, 2013 Small Entity Compliance Guide published by the SEC.
aa. Shell Status. The Company represents that it is not a “shell” issuer and has never been a “shell” issuer, or that if it previously has been a “shell” issuer, that at least twelve (12) months have passed since the Company has reported Form 10 type information indicating that it is no longer a “shell” issuer. Further, the Company will instruct its counsel to either (i) write a 144- 3(a)(9) opinion to allow for salability of the Conversion Shares or (ii) accept such opinion from Holder’s counsel.
bb. No-Off Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company or any of its Subsidiaries and an unconsolidated or other off balance sheet entity that is required to be disclosed by the Company in its 1934 Act filings and is not so disclosed or that otherwise could be reasonably likely to have a Material Adverse Effect.
cc. Manipulation of Price. The Company has not, and to its knowledge no one acting on its behalf has: (i) taken, directly or indirectly, any action designed to cause or to result, or that could reasonably be expected to cause or result, in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any person any compensation for soliciting another to purchase any other securities of the Company.
dd. Sarbanes-Oxley Act. The Company and each Subsidiary is in material compliance with all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and all applicable rules and regulations promulgated by the SEC thereunder that are effective as of the date hereof.
ee. Employee Relations. Neither the Company nor any of its Subsidiaries is a party to any collective bargaining agreement or employs any member of a union. The Company believes that its and its Subsidiaries’ relations with their respective employees are good. No executive officer (as defined in Rule 501(f) promulgated under the 1933 Act) or other key employee of the Company or any of its Subsidiaries has notified the Company or any such Subsidiary that such officer intends to leave the Company or any such Subsidiary or otherwise terminate such officer’s employment with the Company or any such Subsidiary. To the knowledge of the Company, no executive officer or other key employee of the Company or any of its Subsidiaries is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each such executive officer or other key employee (as the case may be) does not subject the Company or any of its Subsidiaries to any liability with respect to any of the foregoing matters. The Company and its Subsidiaries are in compliance with all federal, state, local and foreign laws and regulations respecting labor, employment and employment practices and benefits, terms and conditions of employment and wages and hours, except where failure to be in compliance would not, either individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect.
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ff. Breach of Representations and Warranties by the Company. The Company agrees that if the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement and it being considered an Event of Default under Section 3.5 of the Note, the Company shall pay to the Buyer the Standard Liquidated Damages Amount in cash or in shares of Common Stock at the option of the Company, until such breach is cured. If the Company elects to pay the Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall be issued at the Conversion Price at the time of payment.
4. COVENANTS.
a. Best Efforts. The parties shall use their commercially reasonable best efforts to satisfy timely each of the conditions described in Section 7 and 8 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or “blue sky” laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company shall use the proceeds from the sale of the Note for working capital and other general corporate purposes and shall not, directly or indirectly, use such proceeds for any loan to or investment in any other corporation, partnership, enterprise or other person (except in connection with its currently existing direct or indirect Subsidiaries).
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d. [Intentionally Omitted].
e. Expenses. The Company shall reimburse Buyer for any and all expenses incurred by them in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the other agreements to be executed in connection herewith (“Documents”), including, without limitation, reasonable attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for stock quotation services, fees relating to any amendments or modifications of the Documents or any consents or waivers of provisions in the Documents, fees for the preparation of opinions of counsel, escrow fees, and costs of restructuring the transactions contemplated by the Documents. When possible, the Company must pay these fees directly, including, but not limited to, any and all wire fees, otherwise the Company must make immediate payment for reimbursement to the Buyer for all fees and expenses immediately upon written notice by the Buyer or the submission of an invoice by the Buyer. At Closing, the Company’s obligation with respect to this transaction is to reimburse Buyer’s legal expenses in the total amount of $4,000.00 plus the cost of wire fees.
f. Financial Information. The Company agrees to send or make available the following reports to the Buyer until the Buyer transfers, assigns, or sells all of the Securities: (i) within ten (10) days after the filing with the SEC, a copy of its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; or its Quarterly Report and Annual Report under the Alternative Reporting Standards of OTC Markets (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company makes available or gives to such shareholders. For the avoidance of doubt, filing the documents required in (i) above via EDGAR or releasing any documents set forth in (ii) above via a recognized wire service shall satisfy the delivery requirements of this Section 4(f).
g. Listing. The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTC Pink, OTCQB or any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”), the Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock Exchange (“NYSE”), or the NYSE American and will comply in all respects with the Company’s reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any material notices it receives from the OTC Pink, OTCQB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation systems. The Company shall pay any and all fees and expenses in connection with satisfying its obligation under this Section 4(g).
h. Corporate Existence. So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company’s assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company’s assets, where the surviving or successor entity in such transaction (i) assumes the Company’s obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock is listed for trading on the OTC Pink, OTCQB, Nasdaq, NasdaqSmallCap, NYSE or AMEX.
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i. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
j. Failure to Comply with the 1934 Act. So long as the Buyer beneficially owns the Note, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.
k. [Intentionally
Omitted].
l. Restriction on Activities. Commencing as of the date first above written, and until the sooner of the six month anniversary of the date first written above or payment of the Note in full, or full conversion of the Note, the Company shall not, directly or indirectly, without the Buyer’s prior written consent, which consent shall not be unreasonably withheld: (a) change the nature of its business; or (b) sell, divest, acquire, change the structure of any material assets other than in the ordinary course of business.
m. Legal Counsel Opinions. Upon the request of the Buyer from to time to time, the Company shall be responsible (at its cost) for promptly supplying to the Company’s transfer agent and the Buyer a customary legal opinion letter of its counsel (the “Legal Counsel Opinion”) to the effect that the sale of Conversion Shares by the Buyer or its affiliates, successors and assigns is exempt from the registration requirements of the 1933 Act pursuant to Rule 144 (provided the requirements of Rule 144 are satisfied and provided the Conversion Shares are not then registered under the 1933 Act for resale pursuant to an effective registration statement). Should the Company’s legal counsel fail for any reason to issue the Legal Counsel Opinion, the Buyer may (at the Company’s cost) secure another legal counsel to issue the Legal Counsel Opinion, and the Company will instruct its transfer agent to accept such opinion.
n. Par Value. If the closing bid price at any time the Note is outstanding falls below $0.001, the Company shall cause the par value of its Common Stock to be reduced to $0.00001 or less.
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o. Breach of Covenants. The Company agrees that if the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of Default under Section 3.4 of the Note, the Company shall pay to the Buyer the Standard Liquidated Damages Amount in cash or in shares of Common Stock at the option of the Buyer, until such breach is cured, or with respect to Section 4(d) above, the Company shall pay to the Buyer the Standard Liquidated Damages Amount in cash or shares of Common Stock, at the option of the Buyer, upon each violation of such provision. If the Company elects to pay the Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall be issued at the Conversion Price at the time of payment.
5. Transaction Expense Amount. Upon Closing, the Company shall pay Twenty Seven Thousand Five Hundred and 00/100 United States Dollars (US$27,500.00) to Auctus Fund Management, LLC (“Auctus Management”) to cover the Holder's due diligence, monitoring, and other transaction costs incurred for services rendered in connection herewith (the “Transaction Expense Amount”). The Transaction Expense Amount shall be offset against the proceeds of the Note and shall be paid to Auctus Management upon the execution hereof.
6. Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of the Buyer or its nominee, for the Conversion Shares in such amounts as specified from time to time by the Buyer to the Company upon conversion of the Note in accordance with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the event that the Borrower proposes to replace its transfer agent, the Borrower shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section, and stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Conversion Shares to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Conversion Shares issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement. Nothing in this Section shall affect in any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Company, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
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7. CONDITIONS PRECEDENT TO THE COMPANY’S OBLIGATIONS TO SELL. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and delivered the same to the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
d. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
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8. CONDITIONS PRECEDENT TO THE BUYER’S OBLIGATION TO PURCHASE. The obligation of the Buyer hereunder to purchase the Note at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Buyer’s sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to the Buyer the duly executed Note (in such denominations as the Buyer shall request) and in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a majority-in-interest of the Buyer, shall have been delivered to and acknowledged in writing by the Company’s Transfer Agent.
d. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, but not limited to certificates with respect to the Company’s Certificate of Incorporation, By-laws and Board of Directors’ resolutions relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
g. The Conversion Shares shall have been authorized for quotation on the OTC Pink, OTCQB or any similar quotation system and trading in the Common Stock on the OTC Pink, OTCQB or any similar quotation system shall not have been suspended by the SEC or the OTC Pink, OTCQB or any similar quotation system.
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h. The Buyer shall have received an officer’s certificate described in Section 3(c) above, dated as of the Closing Date.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement, the Note or any other agreement, certificate, instrument or document contemplated hereby shall be brought only in the state courts of Massachusetts or in the federal courts located in the state of Massachusetts. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY OTHER TRANSACTION DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY OR THEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
b. Counterparts; Signatures by Facsimile. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission of a copy of this Agreement bearing the signature of the party so delivering this Agreement.
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c. Construction; Headings. This Agreement shall be deemed to be jointly drafted by the Company and the Buyer and shall not be construed against any person as the drafter hereof. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement, the Note and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.
f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, email, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by email or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to:
uBid Holdings, Inc.
566 West Adams Street, Suite 260
Chicago, IL 60661
Attn: Ketan Thakker
E-mail: ir@ubid.com
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With a copy to (which copy shall not constitute notice):
Ernest Stern, Esq.
Culhane Meadows PLLC
1101 Pennsylvania Avenue, N.W., Suite 300
Washington, D.C. 20004
E-mail: estern@culhanemeadows.com
If to the Buyer:
Auctus Fund, LLC
545 Boylston Street, 2nd Floor
Boston, MA 02116
Attn: Lou Posner
Facsimile: (617) 532-6420
With a copy to (which copy shall not constitute notice):
Chad Friend, Esq., LL.M.
Anthony L.G., PLLC
625 N. Flagler Drive, Suite 600
West Palm Beach, FL 33401
E-mail: CFriend@AnthonyPLLC.com
Each party shall provide notice to the other party of any change in address.
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), the Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from the Buyer or to any of its “affiliates,” as that term is defined under the 1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder not withstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employees and agents for loss or damage arising as a result of or related to any breach or alleged breach by the Company of any of its representations, warranties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
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j. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
k. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
l. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Buyer shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
m. Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, OTCQB or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, OTCQB (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
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n. Indemnification. In consideration of the Buyer’s execution and delivery of this Agreement and acquiring the Securities hereunder, and in addition to all of the Company’s other obligations under this Agreement or the Note, the Company shall defend, protect, indemnify and hold harmless the Buyer and its stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in this Agreement or the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in this Agreement or the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of this Agreement or the Note or any other agreement, certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of the Buyer or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by this Agreement. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities that is permissible under applicable law
[signature page follows]
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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
| UBID HOLDINGS, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: | Ketan Thakker | |
| Title: | Chief Executive Officer | |
| AUCTUS FUND, LLC | ||
| By: | /s/ Lou Posner | |
| Name: | Lou Posner | |
| Title: | Managing Director | |
| AGGREGATE SUBSCRIPTION AMOUNT: | |
| Aggregate Principal Amount of Note: | US$277,500.00 |
| Aggregate Purchase Price: | US$277,500.00 |
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Exhibit 10.12
NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: US$277,500.00 | Issue Date: April 23, 2019 |
| Purchase Price: US$277,500.00 |
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, UBID HOLDINGS, INC., a Delaware corporation (hereinafter called the “Borrower”) (Trading Symbol: UBID), hereby promises to pay to the order of AUCTUS FUND, LLC, a Delaware limited liability company, or registered assigns (the “Holder”) the sum of US$277,500.00 together with any interest as set forth herein, on April 23, 2020 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein with the written consent of the Holder which may be withheld for any reason or for no reason. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of the lesser of (i) fifteen percent (15%) per annum and (ii) the maximum amount permitted under law from the due date thereof until the same is paid (the “Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 360-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.
The following terms shall also apply to this Note:
Article I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from time to time, and at any time following the Issue Date, and ending on the later of (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the Conversion Price (as defined below) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 11:59 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, provided however, that the Borrower shall have the right to pay any or all interest in cash plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
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1.2 Conversion Price.
Calculation of Conversion Price. Subject to the adjustments described herein, the conversion price (the “Conversion Price”) shall equal the lesser of: (i) $0.06 and (ii) the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The “Variable Conversion Price” shall mean 70% multiplied by the Market Price (as defined herein) (representing a discount rate of 30%). “Market Price” means the average of the three (3) lowest Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” and “Trading Prices” means, for any security as of any date, the lowest volume weighted average price on the OTC Pink, OTCQB or applicable trading market as reported by a reliable reporting service (“Reporting Service”) designated by the Holder or, if no trading price of such security is available in any of the foregoing manners, the average of the trading prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc.. To the extent the Conversion Price of the Borrower’s Common Stock closes below the par value per share, the Borrower will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Borrower agrees to honor all conversions submitted pending this adjustment. If the shares of the Borrower’s Common Stock have not been delivered within three (3) business days to the Borrower, the Notice of Conversion may be rescinded. Additionally, if the Borrower ceases to be a reporting company pursuant to the 1934 Act or if the Note cannot be converted into free trading shares after one hundred eighty-one (181) days from the Issue Date, an additional 15% discount will be attributed to the Conversion Price. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTC Pink, OTCQB or on the principal securities exchange or other securities market on which the Common Stock is then being traded. The Borrower shall be responsible for the fees of its transfer agent and all DTC fees associated with any such issuance. Holder shall be entitled to deduct $750.00 from the conversion amount in each Notice of Conversion to cover Holder’s deposit fees associated with each Notice of Conversion.
(a) Pro Rata Conversion; Disputes. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Borrower shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance with Section 4.13.
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(b) If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then the Conversion Price hereunder shall equal such par value for such conversion and the Conversion Amount for such conversion shall be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in this Section 1.2(c).
1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time) (the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 3(d) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note. Notwithstanding the foregoing, in no event shall the Reserved Amount be lower than the initial Reserved Amount, regardless of any prior conversions.
If, at any time the Borrower does not maintain or replenish the Reserved Amount within three (3) business days of the request of the Holder, the principal amount of the Note shall increase by Five Thousand and No/100 United States Dollars ($5,000) (under Holder’s and Borrower’s expectation that any principal amount increase will tack back to the Issue Date) per occurrence.
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
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(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder’s account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 5:00 p.m., New York, New York time, on such date.
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(f) Failure to Deliver Common Stock Prior to Delivery Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $500 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock until the Borrower issues and delivers a certificate to the Holder or credit the Holder's balance account with OTC for the number of shares of Common Stock to which the Holder is entitled upon such Holder's conversion of any Conversion Amount (under Holder's and Borrower's expectation that any damages will tack back to the Issue Date).. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(h) are justified.
(g) Rescindment of a Notice of Conversion. If (i) the Borrower fails to respond to Holder within one (1) business day from the Conversion Date confirming the details of Notice of Conversion, (ii) the Borrower fails to provide any of the shares of the Borrower’s Common Stock requested in the Notice of Conversion within three (3) business days from the date of receipt of the Note of Conversion, (iii) the Holder is unable to procure a legal opinion required to have the shares of the Borrower’s Common Stock issued unrestricted and/or deposited to sell for any reason related to the Borrower’s standing, (iv) the Holder is unable to deposit the shares of the Borrower’s Common Stock requested in the Notice of Conversion for any reason related to the Borrower’s standing, (v) at any time after a missed Deadline, at the Holder’s sole discretion, or (vi) if OTC Markets changes the Borrower's designation to ‘Limited Information’ (Yield), ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull & Crossbones), ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Mark Sign) or other trading restriction on the day of or any day after the Conversion Date, the Holder maintains the option and sole discretion to rescind the Notice of Conversion (“Rescindment”) with a “Notice of Rescindment.”
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1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
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1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
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(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, except for shares of Common Stock issued directly to vendors or suppliers of the Borrower in satisfaction of amounts owed to such vendors or suppliers (provided, however, that such vendors or suppliers shall not have an arrangement to transfer, sell or assign such shares of Common Stock prior to the issuance of such shares), any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.
(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.7 [Intentionally Omitted].
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1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder’s allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder’s rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower’s failure to convert this Note.
1.9 Prepayment. Subject to the terms of this Note, and provided that an Event of Default has not occurred under this Note, the Borrower may prepay the amounts outstanding hereunder pursuant to the following terms and conditions:
(a) At any time during the period beginning on the Issue Date and ending on the date which is one hundred eighty (180) calendar days following the Issue Date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 115%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest, if any.
(b) After the expiration of one hundred eighty (180) calendar days following the date of the Note, the Borrower shall have no right of prepayment.
1.10 Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses by physical mail and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the applicable prepayment amount to or upon the order of the Holder as specified by the Holder in writing to the Borrower. If the Borrower delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to Section 1.9.
Article II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent (a) pay, declare or set apart for such payment, any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders’ rights plan which is approved by a majority of the Borrower’s disinterested directors.
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2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’s written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
2.3 [Intentionally Omitted].
2.4 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets shall be conditioned on a specified use of the proceeds towards the repayment of this Note.
2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.
2.6 Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not enter into any transaction or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(l0) of the Securities Act (a “3(a)(l0) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(l0) Transaction while this note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than Fifteen Thousand Dollars $15,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
2.7 Preservation of Existence, etc. The Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary.
2.8 Non-circumvention. The Borrower hereby covenants and agrees that the Borrower will not, by amendment of its Certificate or Articles of Incorporation or Bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all the provisions of this Note and take all action as may be required to protect the rights of the Holder.
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2.9 Repayment from Proceeds. While any portion of this Note is outstanding, if the Company receives cash proceeds of $500,000.00 or more from the issuance of equity or debt, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply all or any portion of such proceeds to repay all or any portion of the outstanding amounts owed under this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default. In the event that such proceeds are received by the Holder prior to the Maturity Date, the required prepayment shall be subject to the terms of Section 1.9 herein.
Article III. EVENTS OF DEFAULT
If any of the following events of default (each, an “Event of Default”) shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
3.2 Conversion and the Shares. The Borrower (i) fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, (ii) fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iii) directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, (iv) fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion, (v) fails to remain current in its obligations to its transfer agent, (vi) causes a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent, (vii) fails to repay Holder, within forty eight (48) hours of a demand from the Holder, any amount of funds advanced by Holder to Borrower’s transfer agent in order to process a conversion, (viii) fails to reserve sufficient amount of shares of common stock to satisfy the Reserved Amount at all times, (ix) fails to provide a Rule 144 opinion letter from the Borrower’s legal counsel to the Holder, covering the Holder’s resale into the public market of the respective conversion shares under this Note, within two (2) business days of the Holder’s submission of a Notice of Conversion to the Borrower (provided that the Holder must request the opinion from the Borrower at the time that Holder submits the respective Notice of Conversion and the date of the respective Notice of Conversion must be on or after the date which is six (6) months after the date that the Holder funded the Purchase Price under this Note), and/or (x) an exemption under Rule 144 is unavailable for the Holder’s deposit into Holder’s brokerage account and resale into the public market of any of the conversion shares under this Note at any time after the date which is six (6) months after the date that the Holder funded the Purchase Price under this Note.
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3.3 Failure to Deliver Transaction Expense Amount. The Borrower fails to deliver the Transaction Expense Amount (as defined in the Purchase Agreement) to the Holder within three (3) business days of the date such amount is due.
3.4 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.
3.5 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.6 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors or commence proceedings for its dissolution, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed for the Borrower or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment.
3.7 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower, or the Borrower admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable or the Borrower admits in writing its inability to pay its debts generally as they mature, or have filed against it an involuntary petition for bankruptcy relief, all under international, federal or state laws as applicable.
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3.9 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTC Pink, OTCQB, Nasdaq National Market, Nasdaq Small Cap Market, New York Stock Exchange, NYSE MKT, or an equivalent replacement exchange
3.10 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act (including but not limited to becoming delinquent in its filings); and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.11 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.12 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern” shall not be an admission that the Borrower cannot pay its debts as they become due.
3.13 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future), or any disposition or conveyance of any material asset of the Borrower.
3.14 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.15 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without ten (10) days prior written notice to the Holder.
3.16 Replacement of Transfer Agent. In the event that the Borrower proposes to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.17 Cessation of Trading. Any cessation of trading of the Common Stock on at least one of the OTC Pink, OTCQB, Nasdaq National Market, Nasdaq Small Cap Market, New York Stock Exchange, NYSE MKT, or an equivalent replacement exchange, and such cessation of trading shall continue for a period of five consecutive (5) Trading Days.
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3.18 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements (as defined herein), after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder (and any affiliate of the Holder) or any other third party, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the agreements and instruments defined as the Documents. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
3.19 Bid Price. The Borrower shall lose the “bid” price for its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market (including the OTC Pink, OTCQB or an equivalent replacement exchange).
3.20 OTC Markets Designation. OTC Markets changes the Borrower’s designation to ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull and Crossbones), or ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Mark Sign).
3.21 Inside Information. Any attempt by the Borrower or its officers, directors, and/or affiliates to transmit, convey, disclose, or any actual transmittal, conveyance, or disclosure by the Borrower or its officers, directors, and/or affiliates of, material non-public information concerning the Borrower, to the Holder or its successors and assigns, which is not immediately cured by Borrower’s filing of a Form 8-K pursuant to Regulation FD on that same date.
3.22 Unavailability of Rule 144. If, at any time on or after the date which is six (6) months after the Issue Date, the Holder is unable to (i) obtain a standard “144 legal opinion letter” from an attorney reasonably acceptable to the Holder, the Holder’s brokerage firm (and respective clearing firm), and the Borrower’s transfer agent in order to facilitate the Holder’s conversion of any portion of the Note into free trading shares of the Borrower’s Common Stock pursuant to Rule 144, and (ii) thereupon deposit such shares into the Holder’s brokerage account.
3.23 Failure to Register. The Borrower fails to (1) file a registration statement covering the Holder’s resale at prevailing market prices of all of the Common Stock (the “Registration Statement”) underlying the Note and Common Stock underlying the Warrant (as defined in the Purchase Agreement) (the “Warrant”) within sixty (60) calendar days following the Issue Date, (ii) cause the Registration Statement to become effective within one hundred twenty (120) calendar days following the Issue Date, (iii) cause the Registration Statement to remain effective until the Note is satisfied in full and the Warrant is exercised in full, (iv) comply with the registration rights agreement between the Borrower and Holder entered into in connection with the issuance of this Note, or (v) immediately amend the Registration Statement or file a new Registration Statement (and cause such Registration Statement to become immediately effective) if there are no longer sufficient shares registered under the initial Registration Statement for the Holder’s resale at prevailing market prices of all of the Common Stock underlying the Note and Common Stock underlying the Warrant.
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UPON THE OCCURRENCE OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, 3.22, AND/OR 3.23 OF THIS NOTE, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence of any Event of Default specified in Sections 3.1, 3.3, 3.4, 3.5, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16. 3.17, 3.18, 3.19, 3.20, and/or 3.21, exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) at the option of the Holder, the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Trading Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. Further, if a breach of Sections 3.9, 3.10 and/or 3.19 occurs or is continuing after the six (6) month anniversary of this Note, then the principal amount of the Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000) (under Holder’s and Borrower’s expectation that any principal amount increase will tack back to the Issue Date) and the Holder shall be entitled to use the lowest Trading Price during the delinquency period as a base price for the conversion with the Variable Conversion Price shall be redefined to mean forty percent (40%) multiplied by the Market Price, subject to adjustment as provided in this Note. For example, if the lowest Trading Price during the delinquency period is $0.50 per share and the conversion discount is 50%, then the Holder may elect to convert future conversions at $0.25 per share. If this Note is not paid at Maturity Date, then the outstanding principal due under this Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000).
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The Holder shall have the right at any time, to require the Borrower, to immediately issue, in lieu of the Default Amount and/or Default Sum, the number of shares of Common Stock of the Borrower equal to the Default Amount and/or Default Sum divided by the Conversion Price then in effect, pursuant to the terms of this Note (including but not limited to any beneficial ownership limitations contained herein). This requirement by the Borrower shall automatically apply upon the occurrence of an Event of Default without the need for any party to give any notice or take any other action.
If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Borrower for its attorneys' fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Article IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, electronic mail, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by electronic mail or facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to:
uBid Holdings, Inc.
566 West Adams Street, Suite 260
Chicago, IL 60661
Attn: Ketan Thakker
E-mail: ir@ubid.com
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With a copy by e-mail only to (which copy shall not constitute notice):
CULHANE MEADOWS PLLC
1101 Pennsylvania Avenue, Suite 300
Washington, D.C. 20004
Attn: Ernest Stern, Esq.
e-mail: estern@culhanemeadows.com
If to the Holder:
Auctus Fund, LLC
545 Boylston Street, 2nd Floor
Boston, MA 02116
Attn: Lou Posner
Facsimile: (617) 532-6420
With a copy to (which copy shall not constitute notice):
Chad Friend, Esq., LL.M.
Anthony L.G., PLLC
625 N. Flagler Drive, Suite 600
West Palm Beach, FL 33401
E-mail: CFriend@AnthonyPLLC.com
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Neither the Borrower nor the Holder shall assign this Note or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, the Holder may assign its rights hereunder to any “accredited investor” (as defined in Rule 501(a) of the 1933 Act) in a private transaction from the Holder or to any of its “affiliates”, as that term is defined under the 1934 Act, without the consent of the Borrower. Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
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4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of Massachusetts or in the federal courts located in the Commonwealth of Massachusetts. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. THE BORROWER HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
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4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9 including, but not limited to, name changes, recapitalizations, etc. as soon as possible under law.
4.10 Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable provision shall automatically be revised to equal the maximum rate of interest or other amount deemed interest permitted under applicable law. The Borrower covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would prohibit or forgive the Borrower from paying all or a portion of the principal or interest on this Note.
4.11 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required. No provision of this Note shall alter or impair the obligation of the Borrower, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
4.12 Severability. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
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4.13 Dispute Resolution. In the case of a dispute as to the determination of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, Default Sum, Closing or Maturity Date, the closing bid price, or fair market value (as the case may be) or the arithmetic calculation of the Conversion Price or the applicable prepayment amount(s) (as the case may be), the Borrower or the Holder shall submit the disputed determinations or arithmetic calculations via facsimile (i) within two (2) Business Days after receipt of the applicable notice giving rise to such dispute to the Borrower or the Holder or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute. If the Holder and the Borrower are unable to agree upon such determination or calculation within two (2) Business Days of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Borrower or the Holder, then the Borrower shall, within two (2) Business Days, submit via facsimile (a) the disputed determination of the Conversion Price, the closing bid price, the or fair market value (as the case may be) to an independent, reputable investment bank selected by the Borrower and approved by the Holder or (b) the disputed arithmetic calculation of the Conversion Price, Conversion Amount, any prepayment amount or Default Amount, Default Sum to an independent, outside accountant selected by the Holder that is reasonably acceptable to the Borrower. The Borrower shall cause at its expense the investment bank or the accountant to perform the determinations or calculations and notify the Borrower and the Holder of the results no later than ten (10) Business Days from the time it receives such disputed determinations or calculations. Such investment bank’s or accountant’s determination or calculation shall be binding upon all parties absent demonstrable error.
4.14 Terms of Future Financings. So long as this Note is outstanding, upon any issuance by the Borrower or any of its subsidiaries of any security with any term more favorable to the holder of such security or with a term in favor of the holder of such security that was not similarly provided to the Holder in this Note, then the Borrower shall notify the Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of the transaction documents with the Holder. The types of terms contained in another security that may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts, prepayment rate, conversion lookback periods, interest rates, original issue discounts, stock sale price, private placement price per share, and warrant coverage.
4.15 Piggyback Registration Rights. The Borrower shall include on the next registration statement the Borrower files with SEC (or on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this Note. Failure to do so will result in liquidated damages of 25% of the outstanding principal balance of this Note, but not less than Fifteen Thousand and No/100 United States Dollars ($15,000), being immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.
4.16 Future Raises; Repayment from Proceeds. The Borrower shall not consummate any capital raising transactions (including but not limited to from the issuance of debt and/or equity securities) during the initial sixty (60) days after the Issue Date. Until the Note is satisfied in full, if the Borrower receives cash proceeds from any source or series of related or unrelated sources, including but not limited to, from the issuance of equity and/or debt securities, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant to an equity line of credit of the Borrower or the sale of assets, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply all or any portion of such proceeds to repay all or any portion of this Note. Failure of the Borrower to comply with this provision shall constitute an Event of Default under Section 3.4 of the Note. In the event that such proceeds are received by the Holder prior to the Maturity Date, the required prepayment shall be subject to the terms of Section 1.9 herein.
[signature page follows]
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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer as of the date first above written.
| UBID HOLDINGS, INC. | ||
| By: | /s/ Ketan Thakker | |
| Name: | Ketan Thakker | |
| Title: | Chief Executive Officer | |
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EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert $_________________principal amount of the Note (defined below) together with $________________ of accrued and unpaid interest thereto, totaling $_____________ into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of uBid Holdings, Inc., a Delaware corporation (the “Borrower”), according to the conditions of the convertible note of the Borrower dated as of April 23, 2019 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
| ¨ | The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal At Custodian system (“DWAC Transfer”). |
Name of DTC Prime Broker:
Account Number:
| ¨ | The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto: |
Name: [NAME]
Address: [ADDRESS]
| Date of Conversion: | _____________ | |
| Applicable Conversion Price: | $____________ | |
| Number of Shares of Common Stock to be Issued | ||
| Pursuant to Conversion of the Notes: | ______________ | |
| Amount of Principal Balance Due remaining | ||
| Under the Note after this conversion: | ______________ | |
| Accrued and unpaid interest remaining: | ______________ |
[HOLDER]
By:_____________________________
Name: [NAME]
Title: [TITLE]
Date: [DATE]
Exhibit 10.13
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement (this “Agreement”) is made as of the 29th day of March 2019 by and between Incumaker, Inc., a Delaware corporation (the “Company”), and Ketan Thakker, a natural person, residing in the State of Georgia (“Executive”).
WHEREAS, the Company wishes to employ Executive as its President and Chief Executive Officer (“CEO”) of the Company and Executive wishes to accept such employment;
WHEREAS, the Company and Executive wish to set forth the terms of Executive’s employment and certain additional agreements between Executive and the Company.
NOW, THEREFORE, in consideration of the foregoing recitals and the representations, covenants and terms contained herein, the parties hereto agree as follows:
1. Employment Period
The Company will employ Executive, and Executive will serve the Company, under the terms of this Agreement commencing March 29, 2019 (the “Commencement Date”) for a term of five (5) years unless earlier terminated under Section 4 hereof. The period of time between the commencement and the termination of Executive’s employment hereunder shall be referred to herein as the “Employment Period.”
2. Duties and Status
The Company hereby engages Executive as its President and CEO on the terms and conditions set forth in this Agreement including the terms and conditions of the Employee Proprietary Information, Inventions, and Non-Competition Agreement attached hereto as Exhibit A and incorporated herein (the “Non-Disclosure Agreement”). Executive agrees to devote the Executive’s entire business time, attention and energies to the business and interests of the Company during the Employment Period. During the Employment Period, Executive shall report directly to the Board of Directors (the “Board”) and shall exercise such authority, perform such executive functions and discharge such responsibilities as are reasonably associated with Executive’s position, commensurate with the authority vested in Executive pursuant to this Agreement and consistent with the governing documents of the Company.
3. Compensation and Benefits
(a) Salary. During the Employment Period, the Company shall pay to Executive, as compensation for the performance of his duties and obligations under this Agreement, a base salary of $200,000 per annum, payable semi-monthly, which base salary shall commence when the Board determines that it has sufficient cash to commence such salary payments.
(b) Bonus. During the Employment Period, Executive shall be eligible for a bonus to be paid in cash, stock or both on terms that shall be mutually acceptable to the Board and Executive to meet mutually agreed to performance goals.
(c) Options. Upon execution of this Agreement, Executive shall also be entitled to receive restricted stock and stock options under the Company’s 2019 Stock Incentive Plan to acquire shares of the Company’s common stock at the discretion of the Board.
(d) Other Benefits. During the Employment Period, Executive shall be entitled to participate in all of the employee benefit plans, programs and arrangements of the Company in effect during the Employment Period which are generally available to senior executives of the Company, subject to and on a basis consistent with the terms, conditions and overall administration of such plans, programs and arrangements. In addition, during the Employment Period, Executive shall be entitled to fringe benefits and perquisites comparable to those of other senior executives of the Company including, but not limited to, standard holidays, twenty (20) days of vacation pay plus five (5) sick/personal days, to be used in accordance with the Company’s vacation pay policy for senior executives.
(e) Business Expenses. During the Employment Period, the Company shall promptly reimburse Executive for all appropriately documented, reasonable business expenses incurred by Executive in the performance of his duties under this Agreement, including telecommunications expenses and travel expenses.
4. Termination of Employment
(a) Termination for Cause. The Company may terminate Executive’s employment hereunder for Cause (defined below). For purposes of this Agreement and subject to Executive’s opportunity to cure as provided in Section 4(c) hereof, the Company shall have Cause to terminate Executive’s employment hereunder if such termination shall be the result of:
| (i) | a material breach of fiduciary duty or material breach of the terms of this Agreement or any other agreement between Executive and the Company (including without limitation any agreements regarding confidentiality, inventions assignment and non-competition) which remains uncured for a period of fifteen (15) days following receipt of written notice from the Board specifying the nature of such breach; |
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| (ii) | the commission by Executive of any act of embezzlement, fraud, larceny or theft on or from the Company; |
| (iii) | substantial and continuing neglect or inattention by Executive of the duties of his employment or the willful misconduct or gross negligence of Executive in connection with the performance of such duties which remains uncured for a period of fifteen (15) days following receipt of written notice from the Board specifying the nature of such breach; |
| (iv) | the commission and indictment by Executive of any crime involving moral turpitude or a felony; and |
| (v) | Executive’s performance or omission of any act which becomes known to any of the customers, clients, stockholders or regulators of the Company, and, as found by the Board, threatens to have or has a material and adverse impact on the business of the Company. |
(b) Termination for Good Reason. Executive shall have the right at any time to terminate his employment with the Company upon not less than thirty (30) days prior written notice of termination for Good Reason (defined below). For purposes of this Agreement and subject to the Company’s opportunity to cure as provided in Section 4(c) hereof, Executive shall have Good Reason to terminate his employment hereunder if such termination shall be the result of:
| (i) | the Company’s material breach of this Agreement; |
| (ii) | A requirement by the Company that Executive perform any act or refrain from performing any act that would be in violation of any applicable law; |
| (iii) | A material and substantial reduction of the Employee’s responsibilities that is inconsistent with the Employee’s status as a senior executive of the Company, but in each case subject to the limitations on the Employee's rights and responsibilities set forth in Section 2; or |
| (iv) | A requirement that Executive relocate his permanent residence more than thirty (30) miles from his current address. |
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(c) Voluntary Termination. Executive, at his election, may terminate his employment upon not less than sixty (60) days prior written notice of termination other than for Good Reason.
(d) Termination Upon Death or Permanent and Total Disability. The Employment Period shall be terminated by the death of Executive. The Employment Period may be terminated by the Board if Executive shall be rendered incapable of performing his duties to the Company by reason of any medically determined physical or mental impairment that can be reasonably expected to result in death or that can be reasonably be expected to last for a period of either (i) six (6) or more consecutive months from the first date of Executive’s absence due to the disability or (ii) nine (9) months during any twelve (12)-month period (a “Permanent and Total Disability”). If the Employment Period is terminated by reason of a Permanent and Total Disability of Executive, the Company shall give thirty (30) days’ advance written notice to that effect to Executive.
(e) Termination at the Election of the Company. At the election of the Company, otherwise than for Cause as set forth in Section 4(a) above, upon not less than sixty (60) days prior written notice of termination.
(f) Termination for Business Failure. Anything contained herein to the contrary notwithstanding, in the event the Company’s business is discontinued because continuation is rendered impracticable by substantial financial losses, lack of funding, legal decisions, administrative rulings, declaration of war, dissolution, national or local economic depression or crisis or any reasons beyond the control of the Company, then this Agreement shall terminate as of the day the Company determines to cease operation with the same force and effect as if such day of the month were originally set as the termination date hereof. In the event this Agreement is terminated pursuant to this Section 4(g), the Executive will not be entitled to severance pay.
5. Consequences of Termination
| (a) | By Executive for Good Reason or the Company Without Cause. In the event of a termination of Executive’s employment during the Employment Period by Executive for Good Reason pursuant to Section 4(b) or the Company without Cause pursuant to Section 4 (e), the Company shall pay Executive (or his estate) and provide him with the following, provided that Executive enter into a release of claims agreement agreeable to the Company and Executive: |
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| (i) | Cash Payment. A cash payment, payable in equal installments over a six (6) month period after Executive’s termination of employment (the “Severance Period”), equal to the sum of the following: |
| (A) | Salary. The equivalent of the greater of (i) twelve (12) months of Executive’s then-current base salary or (ii) the remainder of the term of this Agreement. |
| (B) | Earned but Unpaid Amounts. Any previously earned but unpaid salary through Executive’s final date of employment with the Company, and any previously earned but unpaid bonus amounts prior to the date of Executive’s termination of employment. |
| (C) | Equity. All Equity vested at time of termination shall be retained by Executive and all Equity that has not vested shall be accelerated and be deemed vested for purposes of this Section 5. |
| (ii) | Other Benefits. The Company shall provide continued coverage for the remainder of the Severance Period under all health, life, disability and similar employee benefit plans and programs of the Company on the same basis as Executive was entitled to participate immediately prior to such termination, provided that Executive’s continued participation is possible under the general terms and provisions of such plans and programs. In the event that Executive’s participation in any such plan or program is barred, the Company shall use its commercially reasonable efforts to provide Executive with benefits substantially similar (including all tax effects) to those which Executive would otherwise have been entitled to receive under such plans and programs from which his continued participation is barred. In the event that Executive is covered under substitute benefit plans of another employer prior to the expiration of the Severance Period, the Company will no longer be obligated to continue the coverages provided for in this Section 5(a)(ii). |
| (b) | Other Termination of Employment. In the event that Executive’s employment with the Company is terminated during the Employment Period by the Company for Cause (as provided for in Section 4(a) hereof) or by Executive other than for Good Reason (as provided for in Section 4(b) hereof), the Company shall pay or grant Executive any earned but unpaid salary, bonus, and Options through Executive’s final date of employment with the Company, and the Company shall have no further obligations to Executive. |
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| (c) | Withholding of Taxes. All payments required to be made by the Company to Executive under this Agreement shall be subject only to the withholding of such amounts, if any, relating to tax, excise tax and other payroll deductions as may be required by law or regulation. |
| (d) | No Other Obligations. The benefits payable to Executive under this Agreement are not in lieu of any benefits payable under any employee benefit plan, program or arrangement of the Company, except as specifically provided herein, and Executive will receive such benefits or payments, if any, as he may be entitled to receive pursuant to the terms of such plans, programs and arrangements. Except for the obligations of the Company provided by the foregoing and this Section 5, the Company shall have no further obligations to Executive upon his termination of employment. |
| (e) | Mitigation or Offset. Executive shall not be required to mitigate the damages provided by this Section 5 by seeking substitute employment or otherwise and there shall not be an offset of the payments or benefits set forth in this Section 5. |
6. Governing Law
This Agreement and the rights and obligations of the parties hereto shall be construed in accordance with the laws of the State of Delaware, without giving effect to the principles of conflict of laws.
7. Indemnity and Insurance
The Company shall indemnify and save harmless Executive for any liability incurred by reason of any act or omission performed by Executive while acting in good faith on behalf of the Company and within the scope of the authority of Executive pursuant to this Agreement and to the fullest extent provided under the Bylaws, the Certificate of Incorporation and the Delaware General Corporation Law except that Executive must have in good faith believed that such action was in, or not opposed to, the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe that such conduct was unlawful.
The Company shall provide that Executive is covered by Directors and Officers insurance that the Company provides to other senior executives and/or Board members.
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8. Cooperation with the Company After Termination of Employment
Following termination of Executive’s employment for any reason, Executive shall fully cooperate with the Company in all matters relating to the winding up of Executive’s pending work on behalf of the Company including, but not limited to, any litigation in which the Company is involved, and the orderly transfer of any such pending work to other employees of the Company as may be designated by the Company. Following any notice of termination of employment by either the Company or Executive, the Company shall be entitled to such full time or part time services of Executive as the Company may reasonably require during all or any part of the sixty (60)-day period following any notice of termination, provided that Executive shall be compensated for such services at the same rate as in effect immediately before the notice of termination.
9. Notice
All notices, requests and other communications pursuant to this Agreement shall be sent by overnight mail or by fax with proof of transmission to the following addresses:
If to Executive:
Ketan Thakker
Email: ketan.thakker@ubid.com
Phone: (847) 857-8424
If to the Company:
Incumaker, Inc.
327 Dahlonega Road
Suite 1701B
Cumming, GA 30040
Attn: ,
email: ___________@Incumaker.com
Phone: (___) __________
10. Waiver of Breach
Any waiver of any breach of this Agreement shall not be construed to be a continuing waiver or consent to any subsequent breach on the part of either Executive or of the Company.
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11. Non-Assignment / Successors
Neither party hereto may assign his/her or its rights or delegate his/hers or its duties under this Agreement without the prior written consent of the other party; provided, however, that (i) this Agreement shall inure to the benefit of and be binding upon the successors and assigns of the Company upon any sale or all or substantially all of the Company’s assets, or upon any merger, consolidation or reorganization of the Company with or into any other corporation, all as though such successors and assigns of the Company and their respective successors and assigns were the Company; and (ii) this Agreement shall inure to the benefit of and be binding upon the heirs, assigns or designees of Executive to the extent of any payments due to them hereunder. As used in this Agreement, the term “Company” shall be deemed to refer to any such successor or assign of the Company referred to in the preceding sentence.
12. Severability
To the extent any provision of this Agreement or portion thereof shall be invalid or unenforceable, it shall be considered deleted there from and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect.
13. Counterparts
This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument.
14. Arbitration
Executive and the Company shall submit to mandatory and exclusive binding arbitration, any controversy or claim arising out of, or relating to, this Agreement or any breach hereof where the amount in dispute is greater than or equal to $50,000, provided, however, that the parties retain their right to, and shall not be prohibited, limited or in any other way restricted from, seeking or obtaining equitable relief from a court having jurisdiction over the parties. In the event the amount of any controversy or claim arising out of, or relating to, this Agreement, or any breach hereof, is less than $50,000, the parties hereby agree to submit such claim to mediation. Such arbitration shall be governed by the Federal Arbitration Act and conducted through the American Arbitration Association (“AAA”) in Atlanta, Georgia, before a single neutral arbitrator, in accordance with the National Rules for the Resolution of Employment Disputes of the American Arbitration Association in effect at that time. The parties may conduct only essential discovery prior to the hearing, as defined by the AAA arbitrator. The arbitrator shall issue a written decision which contains the essential findings and conclusions on which the decision is based. Mediation shall be governed by, and conducted through, the AAA. Judgment upon the determination or award rendered by the arbitrator may be entered in any court having jurisdiction thereof.
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15. Entire Agreement
This Agreement and all schedules and other attachments hereto constitute the entire agreement by the Company and Executive with respect to the subject matter hereof and, except as specifically provided herein, supersedes any and all prior agreements or understandings between Executive and the Company with respect to the subject matter hereof, whether written or oral. This Agreement may be amended or modified only by a written instrument executed by Executive and the Company.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date above
| INCUMAKER, INC. | |
| By: | |
| Its: | |
| /s/ Ketan Thakker | |
| Ketan Thakker |
[Signature Page to Ketan Thakker Executive Employment Agreement]
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Exhibit A
Employee Proprietary Information, Inventions, and Non-Competition Agreement
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Exhibit 21
page 1 of 1
SUBSIDIARIES
| NAME |
JURISDICTION OF INCORPORATION |
PERCENTAGE OWNERSHIP |
| SkyAuction.com, Inc. | Delaware | 100% |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in the foregoing Registration Statement on Form S-1 of our report dated May 15, 2019, relating to the financial statements of Ubid Holdings, Inc. as of December 31, 2018 and 2017 and for the years then ended. We also consent to the reference to our firm under the caption “Experts”.
Weinberg & Company, P.A.
Los Angeles, California
June 13, 2019
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the inclusion in the foregoing Registration Statement on Form S-1 of our report dated December 28, 2018, relating to the financial statements of SkyAuction, Inc. as of December 31, 2017 and 2016 and for the years then ended. We also consent to the reference to our firm under the caption “Experts”.
Weinberg & Company, P.A.
Los Angeles, California
June 13, 2019